What is KJ's problem?

[londontrader]

Somewhere along the way, the sense of proportion has been lost in this debate. US$4 billion has somehow become a trivial insignificant amount of money.

Any amount of money earned through the efforts of Singaporeans is not trivial
But you need to gain a sense of proportion too!
4 billion USD in the business of international exchange rate management is literally "peanuts"
That's the point made

 

[coolguy]

The problem is the whole spore is kept in the dark.
We don't even know how much total nation CPF is.
All the reserves amount and other financial informaton may be doctored
so as to presnt a misleading view.
All we can just do is to speculate.
Recent case of the CHC leadership misuse of church funds is a prime good example.
Had it not someone smell a rat and do the whistleblowing, the whole thing would have been written off
and dissolved as the years go by.
And Kee Chiu had the cheek to say in parliament that the governance have not noticed anything wrong
despite the investigation.
So do your still have trust in this present governance, in terms of accountablity and transparancy?

 

[londontrader]

Somewhere along the way, the sense of proportion has been lost in this debate. US$4 billion has somehow become a trivial insignificant amount of money.

1 more point to add
You might also consider whether one is being 4 billion wise and 100+billion foolish by choosing not to join a global effort to avert a financial disaster

 

[londontrader]

The problem is the whole spore is kept in the dark.

That sums up the whole discussion here!

 

[Goh Meng Seng]

Actually, there were various comments made by others in the internet and it seems to reconcile our different perspectives on what or who foots the bill on the write off of loans.

It is claimed that what countries lost is merely the "interests" (or in technical terms, opportunity cost of money) but the principles are intact when IMF wrote off billions of debts. This confused the situation because it turns the accounts around. What is lost is actually the initial principles but the interests earned over the period of loan, are more or less recovered these losses. Thus, technically, by twisting this interest - principles around, IMF can claim that it has never failed to repay its members who gave it the loans. But this hides the actual fact that member countries are asked to write off their loans to IMF but for the front, claimed that they have not lost their principle loans because the interests they have earned have recovered the initial loans made. This is a kind of "creative accounting" method to hide the inherent risks. It is better to say that what you have lost is potential interests earned than saying, you have lost your whole loans to IMF while you have earned interests from it in the past.

Goh Meng Seng

Any amount of money earned through the efforts of Singaporeans is not trivial
But you need to gain a sense of proportion too!
4 billion USD in the business of international exchange rate management is literally "peanuts"
That's the point made

 

[Fook Seng]

Any amount of money earned through the efforts of Singaporeans is not trivial
But you need to gain a sense of proportion too!
4 billion USD in the business of international exchange rate management is literally "peanuts"
That's the point made

I am extremely surprised by this statement. USD 4 billion out of USD 260 billion GDP represents a 1.5 % in our annual growth. Put another way, it can also mean USD 2000 more a year for every employee in Singapore or increase the salary of those who earn less than S$1000 per month to S$1500 and correspondingly all those below S$1500 to an appropriately higher figure.

 

[londontrader]

I mean, in spite of the various evidences raised about the possibilities embedded in IMF's past activities, which includes write offs, you are still clinging to your view that IMF is a safe bet just because it loans what it could afford...But you didn't take into account that this PIIGS EU crisis is going to be very different from all other crisis, though you have acknowledged that it could become one of the worst crisis ever.

Dear GMS,

1. You have raised instances of the IMF forgiving debtors.
2. But You haven't shown us when the IMF ever faced bankruptcy risk through these debt defaults.
3. You also haven't shown us when a member country had to write off monies loaned to the IMF because of the Fund's "over-forgiving nature" (that's a real laugh!)
4. So, where is the evidence you speak so fondly of?

