An article to understand the subprime the root of financial crisis in US

The story of financial crisis began with the two stated owned companies Fannie Mae and Freddie Mac morgage companie (housing-mogarge) which provide loan to some subprime borrower since this twin companiese depend much from government subsidy making it less cost in raisng it fund and its went beyond its role of faciliating liquidity in housing morgage to buying bond and securities (providing loan).

Also noted that the bank play role in financial credit. Since bank need money for providing loan. Where bank get deposit? Well from interbank market which include central bank as main player. Since bank borrow from other bank it has to pay for its borrow (interest). If the interest is high then when it provide loan to borrower which included companiese and household the interest rate must be higher.

First, the rates on loans paid by many consumers (adjustable-rate mortgages, for example) and companies are set with reference to the money markets. Higher rates for banks mean higher rates for everyone. Second, if the markets are blocked for more than a week some companies may find it hard to get any finance at any price. That could mean more bankruptcies and job losses. Third, more banks could go bust if the blockage continues, making investors even more risk-averse. The downward spiral would take another turn.

This is one reason for Bush government to interven with bail-out progarm to support bank credit crunch and all main companies in U.S from bankrupt. Aslo avoiding deposit queuing to withdraw their deposit- something about rebuilding belief and new expectation.

For more detail on this point I would suggest the two links:

http://www.economist.com/finance/displaystory.cfm?story_id=11751139

http://www.economist.com/finance/displaystory.cfm?story_id=12342237

 the following article explain what is “subprime” means?

Specialist lenders:Home run

Serving subprime borrowers requires specialist skills

THE word “subprime” may now send shudders down bankers’ spines. But a number of listed lenders that specialise in making loans to people with poor or no credit histories are proving that money can be made from even the riskiest customers. The way they operate may explain why mainstream lenders find it hard to descend the credit ladder.

Last month, Provident Financial, a British lender to what it calls “non-standard” borrowers, and International Personal Finance (IPF), a spin-off from Provident that operates in eastern Europe and Mexico, both issued relatively upbeat trading statements. Both reported growth in customer numbers, as other lenders have drawn in their horns. More impressively, they also said that customer arrears had remained stable.

Specialist lenders are not immune to the effects of the crisis, of course. Funding concerns have roiled the share price of Cattles, another British lender: it is seeking a banking licence so that it can gather deposits. The severity of the economic downturn will set a stern test of lenders’ credit management. But they have a number of things in their favour.

One is the frequency of their contact with customers. Both Provident Financial and IPF collect loan payments from borrowers’ homes each week, giving them instant information if a customer is struggling. Another is the incentive scheme they operate for their agents, the bulk of whose earnings is based on how much they collect. “It is better for agents to lend less and collect more than to lend more and collect less,” says Christopher Rodrigues, IPF’s chairman. IPF’s employees habitually offer less money to borrowers than the firm’s automated credit system says they can.

Mainstream lenders cannot easily follow this approach. IPF and Provident loan out smaller sums of money (the equivalent of a few hundred dollars, typically) at shorter durations and higher rates. Banks do not have teams of agents to knock on people’s doors. Specialists make a virtue of lending to people who cannot get credit elsewhere, because that means they are not loaded up with debt. But that is the point. The shift in Cattles’ business model over the past few years, to bigger loans and remote servicing, has increased its risk profile, says Robert Self, an analyst at Credit Suisse. When serving subprime borrowers, acting like a bank can be a hindrance, not a help.

Source:http://www.economist.com/finance/displaystory.cfm?story_id=12609781

Want to Learn how to Dance?

Rom Vong

Cha cha cha

Madison

For other dance follow the above link.

Once In A Lifetime and Somebody Like You by Keith Urban

Thinking of those lonely days, I started to feel how nostalagia I was but I never give up. Always be by your side. I dont want to lose the way becuase it is hard to find the way back.

Another Joke

Surgical preferences
Four surgeons were sitting around discussing who they like to operate on.
The first surgeon said, “I like operating on librarians. When you open them up everything is in alphabetical order”.
The second surgeon said, “I like operating on accountants. When you open them up everything is in numerical order”.
The third surgeon said, “I like operating on electricians. When you open them up everything is color coded.
The fourth surgeon said, “I like operating on lawyers”.
The other three surgeons looked at each other in disbelief. One of them asked why.
The fourth surgeon replied, “Because they are heartless, gutless, spineless, and their butts and brains are interchangeable”.

