What is KJ's problem?

[Goh Meng Seng]

Dear Locke,

I have already said, being Senior Debtor doesn't guarantee that you will get paid at all. This is proven to be truth as there are still debt written off!

So far, the only protection given is the principle amount, not really on the interests. When debts get written off, they may make sure past interests payment could cover the principle loan amount, but they will still lose on the interests.

I have to stress again, it is not about how similar or different Lehman vs IMF but rather, the kind of mental perspective before you start to put your money into them.

My question to you is that, in view of the great amount involved in totality, would the difference between half a billion and $4 billion matters? We are even committing more than some EU members in terms of per capital basis!

Goh Meng Seng

Dear GMS

Firstly the IMF is the lender of last resort but it is also SUPER SENIOR debt, it gets paid first. Its not very profitable but it gets paid and maintains a rate of return equal to protection of principle plus inflation.


Lehmans Minibonds is a different kettle of fish in structure and complexity of issues from a loan to the IMF. Equating the two and conflating the two is pure politicking plain and simple. If the IMF fails then the world has failed and we are back to the days of global economic depression and or meltdown aka Reich Economics , etc etc

If THAT happens we lose everything and more in a meltdown. So I can;t understand why you are expanding photons on what if the IMF fails, what if we lose our quota, what if we lose 4 billion because if that happens it would mean the great depression ALL over again


Locke

 

[londontrader]

The great faith put on Europe to have the means to save itself is misplaced. It has inevitably turned to IMF to provide additional financial pledges of more than Euro250Billions and this may not be the last request.

Look at the financial situation for the EU as a whole
They have the means
Individual nations have had to turn to the IMF precisely because the individual European nations think that their neighbour's problem is not my business
That's a political problem, not economic

The point means that Europe itself will only put in that much commitment to solve its own problems. The fact that IMF has agreed to it means that even US has to consent in such move. Thus I am not too sure why you keep thinking that US will veto IMF's involvement in this Europe crisis.

Yeah! that's the problem, the Europeans need to agree to solve their own problems!
The USA hasn't voted down anything because thus far, the IMF has been conducting business as usual
That's why I said "nothing spectacular"
Their actions so far don't amount to saving europe

It is pretty ironic here that when the parliaments of all EU member states have to go through robust debates and voting to support whatever guarantees or pledges of funds to maintain stability in EU which they have the most vested interests, we have people here in Singapore who think that no parliamentary debate or vote or endorsement by the President is needed when we are making quite a substantial per capital commitment to IMF to help Europeans fighting their problems.

That's the main point we're trying to highlight
NOT issues regarding risk and the IMF

 

[Goh Meng Seng]

I have difficulty to explain to you about why you shouldn't worry too much about the storm when you are so small and insignificant to start with! There are lots of other big countries with bigger means and resources to deal with the storm, we will just need to put up a token of support and take the ride along with them.

Goh Meng Seng

Dear Lon

Why why is it so hard to explain the market to a supposedly trained economist. Why Why is it so hard to get someone to stop worrying about that spot of rain and losing billions when possible economic havoc on the scale of trillions is on the cards. Well welcome to the world of principled politicians.


Locke

 

[londontrader]

Dear Lon

Why why is it so hard to explain the market to a supposedly trained economist. Why Why is it so hard to get someone to stop worrying about that spot of rain and losing billions when possible economic havoc on the scale of trillions is on the cards. Well welcome to the world of principled politicians.


Locke

Dear Locke,

I really have no answer for you!

 

[londontrader]

You amused me. If the country has already repaid the interests plus principals, there is no need to default anything!

Okay let me make it simple for you.

I lend you 100
you agree to pay me 100 + interest
every year you pay me part principal 10 and part interest 4.5
So after 7 years, you have repaid 70 in principal and 31.5 in interest
After 7 years, you still owe me 30 in principal right?
But I forgive the loan
Am I worse off?
I already collected 70+31.5=101.5 compared to my original loan of 100

You are still a loan defaulter
But I am not the loanshark that loses money (just one who charged very little interest)
You're a trained economist right? Should be able to understand the above eg.

 

[Bigfuck]

You really are confusing!