On the matter of the EU crisis:

1. What makes you think the IMF will lend an unlimited amount to the problem countries if they ask? They have never acted in that manner before.
2. What makes you think that the IMF will commit suicide to save Europe when it already hinted that the ECB should be 1st in line.
3. What makes you think that the IMF's "Articles of Agreement" allow it to behave in the reckless manner you have been suggesting?
4. What makes you think the USA (with the most influential veto power) will allow any of this, since they have already hinted that it's a European problem (ie. the Germans should bankrupt themselves 1st to save everyone)

Let's face it,

A bankrupt IMF can mean either:

a. It is past it's useful life and the members agree collectively to let it die
b. The world is really in a deep shit crisis and S'pore has lost (and will lose more) so much money already that nobody remembers the paltry 4 billion USD. We'll all be in breadlines looking fondly at our paper CPF statements and the imaginary money they represent!

Similarly, you are entitled to your views on where we disagree and we will agree to disagree. Cheers!

Yes, we'll have to agree to disagree
That's how gentlemen behave

Cheers

 

[Goh Meng Seng]

Dear Londontrader,

Please read my previous post.

It is kind of creative accounting way to hide the fact that members do lose when IMF write off its loans when it just claims that only interests is lost as these interests were used to cover the principle loans. Thus, it will sound good to people to make them think that IMF has never defaulted on its debts, only forgo interests when things doesn't turn out well.

Well, you have used this line of argument a couple of times here in this thread previously that IMF is safe and when it writes off its loans to other countries, it has already earned enough interests to cover the losses.

Goh Meng Seng

Dear GMS,

1. You have raised instances of the IMF forgiving debtors.
2. But You haven't shown us when the IMF ever faced bankruptcy risk through these debt defaults.
3. You also haven't shown us when a member country had to write off monies loaned to the IMF because of the Fund's "over-forgiving nature" (that's a real laugh!)
4. So, where is the evidence you speak so fondly of?

 

[londontrader]

At best IMF should be treated as a cooperative and its mission is to help out those economies that are in trouble and that itself spells trouble for those who invest money in it irrespective of the expected rate of return they get.

Dear FS,

Yes, the IMF is cooperative and it's job is fire fighting (macroeconomics)
That's why members don't INVEST money in the Fund because it's not a bank or other investment vehicle
I mean which idiot wants to invest in a fire fighter who doesn't get paid to risk life and limb????
Members do make quota contributions that make up the pool used to fight fires
So, let's not talk about expected rates of return etc...

Anyone who manages a broad range of investments will know that the expected rate of return is proportional to the risk involved. When a lender defaults, to cover for the loss, new contributions have to be called for. Are you going to invest in a subsequent round? As the economic situation worsen lender's risk gets higher, expected rate of return is higher and the risk of default gets even higher. In a deep crisis that lasts several years, eventually there will be few takers for investment. Whether IMF decides to inject further money into the crisis depends on its governors and handle wrongly IMF can go into default.

The IMF is a fire fighter, which we all know is a damn risky business (people go to the IMF as a last resort!)
Therefore, the Fund is expected to behave in a conservative manner ie. use the pool of water the members have provided and resist the urge use so much at once that there is none left.

AHHH!
GMS & yourself will now say that getting pledges from people is the same as borrowing water and going bankrupt later!
But hey, nobody passed their hose to transfer any water. They just pledged to be part of a common pool for emergencies and specified an upper limit to the their exposure. This is a confidence building exercise so that the world knows that a fire fighter exists and has the tools to fight a future fire, should it happen. Any investor knows that the name of the game right now is CONFIDENCE

Wait a minute!
You'll now argue that when the time comes, the IMF will just spray all that pledged water at one shot and lose it all (kaput!)
Nobody gets their water back!
But you then forget that the IMF can't act independently (look at the articles of agreement) and commit suicide
Afterall, it's a cooperative remember?
And wait, who pledged the monies in the 1st place? Their own members right? Hence, we have a control mechanism!

As IMF is just a cooperative, we should not be punching above our own weight but just contribute our proportional share. As the govt can decide to do more, this should have the oversight of the Parliament.

On that point, I can agree with you

 

[londontrader]

If things get to that stage, the US$ 4 billion will just be the first of many calls for money. How much are we going to give?

