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Money matters:
Graham Macdonald MBMG International Ltd.
A beginner’s guide to the credit crunch, part 1
Recently many people have asked questions about ‘Le crunch’
and we’re guessing that many others want to but are too embarrassed. Heck, it’s
not them who should be embarrassed - if the Tsars of Wall Street had asked a few
more questions we might not be in this mess today. We’ve written some really
detailed pieces about this but one client recently pointed out that while these
might serve as great theses for other economists to pore over; they’re not
always what you might call ‘accessible.’ So, here goes - A beginner’s guide to
the credit crunch.
The credit crunch is basically a global phenomenon whereby the global economy is
running out of money.
How can that be?
Well, we find ourselves in a situation where those who have the money
won’t or aren’t able to give it quite so readily to those who need it. An
obvious example is the banking sector. In a number of countries including the
USA, UK, Australia, Spain, Ireland a record amount of lending took place during
the last decade. Most of this was focused on property as record amounts of money
poured into the residential and commercial property sectors.
Is this why property prices went up so much?
It was certainly the major factor - all asset prices tend to be
primarily determined by supply and demand. The huge increase in the availability
of easy credit on both sides of the Atlantic and in countries like Spain and
Ireland enabled many people who previously couldn’t get credit to suddenly do
so. This extra demand forced up property prices in these places.
These people who previously couldn’t get credit - is this the
sub-prime that we hear so much about?
That’s right - prime rate mortgages are those given to borrowers who
can substantiate good credit credentials. Below that we get Alt-A or
self-certificated loans where the applicants say that their credit is good but
that they can’t prove it. These tend to be referred to as ‘liars loans’ for
obvious reasons; would you admit your credit was bad if you didn’t have to and
if that admission would cost you money in the form of a higher interest rate or
would result in the refusal of your loan application? Ranking below that
category are sub-prime applicants, namely those unfortunates who can’t hide that
their credit isn’t good.
So people with bad credit could suddenly get loans?
People with damaged credit should always have the right to prove that
they have repaired their situation and can now service debt but suddenly all
previous criteria went out of the window and instead of proper credit checking
everyone could now get approval for loans that in many cases they couldn’t
afford.
What happened then?
The so called sub prime borrowers were the ones least able to pay and
who found themselves most at risk of defaulting. These defaults built up to the
extent that they became a problem for lenders who had totally under-estimated
the extent of defaults.
Is this the so called toxic debt?
Yes - it’s normal banking practice that lenders lend much more money
than they have in their own reserves. They need to attract some deposits so they
have some reserves of cash to fall back on but they have been increasingly
borrowing more and more money from other lenders. Often this in sold as an
asset.
You can sell your debts as an asset?
You can if you’re a bank. If someone owes you money (a debt
obligation) the income stream from that is really an asset - the bank that
originally leant the money can sell it on and take a fee. Meanwhile the right to
collect the capital and interest every month suddenly belongs to the buyer. The
bank who sold the loans is suddenly debt free and can go and do the same thing
all over again.
Why would anyone buy debt?
Well this happens all the time. Someone has a chunk of capital and
wants to earn interest - he can usually get a better return than the bank rate
by buying a debt vehicle. Government Treasury Bills and Corporate bonds are
typical examples of debt vehicles. Buy a US Government T-Bill and you are giving
capital to the US government in return for regular interest payments in the
interim and a promise that they will repay the capital on maturity.
But isn’t that different? Surely the US government will always
pay back?
You would hope they would - although the US Government has defaulted
before and only last week the markets for government debt indicated that the
risk of US Government default is now higher than it’s ever been. In fact it
rated the risk of US government default virtually comparable to the risk of debt
default by public corporations like McDonalds! But I take your point - not all
mortgages get repaid. Sometimes houses end up being repossessed and lenders can
lose money on these transactions.
Exactly - not everyone will repay these mortgages, will they?
No they won’t. At the moment it’s impossible to guess how many of
these mortgages will be OK and how many won’t. Usually the law of big numbers
means that it’s possible to make an extremely close estimate but right now, that
really doesn’t apply.
What’s the law of big numbers?
