1997 Style Thai (And Asean) Economic Meltdown Warned About

[metisdead]

Inflammatory posts, insulting posts, and general trolling nonsense posts have been removed as well as the replies.

[jbrain]

I'm just a simple layman myself, but being around in Thailand during the '97 financial crisis, I daresay whatever happens next (boom, bust, who knows), will not have the same cause of what happened in '97!

Back then the Thai banks simply went tits up due to borrowing pretty much everybody heaps of cash with virtually no collateral.

One could easily borrow 10 million with a 200,000 Baht property as collateral as long as you kicked back a few 100k Baht to the loan officer.

And that was just for us mortals. Big companies could borrow billions of Baht without collateral by courting the right bank officer. Ask Mr. Rakesh Saxena, he approved a few of those! Took Thailand a good few years to get him extradited out of Canada

It was then that the Thai banks discovered that "non performing loans" were not so good for the bottom line!

Then Thailand (Chavalit actually) discovered that they really didn't have the (foreign) cash anymore to peg the US$ exchange to 25 Baht, and they had to float the Thai Baht. All the way down to 56 Baht to the US $ (Jan '98, ouch !!).

Which apparently started sort of a domino effect in the whole of Asia.

I doubt that currently Thai banks are anywhere near bankrupt, and there's a fair bit of foreign reserves floating around....

But this doesn't account for fractional reserve banking, or its Ponzi Scheme nature, nor does it address what happens in a sudden devaluation of collateral.

All know that US banks and Wall Street firms were belly up overnight when the true value of their collateral came to light. It took massive outright gifts from the US Treasury to save them. Not long before, all had great credit ratings and the future looked rosy.

The unwinding of high valuations of collateral along with the need to unwind the fractional reserve lending will indeed crash banks which looked solid only yesterday when prices were high.

I won't go in to fractional reserve banking because it's too easily googled. It doesn't take long to grasp for any who don't know.

I don't think I need to say what happens to a bank's loans if they are for something like real estate development, and the value of that real estate suddenly drops. The borrower can't sell to repay and the collateral won't cover the loan. The borrower needed to sell to pay. The bank is upside down.

But it is the fractional reserve lending which really puts everyone at risk so quickly, and it should be illegal. It won't be illegal because there's too much profit in it for the bankers.

Regarding real estate. Did you notice all the shell buildings and rotting houses? Ever looked at the banks reclaimed properties for sale? They basically keep it all on book at 100% the given loan value; so as long as they continue to do this (which undoubtedly they will) there is not a major risk from devaluation. Land and houses etc will all stagnate for 10+years if it comes to that but no chance of a Spain / Ireland style collapse.

I never understood that. The banks here own an incredible amount of real estate which they keep on their books at 100% value. So a big part of their assets are bricks opposed to cash.

But since they own such a sh*tload of property already, the day they will ( have to ) throw it on the market it will be worth half of the bookvalue, only because there will such an immense amount of real estate become available at the same time

[chiangmaikelly]

QUOTE:

You are correct. I was thinking of my personal situation. If interest rates go up in Thailand I can borrow at a cheap rate and lend at a more expensive rate. I can also buy to have something to sell at a higher interest rate. Since I am not the only one doing this more people buy and that pushes the price of land and other assets up which is inflation.

UNQUOTE.

You make 2 points.

1/ borrow cheap (in US I guess) and lend expensive (in TH I guess). What does that have to do with inflation? How many people can do that (cost of transfer, need bankguarantee in US), so that it would have whatever impact on whatever?

2/ buy to sell at a higher interest rate ??? Do you mean 'at a higher price'? Sell to who? Remember inside TH nothing has changed, only interest rates have gone up. And then you mention buying land - please explain how to do that, I am interested in buying land in TH!

Keep it simple. I buy a condo with money I borrowed at 1% and sell that condo in a couple of weeks because I know where to advertise it. I loan the money to the new buyer at 5%. If I have big money I buy 49% of the condo building with money I borrowed at 1% and resell it at 5%. There are many ways to borrow and lend in Thailand. If you want to learn them you can live here for a while or pay for the information. In any event raising the difference between the borrow and lend rate might more money in the economy of the country with the higher interest rate. Does more money in the market create higher prices? Depends on how you look at it. I think a case can be made either way. Questions on buying land consult a professional.

None of this makes any sense whatsoever. A 4% instant arbitrage for one. Risk free so it seems to.

Then this - so you borrow at 1% - fom where? Offshore? then if so, whatabout exchange rate risk?