When the IMF allows a country to default, in most cases the nation has already been servicing the loan (interest + principal).
Therefore, part of the face value of the loan had already been paid back (so loss is less)
In some cases, the face value had already been paid once you add up all the interest payments as well as the principal payments the nation paid up to the point of default
This is not creative accounting, it is just the plain simple truth

What you are saying is when Par/nominal value of loan = Summation of (PPMT+IPMT) Too complicated for the jester. There is an important implication involved here in what you can demand for any interest rate as a daiyilong tactic for working things not in physical dollar bills but as numbers on a virtual account book.

 

[londontrader]

There is an important implication involved here in what you can demand for any interest rate as a daiyilong tactic for working things not in physical dollar bills but as numbers on a virtual account book.

I was talking about actual rates (locked into actual term sheets) not the virtual kind that accountants use

 

[londontrader]

I have difficulty to explain to you about why you shouldn't worry too much about the storm when you are so small and insignificant to start with! There are lots of other big countries with bigger means and resources to deal with the storm, we will just need to put up a token of support and take the ride along with them.

That's the main point isn't it
who gets to decide the token
not all this talk about risks etc

 

[Goh Meng Seng]

Well, if that doesn't change the fact that interests (of 31.5) has been written off as well so to make up the repayment of the original loan of 100. Economist look at the opportunity cost of that 100 loan you made. Basically it means that even though you get back your principal, you still lose on the potential interests that you can get from making other loans on this 100 for the 7 years.

If this loan method is used, the loss of interests would be reduced but there will still be a loss. Imagine if you have promised you upper stream that if they loan you 100 which you would help them to loan them out for certain interests, but at the end of the 7 years, you could only pay back their principal of 100, it basically means that there are no default of loan repayment to them but just interests payment, is it not?

But if you look at your example, strictly speaking, there is a default of $30 of the principal (i.e. effectively a haircut) to your upper stream because the interests cannot be counted as this is part of the interests promised to them every year.

Thus it is just a matter of how you account for the loss which I say, creative accounting... using interests payment to cover principal and declare there is no default of loans to your creditors, just that they lose interests.

Goh Meng Seng


PS. Even using your method, you can only claim that Principal has been recovered but interests have been defaulted.

Okay let me make it simple for you.

I lend you 100
you agree to pay me 100 + interest
every year you pay me part principal 10 and part interest 4.5
So after 7 years, you have repaid 70 in principal and 31.5 in interest
After 7 years, you still owe me 30 in principal right?
But I forgive the loan
Am I worse off?
I already collected 70+31.5=101.5 compared to my original loan of 100

You are still a loan defaulter
But I am not the loanshark that loses money (just one who charged very little interest)
You're a trained economist right? Should be able to understand the above eg.

 

[lockeliberal]

Dear GMS

As noted in an earlier post, Singapore has been a well known international cheapskate for the World Bank UN ADB and WHO etc etc. Why the generosity on this one issue ? I put it to you it is in our national interest that there is some form of stability in global trade and capital markets.

Perhaps we should do it on the cheap, Perhaps Tharman is fighting for such a large amount because he wants to be IMF head after Christine. I leave that conspiracy reasoning up to you.

Whether half a billion or four billion, if the IMF fails its economic disaster of trillions and a global depression. But then its only principled politicians who debate the differences between half a billion and four, when leadership and contributions are needed. For me four billion five, eight , the price is cheap relative to the possible disasters that looms as a student and reader of political economic history.


Locke

Dear Locke,

I have already said, being Senior Debtor doesn't guarantee that you will get paid at all. This is proven to be truth as there are still debt written off!

So far, the only protection given is the principle amount, not really on the interests. When debts get written off, they may make sure past interests payment could cover the principle loan amount, but they will still lose on the interests.

I have to stress again, it is not about how similar or different Lehman vs IMF but rather, the kind of mental perspective before you start to put your money into them.

My question to you is that, in view of the great amount involved in totality, would the difference between half a billion and $4 billion matters? We are even committing more than some EU members in terms of per capital basis!

