From Volume 5, Issue Number 50 of EIR Online, Published Dec. 12, 2006

World Economic News

HSBC's Share Price Tumbles Over Bad Debts

HSBC bank (formerly, Hongkong and Shanghai Banking Corp.), the world's third-largest and Europe's largest, had its share price tumble over reports that it is suffering from bad consumer debts, the London Times reported Dec. 6. Its finance director Donald Flint indicated that default rates in the United States had deteriorated further since a trading update three weeks ago. The bank now does not expect this trend to change. This has a lot to do with the collapsing housing market as well. The bank also indicated that it would be redeploying surplus capital away from the United States, towards emerging markets.

HSBC complained that new bankruptcy laws have led more U.S. customers to file for personal bankruptcy. The bank is experiencing the same trend among its British customers, and according to the report of its first-half figures, experienced a 36% rise in bad consumer debts.

HSBC's shares fell Dec. 5 by 1.5%. Other banks, including the Royal Bank of Scotland and Lloyds, are expected to report similar problems.

Thailand Hit Hard by Dollar Collapse

The collapse of the dollar is hitting all the Asian nations, but none as hard as Thailand. The Thai baht has risen 14% against the dollar this year, as speculative money is flooding in to escape the falling dollar, The Nation reported Dec. 7. This kills their exports while also undermining foreign investment, which finds it more expensive to invest there. The head of the Japanese Chamber of Commerce in Bangkok warned of a slowdown in Japanese investment, which is 38% of Thailand's FDI (foreign direct investment).

Thai efforts to stop the speculative part of the baht's rise have been ineffective, and the potential for a new bubble is very much on the minds of the Thai officials, who remember quite well George Soros's attack in 1997, which launched the so-called "Asian crisis."

Potential for Hedge Fund Crash Worries India

"Wall Street is now controlled by a handful major hedge funds—the lack of organic liquidity is a major concern." Under this headline Dec. 2, India Daily reported that India is moving toward opening its economy to the funds, which are now prohibited from directly investing in Indian companies:

"The stock market is now controlled by handful of major hedge funds. Citadel Investment Group paid more than $5.5bn in interest, fees and other investment costs last year. That just shows how big, and well-funded these hedge funds are. Organic liquidity in the market is defined by the involvement of common people in the market. When many different market players make decisions and trade in a fair market, the market has less risk of collapsing. When that well-spread liquidity is lacking, market volatility goes down and the market becomes extremely vulnerable to the whims of a few. The possibility of manipulation rises. Above all, what is most scary, lack of well spread liquidity can literally melt the market down completely if these handful of big players decides to quit all at once.

"In 1929, similar things happened. From 1929-33 the stock market went down 86%. The main reason was the lack of regulations and the lack of well-spread-out liquidity—the organic liquidity of the stock market. The hedge funds are today unregulated. They control the market. They trade in and out, inflating the volume and profit for the exchanges. But it is a closed-loop system. In the history of financial markets, every closed-loop system eventually collapsed because one way or the other the markets big players lose sight of the fundamentals.

"It is a major concern for the whole market. The biggest concern is the fact that millions of common people are invested through their 401(k) and pension finds. If the Dow goes back to 1700 in the next four years, the misery and suffering among the common people will be enormous. The Enron scam will look like a baby."

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