Many recurrent patterns of events are capable of being quantified,
provided that the historical data is accurate, the sample data is broad enough
and the comparison is like for like. In other words it’s generally true in
financial transactions to believe that, “If you always do what you’ve always
done, then you’ll always get what you always got.”
Take a broad enough sample of mortgages with comparable key data and the default
rate will be very consistent at comparable parts of the economic cycle. Roughly
the same percentage of Illinois Alpha-rated sub-urbanites would have defaulted
in the boom periods of the 1970s, 1980s, 1990s and 2000s. Applying probability
of default rates means that probability of losses and write-offs from mortgage
defaults can also be accurately calculated. Buy big enough batches of clearly
defined mortgages and you can be virtually certain what profits you will realize
on these. To help buyers identify what is contained within batches of mortgages
credit ratings agencies used historical data and the law of big numbers to
predict the expected repayment quality of these batches of mortgages.
To be continued…
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The above data and research was compiled from sources
believed to be reliable. However, neither MBMG International Ltd nor its
officers can accept any liability for any errors or omissions in the above
article nor bear any responsibility for any losses achieved as a result of any
actions taken or not taken as a consequence of reading the above article. For
more information please contact Graham Macdonald on
[email protected]@mbmg-international.com.com
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Snap Shots: by Harry Flashman
Getting the phuzz out of photos
Modern digital technology is promising us sharp photos.
Some cameras even make people smile in the final image, even though they
might have been scowling. So, have the days of ‘bad pictures’ finally
gone?
Unfortunately, the technology does not cover all possibilities, but
undoubtedly the number of ‘bad pictures’ will be less. With today’s
anti-shake in my latest digital I have successfully hand-held at one
third of a second. Or should I say, the camera has been able to
stabilize the image at a one third of a second shutter speed. I am sure
I am not that steady!
Everyone these days seems to have a small digital camera in a purse,
pocket or handbag, which is brandished triumphantly as everyone attempts
to record the “good times”. This is an admirable use of the digital
camera, but unfortunately the “good times” can still be spoiled by “bad
pictures”. And one of the reasons is the One-Two-Three. That is the
“One-Two-Three” that every social photographer seems to think has to be
said before popping the shutter, which is accompanied by the
photographer holding up One-Two-Three fingers, leaving the camera held
in one hand only.
Now I am aware of the fact that the new mini, compact digitals will
easily fit in one hand, but to get a sharp picture, you have to make
sure the camera is still while the shutter is tripped. One handed
picture taking just doesn’t keep the camera still enough. Especially
when as the happy photographer is waving the free hand in the air, the
camera is also waving!
The manufacturers are trying to counteract this by either the lens or
the sensor being programmed to move to counteract unsteadiness in the
camera, caused by the photographer not holding the camera firmly - or
perhaps suffering from Parkinson’s disease, or perhaps trying to
photograph the moon hand-held at a five second time exposure.
However, this technology is not the be all and end all. It has its
limitations. You only need a slight movement in the camera to produce
‘soft’ photographs. You will not realize this when you look at the
postage stamp sized LCD screen on the back of your camera, but when you
go for larger prints it all becomes too obvious, or when you digitally
magnify areas of the image.
With the larger cameras, SLR’s and the like, it becomes even more
important to avoid camera shake. After all, why spend thousands of baht
to buy super sharp lenses and get soft “blurry” photographs. You might
as well have stuck with a cheap disposable “camera in a film box” and
saved your money for booze - which will also give you the shakes just as
easily but possibly more enjoyably!
The simple fact of the matter is that to get sharp photographs, the
camera must be held still while the shutter is held open, despite all
the electronic gizmos. Now, in most daylight situations if the camera is
set on “auto” it will select a shutter speed of around 1/125th of a
second, and while that sounds “fast” it really isn’t. You will still get
noticeable “softness” in the final print if the hand holding the camera
has allowed any movement.
The secret really is in the grip. And it is a two handed one. You will
not see any professional photographer taking shots with one hand free. I
also recommend that you take a short breath in and then hold it while
gently squeezing off the shutter. Another good practice is to keep the
elbows in by your sides, and even lean against a solid object, like a
telephone pole! In overcast weather when the camera will select slower
shutter speeds, this is even more important. Your camera will also most
likely have two “hand/finger” impressions on either side of the camera
body. They are not there for decoration. Use them!