Goh Meng Seng

 

[Bigfuck]

I was talking about actual rates (locked into actual term sheets) not the virtual kind that accountants use

I know what you are saying. Have you ever considered the haircut? You think Daiyilong when they make you sign an iou with actual rates locked in never consider you cannot pay up? In fact, sometimes, they want to make sure you cannot pay, hung you, cut the interest or forgive your remaining debt for an expensive favor you need to do for them. That is hardball negotiation hehehe. In the world of debt, I prefer you to be my slave than allowing you to pay free. Better to create an illusion you are given second chance. Makes you a more pliant slave. Deals among deals in the streets apply in the big leagues too. You control the world with debt as debt is formless and can take any form it wants. Be water my friend. lol. Never thought the BS line by Bruce Lee is so useful.

 

[Goh Meng Seng]

If you have no problem of my proposal of half a billion instead of $4billion, so what's the problem?

Londontrader is pretty optimistic that Europe could solve their own problems, you are just too panicky.

Goh Meng Seng

Dear GMS

As noted in an earlier post, Singapore has been a well known international cheapskate for the World Bank UN ADB and WHO etc etc. Why the generosity on this one issue ? I put it to you it is in our national interest that there is some form of stability in global trade and capital markets.

Perhaps we should do it on the cheap, Perhaps Tharman is fighting for such a large amount because he wants to be IMF head after Christine. I leave that conspiracy reasoning up to you.

Whether half a billion or four billion, if the IMF fails its economic disaster of trillions and a global depression. But then its only principled politicians who debate the differences between half a billion and four, when leadership and contributions are needed. For me four billion five, eight , the price is cheap relative to the possible disasters that looms as a student and reader of political economic history.


Locke

 

[Goh Meng Seng]

Locke,

BTW, it is pretty ironic to me that Singapore would be so eager or nervous to put on the best per capital amount on the chopping board while US refused to commit any funds to set up this firewall!

Goh Meng Seng

 

[aurvandil]

If the Europeans can solve their problems on their own, why do we need to pledge US$ 4 billion. I was under the impression we have reached the stage where there is a sufficent risk that the Europeans cannot save themselves. We are therefore at the start of organising a global bailout of Europe. The US$ 4 billion is just for starters. If and when the need arises, they will be passing round the can for more funds.

Look at the financial situation for the EU as a whole
They have the means
Individual nations have had to turn to the IMF precisely because the individual European nations think that their neighbour's problem is not my business
That's a political problem, not economic



Yeah! that's the problem, the Europeans need to agree to solve their own problems!
The USA hasn't voted down anything because thus far, the IMF has been conducting business as usual
That's why I said "nothing spectacular"
Their actions so far don't amount to saving europe



That's the main point we're trying to highlight
NOT issues regarding risk and the IMF

 

[jw5]

People who make factually incorrect statements and do not bother to correct them should not become MPs.
This is something that Singapore does not need and ordinary Singaporeans do not want.
My interest in the original topic has actually waned, the main objective is now to become a stumbling block to this fellow in his quest to become an MP.
He may try to join RP or SPP soon, because if he waits any longer and too close to 2016, he will be deemed an opportunist.
It's fine to have an opinion on whether lending to IMF is risky or not, but it's wrong to make inaccurate statements to mislead others just to prove your point. We don't want MPs who do that.

 

[maozedong]

lockeliberal:
"if the IMF fails its economic disaster of trillions and a global depression"


This is the same fear mongering tactic the US Fed and Treasury used to get trillions of tax payers money to bail out the banks.

The IMF is now also trying to save the banks with tax payers' money. Government's money is always the people's money. Do not be so naive to believe that they are trying to save the PIIG's governments and economies. No, they are trying to save the banks which had bought all those now worthless PIIGs government bonds. Of course, they will say what you said - "if the big banks fail, it will be a economic disaster of trillions and global depression".

We are just throwing good money after bad money.

I say bring it on. Let the markets correct. If you invest in bonds and now the issuer has gone bust, you have to accept the loss. That's what capitalism and free markets are all about.

Everything is relative. Even in a global depression, there are winners.

And it's none of our biz to save the world. Let the big boys do it. Also, how much did the USA pledge to some save-the-PIIGs fund during the recent G20 meeting? ZERO. China (who, non unlike s'pore, is always very accommodating to the West but tough on its own people) pledged the most amongst the non-euro members of G20.

lockeliberal
"if the IMF fails its economic disaster of trillions and a global depression"

 

[Bigfuck]

Contortion is an art of twisting the body in positions others cannot. Some amateur contortionists sprain themselves even in fundamental positions but attempt those that would kill a normal man like
hyper rotation of the neck. In seeing others able to do it, rather than attempt further embarrassment and harm, they rotate the bodies of master contortionist back from hyper extended positions and claim these master contortionists cannot contort professionally and that they are the real masters. I guess this must a jest in action. Wow, I have returned to long in this forum to think like jesters here. Time to go on holiday.