The psychiatric hotline

We’ve all had the annoying experience of calling up a hotline and waiting on the phone for eons to hear all the choices the lucky touch-tone dialers receive. Well, think how frustrating that would be if you were calling the….

PSYCHIATRIC HOTLINE

The telephone rings and an answering machine answers… “Welcome to the psychiatric hotline.” If you are obsessive compulsive, please press one repeatedly.

If you are codependent, please ask someone to press 2.

If you have multiple personalities, please press 3, 4, 5, and 6.

If you are paranoid/delusional, we know who you are, what you want, just stay on the line so that we can trace your call.

If you are a schizophrenic, listen carefully, and a little voice will tell you which number to press.

If your are manic depressive, it doesn’t matter which number you press….no one will answer anyway…..

In the land of Women

Just a movie I used to watch. The most important is if you lose u need to find the way back. (^.^)

Enjoy two Fun!

The secret of a perfect relationship

 1. It’s important to have a woman who helps at home, who cooks and cleans from time to time, and has a job.

2. It’s important to have a woman who can make you laugh.

3. It’s important to have a woman who you can trust and who doesn’t lie to you.

4. It’s important to have a woman who is good in bed and who likes to be with you.

5. It’s very, very important that these four women don’t know each other

  Expensive Barbie

A man walks into Toys-R-Us and says to the sales assistant, ‘Could you show me your Barbie dolls, please?’ ‘Certainly, sir,’ she says. ‘Here, we have Fashion Barbie at £15.95, Vacation Barbie, also £15.95, Housewife Barbie – that’s £15.95 too – and Divorcee Barbie, at £215.95.’ The man is astonished. ‘Why’s Divorcee Barbie so much?’ he asks. ‘She looks the same as the others to me.’ ‘Well, sir,’ says the assistant, ‘that’s because Divorcee Barbie comes complete with Ken’s car, Ken’s house, Ken’s furniture, Ken’s dog…’

Concave and Convex, Quasi-Concave and Quasi-Convex and Economic Optimization

One point that I myself seem to igore like most economist student is about concave and convex problem but they are quite important in building economic model of optimization. I just try to summarize and imporve my memory on these overlook points. May be it can help for my future use in research.  

Concave refer to bell-shape curve (inverse U-shape) while convex is (U-shape). Why do concave and convex is important in eonomic optimization?  The answer is simple if the carve is to be convace (strictly concave) then the opitamal point must be unique. If it happen that the curve is not strictly concave then it mean a small part of the curve will be line segment then there are possible that multiple opitmal point is feasible.

What is above quasi-concave or quasi-convex curve? Well quasi-convex or quasi-concave is similar to convex and concave case but the different is that a quasi-concave curve can include both concave and convex and likewise the quasi convex and quasi-convex case. In graphical dimension, quasi-concave is noted by some reverse curvature at the tail of the curve/ Strictly concave implies stricly quais-concave likewise the strictly convex imply stricly quasi-convex.

In any opitmization method ranging from static one such as Lagrang mutliplier method with equality constraint, Kuhn-Tucker method of inequality constraint to dynamic optimization such as Pontrygain and Bellman Equation. The curvature condition play role on uniqueness of both interior solution and corner soultion.

Mathematical Optimization Necessary and Sufficient Condition

In Economics, individuals are assumed based on rationality philosophe to making the best selection or decision for satisfying their objective function. The decision has to be made with or without constrain. For example, buyers have to balanced their budget constraint with quantiy of commodity they want to purchase to maximize their utility. Firm is willing to maximize their profit based on production cost constraint. Government has to maximize social welfare under country resource constraint.  An optimial point dose not mean it has to be the maximun, that is the largest value (in absolute term) but it is maximum in relative term to its neighbourhood avialbe selection.

