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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (207)	6/17/1998 2:13:00 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 3536

Henry, how's your day going? Glad you posted. I was wondering how likely it is that the Japanese and other Asian investors will continue to hold dollar assets if we are actively beating down the dollar. Also, in the (probably unlikely) event that currency intervention actually helps to turn around Asian economies, shouldn't one expect that the Asians would want to reinvest at home for the recovery? All else equal, this does not seem like it should be good for a liquidity driven market, yet euphoria rules the day (except in bonds of course). Thoughts?

To: Henry Volquardsen who wrote (207)	6/18/1998 2:08:00 AM
From: Chip McVickar	Read Replies (4) \| Respond to of 3536

Hello Henry Good to hear from you. As I type this....some significant moves. Nikki is up +621 [+4.22%] at 15336 Hong Kong up + 623 [+8%] at 8627 Your office must be a busy place these days..? I hope you are on the winning side of these currency moves. Very impressive --- but I fear the players are shadow boxing with a problem that will not be repaired in time. I fear this will be veiwed as a valiant attempt, a drop kick for defense, to offset and delay the inevitable...The collapse of banking and financial systems in Japan and Asia. The problems in Japan go back to the early 1980's and is international and is being resolved internationally. Our S&L crisis was about 4% of our debt....Japan has about a 15% crisis. Securitization is defined by Henry Kaufman: the process of securitization as "one which transfers obligations(debt) from non-marketable to marketable." Taken in its broadest terms it's the transfer of debts off one's books to anothers books and spreading these debts to bigger risk takers. The most stable of these are the bundling of home mortages and our history shows that we even blew that card through dishonest and greedy S&L directors and presidents. To keep a credit bubble going you need to keep creating new forms of credit. Finally in the end there is no equity base. We are just closing the card game....historically we are just closing the circle. Japan was the number 1 (One) student since 1945 and they've "Done Very Well." As you have stated there is very little that central banks, even in concert, can do to alter the decline in Japan. There is no political will and no monetary methods available to "bail-out" the damages that has been done to the Japanese banking and financial sectors. Securitization as defined today [encomassing all of its "manners"] has increased the tendencies of the big borrowers to sell their securities to investors (sometimes with bach-up lines of credit) instead of going to a bank to get a loan. It has also added to the banking industries own propensity to convert the loans they have made into marketable securities. All this blurred together into the proliferation of new financial instruments from junk bonds to floating-rate notes to swaps. This process works as long as new vehicles and credit can be created. The problem has been the risk takers themselves do not know the risks. What they will lack in the moment of truth is Liquidity I am profoundly worried that the Schumpeterian and Kondratieffian principles of destructive wave collapse are at work seriously at work and if in the very near future [and I mean weeks or months] these forces are not neutralized Japan will be essentially Bankrupt on Paper. They will not have the Liquidity to meet the demands of their failing system. Nor will the world have "the will" to avert the damage. By definition alone the professed paper value of Japan's reserves cannot with-stand the Japanesse peoples demand for their savings if any of these major banks are allowed to announce their insolvency. With elections a month away and a weakened political system drained and stumbling from inaction the prospects for an easy recovery are almost non-existant. Neither depreciation of the yen or increases in global inflation will prevent a Liquidity crisis if it's people ever understand the risks of a modern securitization of wealth. What effect would a bankrupt Japan have on the worlds currency, monetary balances and financial traders..? What would you do..? Chip