Malaysia's new Finance Minister I, Finance Minister II, the Minister in the Prime Minister's Department responsible for the Economic Planning Unit, Bank Negara Governor and Securities Commission Chairman all need to take copious notes on the events leading to the Wall Street market turmoil and, more particularly, how the Federal Reserve (Fed) Chairman, Treasury Secretary, Securities and Exchange Commission (SEC) Chairman has coordinated things. They should also take notes on the following features:1. In adversity, stick together
The Treasury Secretary, Fed Chairman and SEC Chairman have quickly agreed on the key diagnoses:
First, the s**t has hit the fan.
Second, short-selling is parasitic, opportunistic and destructive. Go after short-sellers and get them.
All the key players in the Executive and Legislature and regulatory bodies are rallying together. They are setting aside petty differences. They are leaving aside recriminations (for now). UPDATE: (7.45 p.m. 21/9/08) This New York Times piece describes in greater detail the dynamics of the Treasury Secretary and Fed Chairman working on the crisis.
2. Show very, very overwhelmingly strong financial muscle
They have prepared an USD800 BILLION (UPDATE (21/9/08): It's now USD700 BILLION) bailout fund package to cater to all possible contingencies emanating from Wall Street. This is the financial "Shock and Awe" designed to push the bears back into the caves and push the bulls to stampede in Wall Street (at least, that's the desired effect). Wall Street investors will be assured that the credit crunch will be superseded by massive doses of liquidity.
3. Get the media and public message clear and simple
All major media channels are singing in harmony on the following:
First, this is a FINANCIAL crisis, it is NOT and ECONOMIC crisis. The message is, don't worry (yet) the s**t is in Wall Street NOT Main Street, USA.
Second, in light of the humongous bailout package being rushed through Congress (USD800 BILLION (Now revised to USD 700 BILLION), I can't help repeating this figure) market sentiment will become confident again.
Third, repeat again and again that Asian markets (having got wind of the bailout package) has rebounded super-positively.
I noticed that the advisers weren't taking any chances; George W Bush had to read out his statement abut the bailout package. He did not take any questions from reporters. No chance that he was going to say something stupid that will send Wall Street into further turmoil.
Can Malaysia's government and regulators emulate such methods?
In the economic crisis of 1998 Malaysia wasn't prepared at all. The government and regulators were in sixes and sevens. No one had a clue what happened. To his credit Dr M rose to the occasion and assumed the mantle of Finance Minister. The thing that I give him full marks for is his ability to grasp the economic issues quickly and, being able to ask the correct question.
Most people fail to realise the absolute importance of asking the correct question. This means being able to define the issues at hand; being able to separate symptoms and causes; and, being able to seek solutions and remedies.
Of the current crop, only Finance Minister II was privy to the economic crisis management in 1998. Instead of having bloated advisory councils comprising a motley crew of ministers, civil servants, businessmen and others to advise on economic policy, the government needs to seriously identify key economic thinkers and retain their services to constantly generate economic models and simulate economic scenarios.
This economics team also needs to be combined on a regular basis with a team of strategic thinkers and planners to work out the plan of action on economic crisis scenarios along the lines that I have described above that the U.S. government and regulators are working on.
Epilogue
Do I think the financial bailout Shock and Awe will turn the tide of Wall Street jitters? Honestly, this is uncharted territory. Even with Cray supercomputers doing infinite permutations of scenarios no one can predict the outcome.
I tend to believe that in economic crises, the role of the government is very important. This is what the U.S. government has done. It has risen to take charge by effectively declaring that it is going to be the lender of last resort and, it is prepared to nationalise any U.S. financial institution to ensure that there is no systemic failure to the U.S. financial system. Now, that is a clear and unambiguous message that should assuage frayed nerves in Wall Street.
But, that doesn't mean that investors can rest easy now. There may be some more aftershocks...
3 comments:
from a historical point of view it's hard to object to the government's mass bailouts since similar debt-producing methods were put into action to bring the U.S. out of the Depression... maybe we are all socialists at heart and don't want to admit it
Given that both Democrats and Republicans are "centrist" parties at heart, it may be more accurate to say that the U.S. politicians are pragmatists. Likewise with regulators.
What impresses me (and, often confuses the rest of world) is how partisan matters can be quickly cast aside for bipartisan unity in Congress when facing perceived adversity. Examples are Iraq (bad example) or this current Wall Street maelstrom (better example).
I think it's due to their patriotism. In US, the country comes first and then politics.
After the bailout, it's not going to business as usual. A lot heads will roll. The insolvent companies will have to rewrite their books to say in 1999 before the dotcom bullrun.
It's like rewinding the clock back to 1999 and all the 'cooked up' profits never happened. :-D
All these actions really vindicates Dr M during the 1998.
But people like Nor Yaakob is still self-denial by stating Msia is insulated from US financial crisis contrast that with the S'pore govt.
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