No, if you really must let your subjects know that they are about to be
recorded for posterity, a simple verbal One-Two-Three (while hanging on
to the camera with two hands) is all that is necessary. I guarantee you
will get pictures more sharp than you used to get before.
Modern Medicine:
by Dr. Iain Corness, Consultant
Different strokes for different folks
World Stroke Day is just around the corner, so I may as well
use that as the reason for this week’s column. It is also a very common
condition and one of the major causes of death and disability.
A stroke (also called a ‘cerebrovascular accident’ or CVA) occurs when blood
vessels carrying oxygen to a specific part of the brain suddenly burst or
become blocked. When oxygen-rich blood fails to get through to the affected
parts of the brain, the oxygen supply is cut off, and brain cells begin to
die.
Strokes fall into several major categories, based on whether the disrupted
blood supply is caused by a blocked blood vessel (also known as an ischemic
stroke) or a hemorrhage. Since each type of stroke has a different type of
treatment, it is very important for the physician to determine the cause of
the stroke, as well as the location, as quickly as possible.
Fortunately, it is no longer a case of guesswork, but several diagnostic
studies may be needed to pinpoint the problem area, and to work out whether
the stroke is from blockage or bleed.
Some of the treatment modalities include Computerized Tomography (CT) Scan
which is generally the first diagnostic test done after a patient with a
suspected stroke arrives in the emergency room. It is used to quickly
distinguish between an ischemic or hemorrhagic stroke.
Magnetic Resonance Imaging (MRI) is an advanced diagnostic tool that
provides a high level of anatomic detail for precisely locating the stroke
and determining the extent of damage. Due to its high level of sensitivity,
MRI is considered especially useful when the stroke involves small blood
vessels.
Magnetic Resonance Angiography (MRA) is a new noninvasive technology for
imaging the cerebral blood vessels, which yields valuable information
regarding collateral (alternative) blood vessels in the brain. Carotid
Duplex Scanning is a noninvasive study to diagnose blockage in the carotid
arteries. This technology involves recording sound waves that reflect the
velocity of blood flow.
Transcranial Doppler (TCD) is a newer, noninvasive ultrasound procedure that
allows the assessment of blood flow through the cerebral vessels via a small
probe placed against the skull. TCD is a portable test, which can be
performed frequently at the patient’s bedside to follow the progress of
medical treatment for stroke.
PET Scanning, which measures brain cell metabolism, can determine if brain
tissue is functioning even if blood flow to that area appears to be
diminished.
Cerebral Angiography (angiogram) is a diagnostic study that requires
injection of a contrast dye through a major artery (usually the femoral
artery in the thigh) for evaluation of blood flow to the brain.
So are you having a stroke? The warning signs of stroke include sudden
weakness, numbness or paralysis of the face, arm or leg (especially on one
side of the body), loss of speech or trouble talking or understanding
language, sudden loss of vision, particularly in only one eye, sudden,
severe headache with no apparent cause, unexplained dizziness, loss of
balance or coordination (especially if associated with any of the above
symptoms).
There are several risk factors, including:
Hypertension - having high blood pressure means the blood vessels are under
more tension, and certain weaknesses (called aneurysms) can rupture.
Smoking - Smokers get more strokes than non-smokers.
Atherosclerosis - Deposits of cholesterol on the inside of the arteries
predispose to blood clots being formed.
Diabetes - Uncontrolled diabetes puts the sufferer into a high risk
category.
Alcohol and drug abuse - neither of these make life ‘better’!
Age - The chance of having a stroke increases with age. Two-thirds of
strokes occur in persons over the age of 65.
Gender - Stroke is 25 percent more common in men than in women.
Race - The incidence of stroke varies among races. African-Americans have a
higher incidence of hypertension than Caucasians, and a higher rate of
stroke.
Family or Individual History - A history of cerebrovascular disease in a
family appears to be a contributing factor to stroke.
While you have no control over your family history, you can take steps to
decrease your risk with medical advice.
Is it time to consult a brain specialist?