In mathematical fomular to proove that a point is maximum or minimum in the case of no constraint there are condition on objective function. The necessary  condition is called first order condition  and must be staitified if the point will be selected. Mathematically, the necessary condition stated that the derevative at the maximum or minimum must be zero. (Why?) The reason is that the point must located on the peak or the buttom of the carve. Imagine the case of a ball you place  on the peak of a bell-shape it there is only the point on the peak where the ball will be stable (not move).  In multivariable funciton the first order contion (F.O.C) is the case where gradient vector is zero (gradient vector is  vector of first derivative related to each choice variabe).

However, F.O.C condition is not sufficient condition. (why?) because as the example I mentioned earlier there are case where we can place the ball on curve and still maintain stable. That is the case of inflextion point and the point is not the optimal point.  Therefore we need the sufficient condition is needed. In mathematical the secondition is the second derivaitve. If the second derivative is positive then the point is minimum and if the second derative is negative the point is maximum. (Why?) Because the seconderative tell about the shape of the curve (convex or concave) that is to say if the curve is convex (U-Shape) then there will be  minimum and the concave (inverse U-Shape) will be maxmum. In multiple variable case the second order condition hast o be check by sign differential equation or Hessian Matrix.  

But if the Second-order condition is enough to say that a point is maxium or minimum.  Not necessary. because there are case where second derivative is zero that is neither positve or negative (imposible to show curvature) but the point still maximum  or minimum.  For example, consider function y=X^4. 

The point is that Necessary condition is not enough to say that a point is optimal. It must be added by sufficient condition. Sufficent condition alone is not enough to prove optimal point.  The two must be used complemntary.

Japanese Yen hit the highest in 13 Year while stock market show decline

The Financial Crisis, especially in US lead invsetors to lost confident in US dollar and tend to hold Yen. The news today at London Forex listed 1 dollar in exchange for 90 Yen 87 cents. The rise of price of Yen fear Japanese Export Company on losing its position. Will you hold Yen or dollar?  But in Japan dose price of foregin good decline. Will you go shopping now and buy import good from US? (^_^)

 
円急騰、１３年ぶり９０円台＝主要通貨で円買い－ロンドン外為

　【ロンドン２４日時事】２４日のロンドン外国為替市場では、世界的なリセッション（景気後退）不安を背景に、主要通貨に対して円買いが進み、対ドルでは１ドル＝９０円８７銭まで７円近く急騰した。当市場で９０円台をつけるのは、１９９５年８月７日以来、１３年２カ月ぶり。
　その後はややドルを買い戻す動きもあり、正午現在は９２円２５－３５銭と、前日午後４時（９７円５０－６０銭）比５円２５銭の円高・ドル安。（2008/10/24-20:48）

(Source:http://www.jiji.com/jc/zc?k=200810/2008102400945&rel=y&g=int)

Sous Le Vent by Celine Dion & Garou

Sous Le Vent
Garou:

Et si tu crois que j`ai eu peur

C`est faux

Je donne des vacances à mon cœur

Un peu de repos

 

Et si tu crois que j`ai eu tort

Attends

Respire un peu le souffle d`or

Qui me pousse en avant

Et

Fais comme si j`avais pris la mer

J`ai sorti la grand`voile

Et j`ai glissé sous le vent

Fais comme si je quittais la terre

J`ai trouvé mon étoile

Je l`ai suivie un instant 

Céline Dion:

Sous le vent

Et si tu crois que c`est fini

Jamais

C`est juste une pause, un répit

Après les dangers

Et si tu crois que je t`oublie

Écoute

Ouvre ton corps aux vents de la nuit

Ferme les yeux

Et 

Fais comme si j`avais pris la mer

J`ai sorti la grand`voile

Et j`ai glissé sous le vent

Fais comme si je quittais la terre

J`ai trouvé mon étoile

Je l`ai suivie un instant

Sous le vent

Garou:

Et si tu crois que c`est fini

Jamais

C`est juste une pause, un répit

Après les dangers  

Garou & Céline:

Fais comme si j`avais pris la mer

J`ai sorti la grand`voile

Et j`ai glissé sous le vent

Fais comme si je quittais la terre

J`ai trouvé mon étoile

Je l`ai suivie un instant

Sous le vent

Sous le vent

An overview of GSP of US,EU,Canada and Japan

It is true that trade on equal position will not the best solution for developping countries. Preferential Treatment has been established to grant some tariff reduction on export from developping countries. Genearlly, known as GSP (Genearlized System of Preferential) is applied to developping countries so that they can use these system to promote trade for developmet. GSP is different from MNF (Most Favorit Nation) which is non-discriminatory system, per-se is a discrimnatory tariff reduction. In most case GSP is a unilateral preferential from developped countries to developping countries especially Least developped countries (LDCs) which no requirement for mutual tariff reduciton from LDCs.

