Global Financial Crisis

Views from one of my Prof.

Causes - 3 imbalance of the U.S

1) Real sector & Financial sector imbalance

The imbalance results in over leverage in the financial system, creation of a shadow banking systems where liabilities were taken off the balance sheet, coupled with weak regulations and wall street lobbying.

2) Income & Wealth imbalance

This results in

- majority under-savings, ended up taking on debts to finance their spending, leading to a debt bubble.

- minority over-savings, ended up chasing for ever higher yields, leading to an asset bubble.

3) Current Account imbalance

This leads to erosion of confidence in the economy of U.S, and fear feed upon itself.


Why Asian Economies are impacted

1) Reliance on exports
2) Lack of domestic financial systems resulting in instability due to currency and debt maturity mismatch

Solution

1) Build up domestic demand
2) Build up domestic/regional financial system

DBS Preference Shares

Updated the Preference Shares page with the latest retail offering from DBS:
http://sgretailinvestor.blogspot.com/2009/12/banks-preference-shares.html

Given that this is DBS, which enjoys the support of Temasek, company specific risks are not significant (if DBS goes belly up, Singapore will be a goner too).

The 3 key risks are:
- inflation risk (if inflation is higher than 4.7%, dividends from preference shares would be losing value)
- interest rate risk (again if fix deposits are higher than 4.7%, who wants the preference shares which comes with higher risk)
- liquidity risk. The trading volume for preference shares are pretty low.