Dude,

If things get that bad, we'll already have lost 100s of billions and have other things to worry about besides Europe and the IMF.
Don't forget how exposed we are thru GIC and Temasek alone!
I don't think anyone will be answering the phone when the IMF calls for more $. They'll all probably have jumped ship to their private islands. tax havens etc..

On having enough money, I question that assertion because during his tenure in office, Prataman authorised 27 draws on the reserves for SERS, land acquisition and other projects. If money is so plentiful, why the need to draw 27 times?

The draw on the reserves was not because the govt didn't the operational funds
The draw was to allow future govts to share the cost of these projects
Why? because they argued that these are asset enhancing projects and the current govt shouldn't pay for something that only future govts get to enjoy
got it?

 

[Bigfuck]

Dear GMS,

1. You have raised instances of the IMF forgiving debtors.
2. But You haven't shown us when the IMF ever faced bankruptcy risk through these debt defaults.
3. You also haven't shown us when a member country had to write off monies loaned to the IMF because of the Fund's "over-forgiving nature" (that's a real laugh!)
4. So, where is the evidence you speak so fondly of?
....

Cheers

Dear London trader, please do not waste your time with the in-house jester. Would appreciate some quantity simulation and analysis. Not too much point talking about general legal stipulations as there are many escape clauses on how to circumvent the these general assertions made to the world. Media and the PR department of global institutions do not report accurately as they know little. The EFSF is an overly leveraged fund but was played up like it is real money committed from the bank vaults. If your purpose is to elucidate by all means do so. Do not bother reading very badly thought through previous posts when the in-house jester (with clowns) tells you to. If you have clear intention to educate please think through and then write and rewrite before publishing. You will be doing everyone who reads for entertainment and more a public service albeit limited in impact. You would be doing a disservice to the intellectual community in the real world and a portion in the SBF world, by trying to reconcile gobbledygook from an individual who is low in potential but high in complex, thereby messing up your relatively well organized mental map with a quick and relatively efficient knowledge extraction algorithm. Peace.

 

[londontrader]

Given our voting rights, we have almost no say how our US$4 billion is going to be used. If you believe LT, the IMF will take our money. Instead of putting it to good use, the US and other major players will save the IMF rather than Europe which kind of defeats the purpose of us putting US$ 4 billion.

I didn't say they wouldn't try and save Europe!
I did say that they wouldn't kill themselves in the process of saving Europe
BIG difference you know!

If you subscribe to my hypothesis, the IMF will break the bank saving Europe. We should therefore be prepared to lose a substantial proportion of the US$ 4 billion.

If it really comes to that, I'll see you in the bread line!
what's 4 billion when your CPF savings have gone up in smoke!

Since the start of the crisis, there has been a huge amount of research done on the nightmare scenarios.

And their all wrong!
Because the problem in Europe right now is political
They will find the political will to save themselves when the going gets tough enough
There will be a re-ordering (happening right now) and lots of pain but we'll survive and so will our 4 billion

 

[Goh Meng Seng]

Dear Londontrader,

You are truly very optimistic!

Goh Meng Seng

And their all wrong!
Because the problem in Europe right now is political
They will find the political will to save themselves when the going gets tough enough
There will be a re-ordering (happening right now) and lots of pain but we'll survive and so will our 4 billion

 

[londontrader]

I have done some search and yes, India has pledged $10B but wait, how big is India's economy and population? S. Korea and Saudi pledging only $15B each? Do we have an economy one third of theirs? Population size? We are basically pledging more than we should.

No formula to calculate pledge lah!
Each nation looks at their balance sheet and ante up
I don't think anybody thought in per capita terms
Maybe S'pore (ie. PAP) feels bigger than it is????
Anyway, Parliament should get a say on the kind of global big shot we want to project ourselves as

 

[Leongsam]

I don't know what you guys are arguing about. The money belongs to Ho Ching. She can do whatever she wants with it.

 

[lockeliberal]

Dear GMS

Here is when conflation and confusion and a good soundbite gets in the way of sound policy and discussion. Hey why not throw a little conspiracy in to begin with as well.

