Am I glad that Chan's new article addressed and explained a story that's under-reported in mainstream. Once again learned much. Thanks. (more useful than the Andy Rooney-sque piece on pop culture

Not much to comment on, except maybe extrapolate a couple of discussions:

(1) Did you, CA, made a fortune from your own insight? You deserved it. And should I beat myself senseless for not making a fortune myself from reading your column regularly? Is it too late now to buy credit default protection against, say, Vietnam or even back to Dubai? What's the pro/con of actually gambling my own money?

(2) You hinted in the article that even market insiders were taken by surprise over the "standstill". Can I take that as an evidence point that the bond market lacks transparency and then extrapolate that free market is not functioning properly?

Housekeeping. Link for atimes.com:
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www.atimes.com/atimes/Global_Economy/KL01Dj04.html

Thanks Ding. Did I make a fortune from what happened - nope. Did I avoid a very significant loss for both myself and others - yes, that was the case. So, not too bad as an outcome.

1. Please do not use CDS in your personal portfolio. It is an over the counter market, dominated by very big players who have asymmetric information (i.e. they know more than their counterparts). It is not screen based, and with high hurdles for documentation and other things, very bad as a "market".

2. Does the surprise element imply that the free markets don't work ? Not quite - markets work on information they have, and what the authorities in Dubai was to unilaterally change the rules of the game. Should the markets have trusted them for an implicit guarantee - not at all. This situation is more akin to the common market belief that "house prices always go up" - change that assumption and a whole house of cards will fall.

There are many other houses of cards, five of which I highlighted at the bottom of the article. Take a look, and if possible, make some preparations for these to fall over the next few months / years.

CA

PS - I am VERY partial to Andy Rooney

damn... another lost post... this place need a "submit draft" option...

Agree that this can be frustrating. Just for my edification do you use IE (as I use either Firefox or Chrome and don't have this problem)?

I use Firefox, but I may have other issues such as firewall or maybe my laptop is not in it's best shape. Thanks to the economy, I have to wait one more year before getting a new laptop.

ANYWAY, I am a professional geek, and I think my judgment that The Edge is technically and visually lousy is well founded. It has a serious impact on how much I participate here directly (I personally find it a chore), and indirectly (the quantity and quality of other participants (present company excluded OF COURSE) is low).

Anyway to summarize, I said (to the great ether) something like:

1. aren't you effectively saying free market is not functioning as advertised? Blame governments, blame irrational investors, blame poor information flow, but these factors are never going to go away, so the free market theory is, and in any foreseeable future, a fantasy.

2. the 5 houses of cards are surely not equal or even comparable in (A) likelihood and ( impact, right? And aren't (a) and (e) opposite sides of the same coin? Assuming yes, then it probably will be different to the debtor and the creditor sides. To a simplistic mind, being the creditor must be a superior position than the debtor, even in the crisis of a collapse and in the aftermath of a collapse.

But a simplistic mind (such as mine) is humbled by the events of this (mad?) world, so maybe you can enlighten us a little. Especially this Chinese bank house of cards.

"To a simplistic mind, being the creditor must be a superior position than the debtor, even in the crisis of a collapse and in the aftermath of a collapse."


depends on the stuff the debtor bought, the debtor still has the stuff and the creditor is left with at best paper or more likely a bit of data on a server somewhere.

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3. See Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging, by Robert N McCauley and Patrick McGuire, BIS Quarterly Review, December 2009.

that was good find, cleared up some confusion I had about recent US dollar performance.

Can you recommend something to read on the "unholy trinity" ?
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Been reading the Great Transformation, by Karl Polanyi.

nothing new under the sun. a book written in the 40's that hold up today.

hopefully will catch up at work sometime and can get back to more coherent posting.

Michael wrote:

hopefully will catch up at work sometime and can get back to more coherent posting.

I HOpe you can too MICHAel. YOU HAVE got me interested!

Gents (and ladies)

Firstly let me apologize to all and sundry about the increasing randomness of my posts as well as my articles on Asia Times Online. My long-suffering editors have expected copy from me for every Friday but invariably find something a few days later instead. Hopefully I will reorient myself in the near future; but meanwhile lets all blame the Europeans.

Ding,

Nothing that involves humans can ever be perfect. It is therefore not perfection I seek but predictability i.e. outputs for a given set of inputs. That is the basic principle (or as Groucho Marx would put it "those are my principles. If you don't like them, I have others".

The principles of a free market can easily be thwarted by government intervention and by the irregular flow of information. Some, like the surprise announcement of the Dubai problems, are "normal" in the sense they occur a few times every year; others like the German intervention to prop up Greek government bonds this week, are assertions unsupported by facts i.e. they end up causing greater volatility in future.

If you go back to an old article "Deaf frogs and the Pied Piper", it says something about ending up with the wrong conclusions i.e. the Frog is deaf ...

Michael

I am quite sure that what I call the "unholy trinity" (by the way, even I don't remember where that phrase came from) has been described by many folks including the redoubtable Rudi Dornbusch in their expositions on macro-economics; it is also a framework that economists in the IMF and World Bank refer to frequently (albeit in the more sinister sense of "you need to devalue your currency because that will increase capital flows blah blah..". Thanks for asking the question, let me look around my book collection and find something more directly pertinent


MW

Amen to that


CA