Otherwise, sounds like a lease to own scheme here....nothing more. No reference to the creditworthiness of the buyer and whether that 4% gap covers the risk....

Look up carry trades on any investment site and it will explain it. The value of the currency is always a risk factor.

[fletchsmile]

But this doesn't account for fractional reserve banking, or its Ponzi Scheme nature, nor does it address what happens in a sudden devaluation of collateral.

All know that US banks and Wall Street firms were belly up overnight when the true value of their collateral came to light. It took massive outright gifts from the US Treasury to save them. Not long before, all had great credit ratings and the future looked rosy.

The unwinding of high valuations of collateral along with the need to unwind the fractional reserve lending will indeed crash banks which looked solid only yesterday when prices were high.

I won't go in to fractional reserve banking because it's too easily googled. It doesn't take long to grasp for any who don't know.

I don't think I need to say what happens to a bank's loans if they are for something like real estate development, and the value of that real estate suddenly drops. The borrower can't sell to repay and the collateral won't cover the loan. The borrower needed to sell to pay. The bank is upside down.

But it is the fractional reserve lending which really puts everyone at risk so quickly, and it should be illegal. It won't be illegal because there's too much profit in it for the bankers.

Unfortunately, a lot of the info people google on fractional banking is poorly written or incomplete. Google Lehman and misconceptions and you get an idea of how badly the topic is understood by most people. A little knowledge is a dangerous thing.

Worst in their analysis tend to be goldbugs with their agenda. A classic example being how they were trying to sell people that Basel 3 would from January 2013 be a catalyst for gold prices rocketing. What they do is take part of a much bigger picture to justify their cause or view, which unfortunately is also compounded by a poor understanding of the topics in the first place.

BTW: What's the alternative to fractional banking that you would advocate?

and what do you think today's world would look like if fractional banking were not allowed?

Fletch

Edited February 25, 2013 by fletchsmile

[mccw]

I'm just a simple layman myself, but being around in Thailand during the '97 financial crisis, I daresay whatever happens next (boom, bust, who knows), will not have the same cause of what happened in '97!

Back then the Thai banks simply went tits up due to borrowing pretty much everybody heaps of cash with virtually no collateral.

One could easily borrow 10 million with a 200,000 Baht property as collateral as long as you kicked back a few 100k Baht to the loan officer.

And that was just for us mortals. Big companies could borrow billions of Baht without collateral by courting the right bank officer. Ask Mr. Rakesh Saxena, he approved a few of those! Took Thailand a good few years to get him extradited out of Canada

It was then that the Thai banks discovered that "non performing loans" were not so good for the bottom line!

Then Thailand (Chavalit actually) discovered that they really didn't have the (foreign) cash anymore to peg the US$ exchange to 25 Baht, and they had to float the Thai Baht. All the way down to 56 Baht to the US $ (Jan '98, ouch !!).

Which apparently started sort of a domino effect in the whole of Asia.

I doubt that currently Thai banks are anywhere near bankrupt, and there's a fair bit of foreign reserves floating around....

But this doesn't account for fractional reserve banking, or its Ponzi Scheme nature, nor does it address what happens in a sudden devaluation of collateral.

All know that US banks and Wall Street firms were belly up overnight when the true value of their collateral came to light. It took massive outright gifts from the US Treasury to save them. Not long before, all had great credit ratings and the future looked rosy.

The unwinding of high valuations of collateral along with the need to unwind the fractional reserve lending will indeed crash banks which looked solid only yesterday when prices were high.

I won't go in to fractional reserve banking because it's too easily googled. It doesn't take long to grasp for any who don't know.

I don't think I need to say what happens to a bank's loans if they are for something like real estate development, and the value of that real estate suddenly drops. The borrower can't sell to repay and the collateral won't cover the loan. The borrower needed to sell to pay. The bank is upside down.

But it is the fractional reserve lending which really puts everyone at risk so quickly, and it should be illegal. It won't be illegal because there's too much profit in it for the bankers.

Regarding real estate. Did you notice all the shell buildings and rotting houses? Ever looked at the banks reclaimed properties for sale? They basically keep it all on book at 100% the given loan value; so as long as they continue to do this (which undoubtedly they will) there is not a major risk from devaluation. Land and houses etc will all stagnate for 10+years if it comes to that but no chance of a Spain / Ireland style collapse.

I never understood that. The banks here own an incredible amount of real estate which they keep on their books at 100% value. So a big part of their assets are bricks opposed to cash.