The IMF is not owned by Tharmen or the SG Gov. More democratic countries with smarter politicians and world government theorist have all questioned the IMF and have not come up with anything. As far as we know the IMF to date has not suffered losses and in a sense it has kept is roles as a lender of last resort to sovereigns who need loans to deal with balance of payments and or currency issues

The Lehman bonds were the results of what LondonTrader and banks create, derivatives linked monsters which MAS should not have allowed to be sold. The IMF is an age old institution which loans money as a lender of last resort and forces public sector accounts adjustment. Are u even suggesting that the IMF is a GS like IB selling derivatives to indebted countries ?



Locke

Lehman Brothers Minibond is termed as "irrelevant" by some here on this thread.

What we are raising here is about the process of risk management and how we should examine risk level not simply by looking at the rate of return as well as whether anybody has been defaulted at this moment. In depth risk assessment should involve portfolio analysis as well as the overall environment projections.

People jump into Minibonds because they only look at the superficial surface of return and "branding", without putting effort in analysing exactly what they are believing in. Similarly for IMF. What we get from the official statements is just how "Safe" IMF is and such faith is only based on "selective past records" without mentioning the potential danger of debt write offs in their portfolio. While Londontrader may keep the view that IMF has not asked any stakeholders to write off their loans to IMF to correspond to total write off IMF has done, but from circumstantial observations, if there are people making request IMF to sell off its gold to cover the losses but failed, somebody somewhere must have taken up the tap somehow.

But even if we chose to believe that IMF has not asked anyone to write off their loans to it in the past, but we may not apply this "past record" for this impending crisis that we facing. This crisis is special not only because it involves five PIIGS (last I heard, some other countries may join the rank...) but the fact that they are in the same common currency zone EU. The complexity of this crisis can never be underestimated. We have a group of countries with same currency system but very different fiscal structures. The Monetary system is basically de-linked from Fiscal systems and what makes it worse than a system of Federal states like US, each Fiscal system is embedded with Sovereignty issue.

As a small country, Singapore is pledging what seems to be a "peanut" amount of $4B but to a small population in Singapore, that is way above ALL countries in terms of per capital basis. The important question we should ask is, as good practice for every loans we make, are we prepared to lose this $4B altogether? We cannot take the attitude like those Minibond investors that it is a totally safe investment without any psychological preparedness to lose every single cents of it.

Thus, Lehman Brother Minibond issue is used here to make a contrast of mental state before committing our limited funds. We should not have the same mentality as Minibond investors which to us, both MAS and PM are trying to project here but rather, a more cautious mindset when we make consideration on such loans to IMF.

Goh Meng Seng

 

[londontrader]

Lehman Brothers Minibond is termed as "irrelevant" by some here on this thread.

Because it is soooo irrelevant
I say again, the IMF is not a bank selling bonds
It is not an investment vehicle giving returns
it is not even a financial intermediary channelling funds to projects that yield returns
IT IS A COOPERATIVE TO FIGHT BIG MACRO PROBLEMS

if there are people making request IMF to sell off its gold to cover the losses but failed, somebody somewhere must have taken up the tap somehow.

This is why politicians need to check their facts
Do you really understand Gordon's Brown's past suggestion to sell off the IMF gold?
Okay here is a short brief:

1. IMF gold is not considered an asset (technically speaking) that the Fund can use (like the other stuff on its balance sheet)
2. It is technically quite useless and just sits there getting valued at a ridiculous price (because of complex rules and history that I won't get into)
3. At the time, the G8 were up to discuss a debt write off to the tune of 40 billion with respect to multilateral debt ie. debt owed to supranationals like the IMF, World Bank, ADB etc..
4. The mkt value at that time was 40+ billion for that stagnant pile of gold sitting in IMF related Vaults.
5. The UK suggested that they sell the whole lot and pay off everyone's debt (40 billion was just right) at one go! Note, all the other agency debt too, not just IMF loans!
6. Naturally the IMF and it's stakeholders (ie. the USA) didn't think much of the idea!
7. I think it is obvious to all that Gordon Brown was playing political games
8. In the end the agencies agreed to write off the 40 billion but each agency had to pay their own way ie. from their own funds

But even if we chose to believe that IMF has not asked anyone to write off their loans to it in the past

Don't have to choose to believe
Just look at the facts
Again, which country was ever asked to write off money loaned to the IMF?