 Heart to Heart with Hillary
Dear Hillary,
First off I would like to say I love reading your column. I do not have promises
of Champagne or chocolates and I am sorry for that. I do have a question for you
though. Do all girls in Pattaya flirt with all tourists or am I just a walking
sign board that says here I am come take advantage of me? Well I don’t really
know who is taking advantage of who but at times I feel that there really is a
spark, a kind of connection. Am I dreaming this or is it possible?
Dreaming
Dear Dreaming,
Interesting that you see yourself as a walking signboard. What is the wording?
Obviously not “Prepare to meet thy doom”, though some people are thinking that
way these days with us approaching the time after the ‘low’ season, which will
probably be called the ‘lower’ season. Now to your specific questions - do all
girls in Pattaya flirt? No, all girls do not. A percentage do, and that
percentage increases exponentially as you approach the bar areas, until after
you have passed through the “Welcome! Sit down please,” threshold, the
percentage is nigh on 100 percent. Is there a spark, a kind of connection, as
you so eloquently put it? Of course there is! That sparkling connection is
called “money”. Not necessarily Thai baht, but American dollars are fine, or any
other currency accepted by the banks in Thailand (so Dirhams are doubtful).
Don’t worry about the exchange rate, the young ladies will know already, even
though the rates are fluctuating wildly with the latest nonsense in the nation’s
capital.
Now, dreaming or nightmare? Depends upon your point of view, Petal, but I think
you’re dreaming.
Dear Hillary,
I wanted a hair cut so I went to my usual barbers the other day, to find it was
closed. This was something new to me, so I drove around to see the next one, and
it was closed as well. Asking around with my friends, I was told that all
barbers in Thailand close on Wensdays (sic) and it was a Wensday (sic) that I
was looking at. Can you tell me why they all want to shut on that day. I had to
spend the rest of the afternoon in the pub instead. Is it a govment (sic) rule
or what? Good for the pub bizzness if it is.
Herb
Dear Hairy Herb,
Aren’t you lucky, it was just the Bar-ber that was closed, and not the Bar-beer!
Your friends were correct, the barbers close on ‘Wednesday’ (write out the
correct spelling 100 times, Petal). It is not a ‘government’ (write this one out
100 times as well) rule, but comes from the fact that we consider it to be bad
luck to cut your hair on a Wednesday, so the clever barbers may as well close,
rather than spread the bad luck. And it is ‘business’ (so write that out as
well. You are going to be a busy boy!) It is something like the old religious
edict of “no meat on Fridays” overseas, which gave the fish and chip shops some
great trade and gave the butchers a holiday as well.
Dear Hillary,
I was told many years ago that you shouldn’t let your wife’s family come to stay
with you, even just for a few days, as it always ends up for weeks or months. I
thought I was lucky because it never happened to me. Relatives might stay one or
two nights, but that was it. Recently things have changed a lot now with her
brother and her cousin and her mother all staying in the house with us. They all
stay in the one room which I think is a bit unhealthy, and they’ve been here for
three months and there’s no sign of them leaving. They are quiet and do help
around the house and garden, but this wasn’t what I really expected. I asked my
wife about it but she just says it’s OK and they’ll be going soon after the
brother and cousin have got jobs and mother is just having a holiday. Well I
wish I could have three month holidays. What’s the next move, Hillary? Enough’s
enough, surely. I have a close family in the UK, but they wouldn’t come and stay
forever.
Husband under siege
Dear Husband under siege,
You are now starting to see a little of what Thai society is all about, my
Petal. Family reigns supreme, and it is usual for them all to sleep in the same
room. It’s not unhealthy. It is Thai. When you got married, you joined a Thai
family, much more than your wife joining your UK family. After all, you married
a Thai lady and then you chose to live in Thailand. You would have to expect
that Thai culture will be dominant. You can try voicing your reluctance to have
them there, but be prepared for difficulties. This is your wife’s immediate
family. You can always try to find them jobs - in a far away city. Lots of luck!
Let’s go to the movies:
by Mark Gernpy
Now playing in Pattaya
Max Payne: US Action/Thriller – Starring Mark Wahlberg.
Based on a popular interactive video game, this is the story of a
maverick cop determined to track down those responsible for the brutal
murder of his family and partner. Hell-bent on revenge, his obsessive
investigation takes him on a nightmare journey into a dark underworld
where he is forced to battle enemies beyond the natural world.