But since they own such a sh*tload of property already, the day they will ( have to ) throw it on the market it will be worth half of the bookvalue, only because there will such an immense amount of real estate become available at the same time

That day will never come. Why would they want or have to do such a thing? They''re loans are all secured by collateral / property and they have lucrative fee based income as a back up. Plus I don't think they are engaged in the global speculative casino/ investment banking activities that wests too big to fail types are.

In a way it's bizarre what the western banking method does ie accept massive losses by selling properties well below Thier loan values; so the tax payer bails out the banks and private capital / cash rich elite can buy up all the property and rent it back to the government /welfare recipients or for the working poor.

Edited February 25, 2013 by mccw

[jbrain]

I never understood that. The banks here own an incredible amount of real estate which they keep on their books at 100% value. So a big part of their assets are bricks opposed to cash.

But since they own such a sh*tload of property already, the day they will ( have to ) throw it on the market it will be worth half of the bookvalue, only because there will such an immense amount of real estate become available at the same time

That day will never come. Why would they want or have to do such a thing? They''re loans are all secured by collateral / property and they have lucrative fee based income as a back up. Plus I don't think they are engaged in the global speculative casino/ investment banking activities that wests too big to fail types are.

In a way it's bizarre what the western banking method does ie accept massive losses by selling properties well below Thier loan values; so the tax payer bails out the banks and private capital / cash rich elite can buy up all the property and rent it back to the government /welfare recipients or for the working poor.

But they can't lend out houses, isn't it. At this point I think the lending rate is about 8%, so for every non performing loan they will need 12 performing ones to play even.

If they don't match that in the long run, their cash will deplete while their real estate portfolio will increase from the colatterald they receive but don't sell.

But to lend out money they need cash isn't it ?

[waza]

QUOTE:

You are correct. I was thinking of my personal situation. If interest rates go up in Thailand I can borrow at a cheap rate and lend at a more expensive rate. I can also buy to have something to sell at a higher interest rate. Since I am not the only one doing this more people buy and that pushes the price of land and other assets up which is inflation.

UNQUOTE.

You make 2 points.

1/ borrow cheap (in US I guess) and lend expensive (in TH I guess). What does that have to do with inflation? How many people can do that (cost of transfer, need bankguarantee in US), so that it would have whatever impact on whatever?

2/ buy to sell at a higher interest rate ??? Do you mean 'at a higher price'? Sell to who? Remember inside TH nothing has changed, only interest rates have gone up. And then you mention buying land - please explain how to do that, I am interested in buying land in TH!

Keep it simple. I buy a condo with money I borrowed at 1% and sell that condo in a couple of weeks because I know where to advertise it. I loan the money to the new buyer at 5%. If I have big money I buy 49% of the condo building with money I borrowed at 1% and resell it at 5%. There are many ways to borrow and lend in Thailand. If you want to learn them you can live here for a while or pay for the information. In any event raising the difference between the borrow and lend rate might more money in the economy of the country with the higher interest rate. Does more money in the market create higher prices? Depends on how you look at it. I think a case can be made either way. Questions on buying land consult a professional.

None of this makes any sense whatsoever. A 4% instant arbitrage for one. Risk free so it seems to.

Then this - so you borrow at 1% - fom where? Offshore? then if so, whatabout exchange rate risk?

Otherwise, sounds like a lease to own scheme here....nothing more. No reference to the creditworthiness of the buyer and whether that 4% gap covers the risk....

So you borrow at a low rate then lend that money at a 500% higher rate. Sounds a bit like loan sharking, Do they have a work permit for that?

Edited February 25, 2013 by waza

[Naam]

But this doesn't account for fractional reserve banking, or its Ponzi Scheme nature, nor does it address what happens in a sudden devaluation of collateral.

All know that US banks and Wall Street firms were belly up overnight when the true value of their collateral came to light. It took massive outright gifts from the US Treasury to save them. Not long before, all had great credit ratings and the future looked rosy.

The unwinding of high valuations of collateral along with the need to unwind the fractional reserve lending will indeed crash banks which looked solid only yesterday when prices were high.

I won't go in to fractional reserve banking because it's too easily googled. It doesn't take long to grasp for any who don't know.

I don't think I need to say what happens to a bank's loans if they are for something like real estate development, and the value of that real estate suddenly drops. The borrower can't sell to repay and the collateral won't cover the loan. The borrower needed to sell to pay. The bank is upside down.

But it is the fractional reserve lending which really puts everyone at risk so quickly, and it should be illegal. It won't be illegal because there's too much profit in it for the bankers.