 

[lockeliberal]

Dear GMS

So a question of how much ? When half of your reserves are denominated in a foreign currency and or foreign assets. Doing your utmost seems the most logical option, Penny Pinching , waffling saying well I should do less, because I am not so rich the riche should do more .........I should wait for the Saudi's to spend more Merkel to buy more , etc etc etc , is at best an exercise in naval gazing.

We are taking a lead because it is in out national interest, it is in our national interests because we are tied in like an island to the global economy, if it Tanks, we tank, and now is not a time to say well let someone else go first.



Locke

Dear Locke,

As I reiterate again, I am not against doing our part in this crisis. The question is HOW MUCH? We must look at things in proportionate perspective. If $4B is considered as meagre sum, then whether it is half a billion or a billion, it doesn't really make a difference to the world, but alot difference to a country with a small population like Singapore.

As I believe Londontrader has said, it is just a matter to show there is money ready for crisis, just a kind of bluff to stabilize situation, retain international confidence etc. For a small country like Singapore, just too insignificant.

The biggest confidence we can get is from big wealthy countries like Saudi Arabia. I would expect the oil rich countries like Saudi and even Kuwait to contribute many times more than Singapore!

I have done some search and yes, India has pledged $10B but wait, how big is India's economy and population? S. Korea and Saudi pledging only $15B each? Do we have an economy one third of theirs? Population size? We are basically pledging more than we should.

Goh Meng Seng

Dear. GMS

it's at times like despite the fact that u r a trained economist I am glad you are not anywhere close near the levers of power.

There are two separate issues at hand processes and policy and whilst I can agree that the processes suck, the policy remains a wise one.

The five billion is a commitment on Singapores part to a stable global economic order, Even if ur wildest dreams happen and we lose that five billion, I will almost guarantee you that the economic dislocation that happens because we lose that five billion would have wiped out the value of our squirreled away assets.

We have benefitted from stable capital and trade flows, if the world goes under, we go under , and if five billion is insurance it's pretty cheap insurance because the alternatives are a lot worse.

Do read up American Isolationalism , Depression, Protective selfish monetary economists, What you feel is rational for an individual is collective economic suicide if no one acts


Locke

 

[londontrader]

I might have missed that out. How much did they pledge FOR THE PRESENT CRISIS?

15 and 10 billion respectively I think
Taiwan is always a special case in any international setting

 

[Goh Meng Seng]

Locke,

$4Billion will not make you a leader in such action, neither would it be able to save us from whatever is coming, least the world. $4B is too negligible to matters in international perspective, but to small country like Singapore, it matters like a giant.

Going by size of capital and interests, China would be the one who will have to worry more than us. Saudi and other oil rich countries also have more far more Foreign Reserves than us. That's the perspective. I guess, you are just over reacting like PAP at this instance. Well, maybe PAP isn't that over-reacting, it just want to try and show off what a big brother it could be regardless of our actual size. In Chinese terms, it is called, 打肿脸充胖子; beat ourselves on the face to leave bruises to make us look fat.

Goh Meng Seng

Dear GMS

So a question of how much ? When half of your reserves are denominated in a foreign currency and or foreign assets. Doing your utmost seems the most logical option, Penny Pinching , waffling saying well I should do less, because I am not so rich the riche should do more .........I should wait for the Saudi's to spend more Merkel to buy more , etc etc etc , is at best an exercise in naval gazing.

We are taking a lead because it is in out national interest, it is in our national interests because we are tied in like an island to the global economy, if it Tanks, we tank, and now is not a time to say well let someone else go first.



Locke