 

[cass888]

Actually GMS has brought up some valid points and at least he is not putting down the WP and directing his fire power against PAP as any proper Singaporean will do,,,there is hope for him yet....

You obviously haven't read this post from the mighty 2-upper Generalisimmo (minus 10 ranks) cum General of the Army (minus 9 ranks) Goh Meng Seng:

Dear Aurvandil,

Sad to say, you are right. It is quite sad to see that our opposition MPs & NCMPs in parliament do not even know how to ask questions on this issue. Ironically, it is KJ, a leader of an opposition party who isn't in parliament to raise it in court instead.

And yet, it seems that other opposition party members seem to mock at KJ's effort when they didn't even know a bit of the issue, least to say any in depth knowledge of of the whole situation.

WP may have CSM who has studied Economics cum Law and exposures in the international corporate setting. However, it is disappointing that he didn't even put up a feeble attempt to challenge PAP on this issue.

If such issue is "too cheem" for the best opposition party in Singapore, I guess we will have to get stuck with PAP for another few decades to come. It is about time to open up the depth and scope of concerns and knowledge to things like international finance, diplomacy and stuffs like that.

Focus on local issues may win them votes but to show that they are capable to grow into a party which has the ability to rule, they will need more than that.


Goh Meng Seng

 

[londontrader]

I say bring it on. Let the markets correct. If you invest in bonds and now the issuer has gone bust, you have to accept the loss. That's what capitalism and free markets are all about.

Yes, there is a popular (Particularly among US Republicans) view that we should just sit back and let the market adjust itself
If you borrow too much, you should suffer the effects of deleveraging
If you lend to risky borrowers (for high yield) then you should take the loss when they default
The problem is that the spillover effects can very quickly get out of hand ie. contagion
The problem is that completely innocent people sometimes caught up in this exercise to punish the guilty
We have seen how bad deleveraging can be ie. The Great Depression
Now imagine a Great Depression with the presence of modern financial markets!
That's why the accepted view is that we should be prudent when punishing the guilty by not executing everyone else simultaneously

This is the same fear mongering tactic the US Fed and Treasury used to get trillions of tax payers money to bail out the banks.

I agree that the bail out was too generous
They let the true culprits escape with a slap on the wrists
BUT some form of a bail out was necessary in the aftermath of Lehman
The data speaks for itself
Bank lending (even the safe kind) froze up completely, threatening to start a cascade of all sorts of bad trouble!
A bank bail out was the fastest way to get the wheels turning again
Their failure was to let the key stakeholders (who caused the problem) off the hook thereby creating the moral hazard that will bring on the next crisis.

Everything is relative. Even in a global depression, there are winners.

Yes, but definitely lots more losers than winners
Also, the losers tend to be the innocent ones

And it's none of our biz to save the world. Let the big boys do it. Also, how much did the USA pledge to some save-the-PIIGs fund during the recent G20 meeting? ZERO. China (who, non unlike s'pore, is always very accommodating to the West but tough on its own people) pledged the most amongst the non-euro members of G20

You're right in that the USA pledged Zero while Japan (not China) pledged the most
The reason for that US decision can be found in the political gridlock that they call Congress
No point pledging when you know that it'll never get approved under the current circumstances
Another reason is that the USA was signalling to the Europeans to take ownership of their own problem

 

[londontrader]

Contortion is an art of twisting the body in positions others cannot. Some amateur contortionists sprain themselves even in fundamental positions but attempt those that would kill a normal man like
hyper rotation of the neck. In seeing others able to do it, rather than attempt further embarrassment and harm, they rotate the bodies of master contortionist back from hyper extended positions and claim these master contortionists cannot contort professionally and that they are the real masters. I guess this must a jest in action. Wow, I have returned to long in this forum to think like jesters here. Time to go on holiday.

Well, politics is not very different from a circus isn't it?