Unfortunately, a lot of the info people google on fractional banking is poorly written or incomplete. Google Lehman and misconceptions and you get an idea of how badly the topic is understood by most people. A little knowledge is a dangerous thing.

Worst in their analysis tend to be goldbugs with their agenda. A classic example being how they were trying to sell people that Basel 3 would from January 2013 be a catalyst for gold prices rocketing. What they do is take part of a much bigger picture to justify their cause or view, which unfortunately is also compounded by a poor understanding of the topics in the first place.

BTW: What's the alternative to fractional banking that you would advocate?

and what do you think today's world would look like if fractional banking were not allowed?

Fletch

LO AND BEHOLD Fletch! your multiple blasphemious claims are totally out of bounds. i expect an extremely harsh sentence from the resident learned pro-gold / anti-fractional banking Mullahs.

[cheeryble]

BTW: What's the alternative to fractional banking that you would advocate?

and what do you think today's world would look like if fractional banking were not allowed?

Fletch

You took the words right out of my mouth.....

Which is unfortunate as you will now have woken our sleeping economic giants normally found on Gold where's it going..

One a more serious note, I am told deposit free mortgages are available. I find this disturbing.

Question is.....is it so, and how much is it so.

Is cash more available now than it was say six years ago?

Edited February 26, 2013 by cheeryble

[chiangmaikelly]

BTW: What's the alternative to fractional banking that you would advocate?

and what do you think today's world would look like if fractional banking were not allowed?

Fletch

You took the words right out of my mouth.....

Which is unfortunate as you will now have woken our sleeping economic giants normally found on Gold where's it going..

One a more serious note, I am told deposit free mortgages are available. I find this disturbing.

Question is.....is it so, and how much is it so.

Is cash more available now than it was say six years ago?

If by deposit free you mean 100% and above mortgages yes they are available. 100% plus extra cash to buy furniture or whatever.

[waza]

_{Yes I have seen condo for sale with the offer 100% morgages and a 700,000 baht grant to buy funiture}

PS: CMK you are wrong again not one quote came from BP, and I will post links when you do.

[mccw]

I never understood that. The banks here own an incredible amount of real estate which they keep on their books at 100% value. So a big part ofbanking their assets are bricks opposed to cash.

But since they own such a sh*tload of property already, the day they will ( have to ) throw it on the market it will be worth half of the bookvalue, only because there will such an immense amount of real estate become available at the same time

That day will never come. Why would they want or have to do such a thing? They''re loans are all secured by collateral / property and they have lucrative fee based income as a back up. Plus I don't think they are engaged in the global speculative casino/ investment banking activities that wests too big to fail types are.

In a way it's bizarre what the western banking method does ie accept massive losses by selling properties well below Thier loan values; so the tax payer bails out the banks and private capital / cash rich elite can buy up all the property and rent it back to the government /welfare recipients or for the working poor.

But they can't lend out houses, isn't it. At this point I think the lending rate is about 8%, so for every non performing loan they will need 12 performing ones to play even.

If they don't match that in the long run, their cash will deplete while their real estate portfolio will increase from the colatterald they receive but don't sell.

But to lend out money they need cash isn't it ?

Not really; because due to the wonders of fractional reserve banking new money is created out of thin air in proportion to the reserve capital ie the existing properties on the banks books at full loan value. So long as all banks are singing the same tune and the land/ property market stays the same then no reason for a banking crises to occur, maybe just a near halt of lending and mass foreclosures which would undoubtedly represent a crises for those involved who borrowed irresponsibly but not hardly any risk of system collapse or property value collapse. When I say value collapse I mean mostly no sale activities , those who can afford to hold on will no accept less, banks won't accept less only small discounts from those about to be fore closed on or those cashed up and just looking to release some capital (the last would reflect more what we would think of as true market price; but actual wider market would not match this due to all hanging on the same game)

[midas]

That day will never come. Why would they want or have to do such a thing? They''re loans are all secured by collateral / property and they have lucrative fee based income as a back up. Plus I don't think they are engaged in the global speculative casino/ investment banking activities that wests too big to fail types are.

In a way it's bizarre what the western banking method does ie accept massive losses by selling properties well below Thier loan values; so the tax payer bails out the banks and private capital / cash rich elite can buy up all the property and rent it back to the government /welfare recipients or for the working poor.

But they can't lend out houses, isn't it. At this point I think the lending rate is about 8%, so for every non performing loan they will need 12 performing ones to play even.

If they don't match that in the long run, their cash will deplete while their real estate portfolio will increase from the colatterald they receive but don't sell.