It is noted that according to UNCTAD (United Nation Conference for Trade and Development) there are two group within developping countries, the developping countries and Least Developped Countries (LDCs). LDCs is catagories based on three qualities: (1) Low income criterion (2) human capital status and (3) economic vulnearability (UNCTAD and UN-OHRLLS).Currently there are 49 LDCs, 15 from Asia (including Cambodia), 33 Africa and 1 Latin American and Carrabine.

Follwoing is just some briefly of preferential schem from US, EU, Canada and Japan who grant most tariff line of tariff reduction to LDCs. I just found it useful after attending presnetation by  a friend from Bangladesh during seminar this morning and come up with idea to share.  

 EU Scheme:

• Curren GSP system (1-Jan 2009 to 31 Dec 2011):   cover 176 countries and territories, 7200 products split into non-sensitive and sensitive group. Non-senstive enjoy duty free where sensitive enjoy tariff reduction (3.5% from MFN rate).
• GSP+: ( July 2005-onward): only 15 countries enjoy benfit from GSP+ (Cambodia is not in the list) benefit is duty free treatment for all kind of 7200 products without split into sensetive or not but execpt some agricultural products.
• EBA (Everything but Arms EBAs) initiative: Cover all products except arms. However, 3 agricultural products is not yet fully libealize until September 2009 (rice) and Otober 2009 (sugar) but Banana has already given since January 2002. The special characteristic of EBA is it will not be suject to periodical renewal like other GSP. (That’s would be great for Cambodia to enjoy this group but competition might be strong since most developping countries are specilized in primary products. How we compete with other Asian countries?)

US Scheme:

• US GSP (from 1-Jan-1976): Cover 131 developping countries and 42 LDCs and 3400 products. Additional product 1450 were added in 1996.

Canada Scheme:

• GPT (General Pereferential Tariff) (1-July-1974): cover 180 developping countreis. On January 2003, Canda extended duty free and quota free acess for import from LDCs including textile and closing but exept some agricultral products such as diary, poultry and egg.

Japan Scheme(from 1 Agust 1971):

• Japan GPT: cover 141 developing countries and 15 territories. Cover 337 agricultual products and 3216 industrial products. In 2007, Japan extend list of product from LDCs from 7,758 to 8,859.

Other Scheme:

• Australia: ASTP (Australian System of Tariff Preferentials) (Since 1966) 
• Swiss Scheme (Since 1 March 1972)
• Newzerland (1 January 1972)
• Norway (1972)
• Belarus (start in 2003)

*These are based on UNCTAD GSP Newsletter, 2008)

Lionel Richie – To Love A Woman

Cambodian property market fears crisis

It is true that korea oversea direct investment (ODI) account for a considerable percentage of fixed asset in Cambodia after China (China 763 millions USD, Korea 79 millions USD; Source CDC, 2006)  but in term of investment in property market korea might be the top player. Whaterver it is noted that most korea investment bump into construction industries belonging to long term investment which required time to recover fixed cost and break-even. Further, most of their investment by korean investor are finacial through korean banking system. The effect of finacial crisis while most bank in korea close down due to credit crunch (as most depositor rush to withdraw their deposit) this will lead to halt in some investment project in Cambodia. Without intervention by Korea government to insure the depositor crisis is probable and the effect should spread to Cambodia.

Following is an extract from Xinhua News Paper about the fear of crisis in Property Market in Cambodia. Enjoy reading!!!!

PHNOM PENH, Oct. 10 (Xinhua) — Cambodia’s real estate boom maybe coming to an end, with the global financial meltdown threatening foreign investment, national media reported Friday.