Body of Lies: US Drama – Directed by Ridley Scott, with Leonardo
DiCaprio and Russell Crowe. I very much liked this adult spy thriller;
it’s smart, complex, and tightly drawn, much like Syriana, and has a
throat-gripping urgency. It has three terrific performances, and some
serious insights. The themes of darkness that lie beneath the action,
adventure, romance, and star power of Body of Lies are oddly similar to
those animating The Dark Knight: ruthlessness, political expediency, and
moral bankruptcy. The film has a high narrative density and even a brief
trip to the restroom may result in key plot points being lost. It’s the
antithesis of a slick, superficial feature like Eagle Eye, and both
demands and rewards thought. Body of Lies engages the mind, and neither
panders nor condescends. It involves current events and has a political
viewpoint, but it overplays neither. Though very much story-driven, it
doesn’t lose sight of the characters along the way. Based on a 2007
novel by Washington Post columnist David Ignatius, about a CIA operative
who attempts to infiltrate the network of a major terrorist leader
operating out of Jordan. Rated R in the US for strong violence including
some torture (though it appears to me a lot of this has been clipped by
Thai censors), and for language throughout. Mixed or average reviews.
Star Wars: The Clone Wars: US Animation/Sci-Fi – A new adventure
in the “Star Wars” series, here done with animation. The movie has
gotten generally negative reviews, most saying that the mechanical
animation and a less-than stellar script make The Clone Wars a pale
shadow of George Lucas’ once great franchise, and a cheap excuse for a
big-screen spectacle. It’s more like a long Saturday morning cartoon,
and a trailer for the upcoming new Star Wars series on TV. Parents may
be perturbed by the film’s relentless violence.
Disaster Movie: US Comedy – Returning to their seemingly
bottomless well of flatulence humor, racial stereotypes, and stale pop
culture gags, Friedberg and Seltzer have produced what is arguably their
worst “Movie” yet. Seldom has a film been more appropriately titled.
Reviews: Extreme dislike or disgust.
Eagle Eye: US Action/ Mystery/ Thriller – Shia LaBeouf and
Michelle Monaghan play two strangers thrown together by mysterious phone
calls from a woman they have never met. Threatening their lives and
their families, the phone calls push the two into a series of
increasingly dangerous situations using the technology of everyday life
to track and control their every move. As the situation escalates, these
two ordinary people become the country’s most wanted fugitives, who must
now work together to discover what is really happening. They become
pawns of a faceless enemy who seems to have limitless power to
manipulate everything they do.
The script has the feel of something once substantive, but which was
poked, prodded, cut, and crimped until all semblance of intelligence was
wrung out of it. Apparently, it means to say something about
anti-terrorism surveillance and civil liberties, but most reviewers who
try to say what it’s about, say it’s about as dumb as can be. Mixed or
average reviews.
Luang Pee Teng II / The Holy Man II: Thai Comedy – Bad boy
becomes monk, meets misadventures, makes merit. The first Luang Pee Teng
was the top Thai film at the box office in 2005; this second of the
series has a new star, Thai rapper, hip-hopper, and ex-skateboarder Joey
Boy with a cast filled out by the usual Thai TV comedians.
Scheduled for Oct 23
Beverly Hills Chihuahua: US Comedy – In this Disney comedy, a
pampered Beverly Hills Chihuahua (voice of Drew Barrymore) finds herself
accidentally lost in the mean streets of Mexico without a day spa or
boutique anywhere in sight. This one actually looks quite delightful, to
gauge by the previews.
Tropic Thunder: US Comedy/ War – I have seen this, and I heartily
recommend the film, but only for those not easily shocked. You might
just have the best laughs you’ve had in years. Robert Downey, Jr. gives
another amazing performance, this time playing a black. It’s an action
comedy about a group of self-absorbed actors who set out to make the
biggest war film ever. After ballooning costs (and the out of control
egos of the pampered cast) threaten to shut down the movie, the
frustrated director refuses to stop shooting, leading his cast deep into
the jungles of Southeast Asia where they inadvertently encounter real
bad guys. Generally favorable reviews.
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