But to lend out money they need cash isn't it ?

Not really; because due to the wonders of fractional reserve banking new money is created out of thin air in proportion to the reserve capital ie the existing properties on the banks books at full loan value. So long as all banks are singing the same tune and the land/ property market stays the same then no reason for a banking crises to occur, maybe just a near halt of lending and mass foreclosures which would undoubtedly represent a crises for those involved who borrowed irresponsibly but not hardly any risk of system collapse or property value collapse. When I say value collapse I mean mostly no sale activities , those who can afford to hold on will no accept less, banks won't accept less only small discounts from those about to be fore closed on or those cashed up and just looking to release some capital (the last would reflect more what we would think of as true market price; but actual wider market would not match this due to all hanging on the same game)

Before the 1997 crisis Thailand hardly knew what the term real estate valuer meant.

But even since the crisis even though property valuations are now determined by a relatively small number of SEC licenced valuers, some of their methodology is well behind standards in the West and in particular USA and Australia.

Many valuations are nothing than more wishful thinking and it would be very interesting to see what they could actually achieve regarding sale price if they applied the litmus test.

[cheeryble]

_{Yes I have seen condo for sale with the offer 100% morgages and a 700,000 baht grant to buy funiture}

Which is OK if the bank is scrupulous in ensuring the mortgagee has the financial credentials to pay the loan.

The question being......are they?

[nidieunimaitre]

_{Yes I have seen condo for sale with the offer 100% morgages and a 700,000 baht grant to buy funiture}

Which is OK if the bank is scrupulous in ensuring the mortgagee has the financial credentials to pay the loan.

The question being......are they?

Which is OK .... also ... if you accept that banks are allowed to create money without restrictions, and therefore create inflation.

[mccw]

_{Yes I have seen condo for sale with the offer 100% morgages and a 700,000 baht grant to buy funiture}

Which is OK if the bank is scrupulous in ensuring the mortgagee has the financial credentials to pay the loan.

The question being......are they?

Any link to such a deal? I see condos including x amount of bht valued furniture thrown in as part of the deal. But never such an amount of cash back to buy your own or to do with as liking.

But fundamentally it's actually a better rate than to run up a comparable bill on cc or unsecured personalloan so as you say if it's worked out to be affordable it's not the end of the world.

[mccw]

Actually rather more affordable option for the debtor and maybe less risk for the bank than offering separate products to the same person since the total is secured against property.

[ajarnpot]

That day will never come. Why would they want or have to do such a thing? They''re loans are all secured by collateral / property and they have lucrative fee based income as a back up. Plus I don't think they are engaged in the global speculative casino/ investment banking activities that wests too big to fail types are.

In a way it's bizarre what the western banking method does ie accept massive losses by selling properties well below Thier loan values; so the tax payer bails out the banks and private capital / cash rich elite can buy up all the property and rent it back to the government /welfare recipients or for the working poor.

But they can't lend out houses, isn't it. At this point I think the lending rate is about 8%, so for every non performing loan they will need 12 performing ones to play even.

If they don't match that in the long run, their cash will deplete while their real estate portfolio will increase from the colatterald they receive but don't sell.

But to lend out money they need cash isn't it ?

Not really; because due to the wonders of fractional reserve banking new money is created out of thin air in proportion to the reserve capital ie the existing properties on the banks books at full loan value. So long as all banks are singing the same tune and the land/ property market stays the same then no reason for a banking crises to occur, maybe just a near halt of lending and mass foreclosures which would undoubtedly represent a crises for those involved who borrowed irresponsibly but not hardly any risk of system collapse or property value collapse. When I say value collapse I mean mostly no sale activities , those who can afford to hold on will no accept less, banks won't accept less only small discounts from those about to be fore closed on or those cashed up and just looking to release some capital (the last would reflect more what we would think of as true market price; but actual wider market would not match this due to all hanging on the same game)

Before the 1997 crisis Thailand hardly knew what the term real estate valuer meant.

But even since the crisis even though property valuations are now determined by a relatively small number of SEC licenced valuers, some of their methodology is well behind standards in the West and in particular USA and Australia.

Many valuations are nothing than more wishful thinking and it would be very interesting to see what they could actually achieve regarding sale price if they applied the litmus test.

are those western standards the same ones involved in sub prime fannie andfreddie stuff?

[nidieunimaitre]

QUOTE: are those western standards the same ones involved in sub prime fannie andfreddie stuff?

You have to admit, westerners are so much better then thais at lying and cheating.