The Big Game – Bank Run in Hong Kong While Paulson’s Opening Gambit Falters

| September 24, 2008

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Word comes today that we have the start of another bank run. This one is hitting the Hong Kong based “Bank of East Asia”. According to the BBC:

The Bank of East Asia has denied rumours that it is in financial trouble, after thousands of customers queued to withdraw their savings. After weeks of global market turmoil, lines of people quickly formed outside the bank’s branches in Hong Kong.

The speculation was believed to have been spread by mobile phone, and drove the bank’s share price down by 11%. The rumours started earlier this week and customers descended on branches on Wednesday, despite bank staff handing out leaflets to the crowds denying that the bank was in financial difficulty.

And from the New York Times:

“If a business as big as Lehman can go down, then we’re scared,” said Ann Chan, an off-duty nurse, whose husband had suddenly called her Wednesday afternoon and sent her to wait in line to close their account.

The bank run was the first in an Asian financial center since Wall Street’s turmoil escalated this month. It followed a rush last week in Hong Kong and Singapore by some policyholders to withdraw money from American International Group, the insurance company.

As Ajay Kapur, the chief global strategist at Mirae Asset, a large South Korean investment bank, put it, “We’ve already had our crisis, so it’s pretty difficult to blow up twice in a decade.”

He added, “Each region gets a chance to blow up, and this is not Asia’s turn.”

With apologies to Ajay, good luck with that. This story illustrates the fundamental flaw in the Paulson / Bernanke scheme – you can have mass charity to keep the Wall Street guys current on their yacht payments all you want, but this rot was shipped to China and India in bulk. At the end of the day when the contagion finally gets to China, Russia and India, no amount of money we can muster will stop the implosion. The fools in the US still have the hubris to think that they can contain this one, a story they have been working for over 2 years.

All of these same fools were eager to globalize the economy, they removed regional foundations of commerce in favor of spreading it around the world. Now they somehow believe that massive deflation in one of the largest sectors of this new global system will not impact the rest of their overly complex, overly opaque and overly coupled system.

The financial institutions can try with all their might to convince the public, but once people are afraid that you are about to exit the picture with their life savings, they decide it’s better to be safe than sorry.

Meanwhile, capitalists are rallying to try and block the loathsome bailout plan floated by Paulson and Bernanke. The opposition found it’s feet over the weekend and has been slowly gaining strength daily. While the pundits still predict that this horrible plan will pass, at least the conservatives might try to make them dial it back quite a bit.

Meanwhile the hawkers of this bail out continue to preach doom and gloom if we don’t hand over a vast sum to their unsupervised hands.

A more detailed look on the scope of the bailout later today.

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Category: Business, China, Credit Backlash, Economics, Main, Recession Watch

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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