    ”Our property markets are closely connected with the stock markets in South Korea and other Asian countries. If these markets fall, we are affected,” Kang Chandararot, the head of the economists at the Cambodia Institute of Development Study, was quoted by the Phnom Penh Post as saying.

    ”We will see a recession in the short term, perhaps in six to 12 months,” he said.

    The South Korean government issued a statement this week urging banks to sell foreign assets to increase liquidity, the Post said.

    South Korea is Cambodia’s biggest investor and a fall in South Korea would be especially harmful to local growth, it said.

    ”South Korean and other Asian markets are very closely connected to the U.S., and these countries are our biggest investors,” said Kang Chandararot.

    Cambodia’s real estate sector has enjoyed unprecedented growth since 2007, but began to slide in mid-2008, industry sources say.

    No figures on the depth of the declines were available, but industry experts said the crisis’ impact could be felt soon.

    Meanwhile, Cheam Yeap, a lawmaker with the Cambodian People’s Party and chairman of the National Banking and Finance Committee, said the U.S. crisis might affect the Kingdom’s real estate market, but not the economy as a whole.

    He said Cambodia’s economy is sufficiently diversified in tourism, agriculture and garment manufacturing to withstand the global crisis.

Source:http://news.xinhuanet.com/english/2008-10/10/content_10176307.htm

Voice of Cambodian Women Entrepreneurs

If we look at our total population, women take large percentage to men (51% in 2005 compare to men 48.6%, NIS Data) thus women play important role in rural poverty reduction if employment is to be genearted for them. Women in Cambodia are increasing their right while social status and their enagement in business activity is also vital for country development. If you happen to visit market some day in Cambodia you would found most women are the owner of small booth selling different kinds of commodity and services. In creasing their skill in business management are of needs. Futher, understand their constraint and deal give a useful policy implication for government and donors.

Following is a new publication on the Voice of Cambodian Women Entrepreneurs published by IFC. Follow the following links for the publication.

http://www.ifc.org/ifcext/mekongpsdf.nsf/AttachmentsByTitle/Voices+of+Cambodian+Women+Entrepreneurs/$FILE/Voice-of-Cambodian-Women-Entreprenure.pdf

Not yet the last resort

It is noted that bail-out program has been used by Bank of Japan  (BoJ) in the past to bring the interest rate to zero (inter bank loan rate), Now the U.S is trying its own version.

The purpose of bail-out is to enhance liquity in financial system although it can be used to inject capital to all comercial banks as the case of Braitain. It is called quantitative easing that is to increasing credit and financial asset flows in the economy.

(1) increase loan to all economic agents regarding the defaut risk

(2) increase reserve at central bank through interest payment to depsoit of all commercial bank (the bail-out law).

(3) Bring down the interest rate through increasing money supply (buying government bonds or treasury bonds) to finght agaisnt recession.

However, in the past BoJ was fear with exhust of central bank reserved and the need of recapitalization.

Please  Enjoy the following passage from The Economist Magazine, Published Oct 9th 2008. See how Mr. Ben Bernanke doctrine is!!!!

The Fed tries its own version of quantitative easing

WHEN, on October 3rd, America’s Congress eventually approved the Bush administration’s $700 billion plan to buy troubled mortgage assets, lawmakers earned not only the gratitude of Ben Bernanke, but also a promise from him. The Federal Reserve, its chairman declared, would do its part with “all of the powers at our disposal”.

He has certainly kept his word. On October 6th the Fed doubled, to $900 billion, the planned size of the loans it auctions to banks. A day later it said it would for the first time in its history make unsecured loans to companies, including banks, by buying commercial paper that they are unable to refinance. In theory, this tactic could be used to allow the Fed to make any kind of loan, including to state and local governments and in the interbank funds market. And a day after that it joined other leading central banks in cutting interest rates, lowering its target for the federal funds rate from 2% to 1.5%. It is unlikely to stop there. The rate could end up at zero.

