OEI HONG LEONG
Bailout offers just a short-term reprieve
Mr Oei Hong Leong, investor, businessman and tycoon. He made the news last week when he bought one million American International Group (AIG) shares when their values plunged. Their prices later shot up. He donated the shares to the Lee Kuan Yew School of Public Policy.
'I think that this is the 'end of the beginning'. I don't believe that it is the 'beginning of the end'. Autumn is turning into winter.
Although the government bailout is having a positive impact on the market now, I fear that this may be just a short-term reprieve.
The ban on short-selling, while preventing prices from falling now, may take away liquidity from the market. This may cause problems for hedge funds needing to de-leverage. Ultimately, we could still see downward pressure on prices.
We have seen the problems of the United States sub-prime mortgage market. The problem has now spread to the entire US mortgage market.
As more and more people default on their mortgages, this will push more and more banks into bankruptcy.
There are many banks already queueing up to file for Chapter 11 bankruptcy protection. These are small outfits which have given loans, mainly secured on properties such as factories or commercial businesses. Now the prices of these properties have fallen.
The next problem will be the credit card market. Many Americans have 10 credit cards or more. They won't be able to pay off their credit card debts.
If the jobless rate hits 8 per cent or 10 per cent, then that will really be a disaster. As I have said before, it will be a tsunami.
The Federal Reserve in its latest policy statement on Tuesday indicated that inflation will moderate later this year. In fact, what we should be more worried about is deflation. We could see something similar to Japan, which at the end of the 1980s faced a slump lasting a decade or more.'
