In 1997, the Asian financial crisis that resulted in a contagion that swept through the Asian and South East Asian countries, started with Thailand devaluing its currency, the baht. The real estate of Thailand collapsed and similarly, Singapore’s property market had also nose-dived from its peak in 1996.
This was the scene 10 years ago and now it is repeating the same story but now in the US. The sub-prime mortgage problem of the US is the result of the easy credit available to the borrowers. The short-term interest rates were kept low for a long time in the US and hence this entices borrowings to buy assets. The Collaterised Debt Obligations (CDOs) is a piece of financial engineering that caught the world financial market off-guard with some mortgage houses and hedge funds getting into solvency problems.
It is apparent that the world has not learned from asset bubble problems of the past, whether it is dot.com bubble, or property market bubble, or stock market bubble. Greed, irrational exuberance, and ignorance will continue to plague human kind whether it is now or 10 years later or even 20 years later. We have to be careful and watch out for the next asset bubble.
Written on 9/16/2007 7:56 PM
Copyright © 2007, the author known as LKT in Singapore.
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.