The rate cut was a conventional response to the growing risk of a deep recession. The other steps take the Fed farther into uncharted territory. They were made possible in large part by a provision of the bail-out law that permits the central bank to pay interest on reserves that commercial banks keep on deposit at the Fed. This is important because every time the Fed makes a loan, it creates additional bank reserves. Banks lend excess reserves to each other, putting downward pressure on the federal funds rate. To drain those reserves and offset that pressure, the Fed sells Treasury debt. But it has been lending on such a huge scale that it has used up the bulk of its Treasuries. Had it run out, its lending would have had to stop or the funds rate would fall to zero. Paying interest on reserves largely removes that risk, because it leads the banks to lend the money back to the Fed.

None of this is certain to work. Share prices fell heavily this week, and the spread of interbank lending rates over the federal funds rate set new records. Yet the Bernanke doctrine is clear: the Fed will lend as much as it must and to whomever it must to contain the credit crisis. It is far from finished. The Fed’s balance-sheet has ballooned from $900 billion in August to $1.5 trillion on October 1st, and could soon pass $2 trillion. But even that sum equals just 14% of GDP. Vincent Reinhart of the American Enterprise Institute, a think-tank in Washington, DC, notes that at the high point of its policy of “quantitative easing”, the balance-sheet of the Bank of Japan (BoJ) equalled 30% of that country’s GDP.

Indeed, the Fed’s latest actions have drawn comparisons to quantitative easing: having already cut rates to zero, the BoJ bought loads of government bonds between 2001 and 2006 in order to expand the supply of bank reserves. That helped reinforce the BoJ’s commitment to zero rates and bring down long-term rates. Its direct impact on lending, however, was much less clear.

Made in America, not Japan

In fact the Fed’s actions are fundamentally different. The creation of excess reserves (Fed liabilities) is merely the by-product of its actual goal, which is to expand loans (Fed assets). Frederic Mishkin, an economist at Columbia University who recently quit as a Fed governor, says quantitative easing is aimed at raising the overall level of liquidity in the financial system. By contrast, the Fed is aiming at the sectors that are encountering problems. “It does not want its targeted liquidity determining overall liquidity,” a job best left to standard monetary policy.

The Fed does face some constraints. One is legal: like most central banks, it is generally prohibited from unsecured lending. It gets around this, in part, by lending to its own off-balance-sheet vehicle, which holds the unsecured commercial paper. Another is political: Americans may object to their central bank displacing private lenders. But Mr Mishkin says the political risks of doing too little and letting the economy slide are far greater. A final constraint, notes Kenneth Kuttner, an economist at Williams College, is that the Fed could in theory suffer loan losses so great that it needs recapitalisation, as central banks in Chile, Hungary and the Philippines have in the past. Fears of such losses were one reason why the BoJ did not purchase much private-sector debt earlier in this decade. In 2003 Mr Bernanke, then a Fed governor, argued that such concerns were misplaced because, unlike a commercial bank, a central bank cannot go bankrupt.

Mr Bernanke seems set on a different path from the BoJ’s. Its quantitative easing came a decade after Japanese banks began to fail, when they were too weak to lend out the excess reserves the BoJ gave them. Most American banks can still lend, but uncertainty about their own and their customers’ access to funds holds them back. The Fed’s expanded liquidity thus has a better chance of being used and supporting the economy. “We have learnt from historical experience with severe financial crises that if government intervention comes only at a point at which many or most financial institutions are insolvent or nearly so, the costs of restoring the system are greatly increased,” Mr Bernanke said on October 7th. “This is not the situation we face today…the great majority of financial institutions have sufficient capital and liquidity to return to their critical function of providing new credit for our economy.”

That belief may be standing in the way of even more radical measures. Mr Bernanke has seen this crisis chiefly as one of illiquidity, not insolvency. He has thus pressed first for measures that improve liquidity, such as buying tainted assets from banks and expanding the Fed’s own lending, while being less keen than outside economists on injecting public capital into banks, as Britain did this week. Some sceptics note that banks will not seem so solvent once unavoidable loan losses are realised. Mr Bernanke may be coming round: he has played up the fact that the bail-out programme can also be used to inject capital.

Sourcehttp://www.economist.com/finance/economicsfocus/displaystory.cfm?story_id=12382019: