10.16.09
Posted in misc thoughts at 2:13 am by Roger
In economics, there is a term called “Dutch Disease.” It is a theory based on a real case study of the Dutch economy after the discovery of a huge natural gas reserve off the Dutch coast decades ago that brought additional wealth to the country. The basic idea is that if a country is blessed with the abundance of natural resources such as oil, natural gas, gold, etc, the country, though joyfully accumulates wealth and hard cash by exporting the resources oversea, in the long run, will suffer economically due to (1) the appreciation and the strengthening of its currency that will have an adversary impact on the export of other goods and services; for example, the manufacturing sectors will become less competitive. (2) the complacency, the lack of motivation to work hard to compete in the world market place.
Another example, after the discovery of North Sea petroleum, UK found itself transformed from a net energy importer to a net exporter. The hard currency flows in and the UK pound appreciated to a point that made it difficult for the UK manufacturers to compete globally. At the end, the manufacturing contraction took place and the economy suffered and now as far as one can tell, UK has fallen behind many others including some of its former colonies like Singapore and Hong Kong.
A recent case is the vast oil and natural gas export revenue by the Russians after the breakup of the USSR. As the world energy price went up, suddenly the Russians found themselves becoming rich overnight. The government coffer and foreign currency reserve went up. However, what happened to other industries? They just became less competitive. Thus it generated a “positive feedback”, i.e., the less competitiveness of other sectors forced Russia to depend even more heavily on the petroleum export to generate needed cash. Thus, its economic well-being is deeply dependent on the global oil price, which is strongly influenced by the world economy and, manipulated by OPEC and the Wall Street. After the 2008 financial crisis, the Russians found themselves unprepared and their economy almost collapsed, though the origin of the crisis was triggered by the sub-prime problems in the US.
In contrast, during the past few decades, the fastest growing economies in the world, namely Singapore, Hong Kong, South Korea, Japan, Israel, all are short in natural resources (none has oil field to dip or gold mine to explore), but long in highly skillful workers who have no other choice but to earn.
An analogy can be drawn between a public trade company’s equity value (stock price) and the net asset of the company. The more, say, the oil deposit or the higher the foreign currency reserve the country has, the higher the “net asset” this nation has and thus the higher value of its currency will be. For a petroleum exporting country like UAE that has net trade surplus each year is like a company that has a constant hefty loyalty income each year on top of regular revenue sales, and the loyalty income is so much so that it becomes the dominant income. What would you do if you run a company that has a regular annual loyalty income that itself can make the company profitable in spite of the poor revenue from the company’s mainstream products, and in fact, the profit from the loyalty was so high that its sales revenue becomes insignificant? Most likely you and the company would become complacent and less focus on making your mainstream product more competitive. You could even decide to stop the manufacturing line all together and spend more time in managing the profits and start investment business, or you could start to focus on real estate business in hope that your cash reserve can generate more and faster cash. On the other hand, if the company’s annual loyalty income is an insignificant portion comparing with the sales revenue from the company main stream products, it would be less likely that the company would abandon the manufacturing and switch to investment firm. Thus, a conclusion can be drawn that if the petroleum export or trade surplus become significant when compared to the national GDP, then it is a warning sign that the Dutch Disease is on its way. In other words, the devastation of Dutch disease will be more severe for the developing countries than the developed ones.
So having an abundance of natural resources for export such as petroleum, natural gas, gold and diamond constitutes a blessing or a curse all depends on how the country disposes the wealth associated with the sales of these natural resources. Is the money used for re-investment for the future, or merely for the need of today? At the end of the day, being able to maintain a healthy productivity growth rate is the key indicator of whether the nation’s economy is on a sustainable growth path or on a short-lived, Dutch disease infected road.
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09.18.09
Posted in Uncategorized at 4:46 pm by Roger
What I remember of this time of last year can be summarized by three words: is this real?
The first came the stress sale of Bear Stearns to JPMorgan Chase, then crisis at the Countrywide, then Lehman’s total failure: bankruptcy, then one after another including venerable Citibank, AIG, Bank of America, and so on and so forth. A more proper question then was not which bank or financial institute had crisis, but which bank or financial giant had no crisis. The effect of the last year’s financial melt-down can be felt throughout the world. It impacted virtually everyone on earth.
One year later, the Wall Street is still there. Stock market is recovering and the economy starts to climb out of the bottom. It doesn’t provide any comfort for those who lost their jobs but at least our financial system remains functional and a 1930-style great depression was averted. Looking back, I believe that we can learn a few lessons from this great disaster. What we did right and what we did wrong or what we could have done when sub-prime initiated tidal wave started last year. Here I would raise two topics: (1) The biggest mistake made and (2) the best decision made.
(1) The biggest mistake made was that the US government did not do something to prevent the Lehman Brothers from going into bankruptcy. In other words, the US government did not save the company. As a result of Lehman bankruptcy, it causes a strong chain reaction that almost destroyed the world economy. At the time, Bank of Korea was at the edge of considering the Lehman purchase. If the US government had somehow supported the deal, today I would probably not had written this article regarding the global financial crisis.
(2) The best decision made, or the greatest right decision made was the purchase of Merrill Lynch by the Bank of America. Looking back, we have to give Bank of America a lot of credit for their courage and guts to make such high risk and complicated transaction within 24 hours of notice. For normal purchase of a much smaller scale company, the due diligence usually would take many weeks or months but it only took Bank of America less than 24 hours to make the purchase. The decision must be based on the trust and on the intuitions and gut feelings (forget the informed business decision) of the Band of America CEO Mr. Lewis and its Board. Their original motivation might be pure commerical and less than a noble undertaking, but what they have done was something the historians will call the Tsunami Damper that prevented a total financial disaster.
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09.10.09
Posted in misc thoughts at 2:54 pm by Roger
As we all know, America’s college education is the strongest segment of our education system. Among the top 20 universities in the world, 17 are in the US. In fact, I would say that the U.S. universities are the biggest driving force behind our improvement in productivities which is estimated at 3% annual rate over the last many decades. However, the same can not be said about our elementary, middle or high schools (K-12). In fact, we are behind most developed countries. In particular, our math and science are far behind the industrialized nations such as Sweden, Japan, Singapore and Korea.
So on one hand, we have the best universities in the world, and on the other hand, we have a mediocre K-12 schools that are far behind their peers in math and science. As a result, many new college students have to drop out of school or to change their majors to a less demanding ones after one or two semesters. Take electrical engineering for example, it is said that more than 50% of the freshmen drop out of the major within two years. They are simply not prepared. They have not been properly trained in K-12 to survive and excel in the US college. There is a discontinuity or a steep step-function between our K-12 education and our university pre-requisite.
Fewer students entering the science or engineering major results in fewer college graduates with science or engineering degrees. Fewer supply than demand of qualified science and engineering professionals results in (1) severe competition among private sector employers. To attract the talents, they have to bump up the salary and benefit offerings and (2) severe shortage of math and sciences graduates available for the employers in the public sector such as public K-12 schools because of the salary discrepancies between the private and public sectors in the US.
There is therefore a gap between what the private sector is willing to offer and what the K-12 would offer. The gap becomes more profound for math and science teachers. Thus, to many new college graduates, choosing a teaching job at K-12 as their career is something out of passion, out of magnanimity, or, for some well-to-do folks, pro bono, rather than out of monetary consideration.
Adding salt to the wound, our K-12 remuneration doesn’t distinguish between a good teacher from a poor one, a highly demanded math teacher from a less demanded or readily available French language one. In other words, it is not a market driven system that follows merits and demand vs. supply relationship.
It is the insufficiency of qualified math and science teachers in our K-12 that I believe, is the very root cause of the overall unsatisfactory math and science performance of our K-12 kids. The lack of free market merit-based competition in American K12 public school system is something that ought to be addressed.
A public school teacher salary can vary depending on where school district is located. However, the median salary for K-12 teachers varies very insignificantly from the minimum around $35K to the maximum around $60K regardless of the school locations, years of experience, subject matter or teacher’s education credentials etc. In summary, our K-12 pay is not based on merit. This system in essence discourages the outstanding ones yet rewards the mediocrities.
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09.07.09
Posted in misc thoughts at 6:12 pm by Roger
A few days ago when I turned on my laptop to start the internet, a headline news popped up: “Ted Kennedy dies.”
Like most Americans, I was saddened by the news. While my eyes were reading the news from the LCD display, suddenly a thought flashed across my mind: without Ted Kennedy, we might not have been able to enjoy the internet as we know of today.
Why?
Back in the late 1970’s under President Jimmy Carter, a deregulation proposal was initiated and authored by then Senator Ted Kennedy to deregulate the airline industry (airline deregulation act of 1978). Until then, the US government, through the Civil Aeronautics Board (CAB), regulated many areas of commercial aviation such as fares, routes, and schedules. This deregulation act, however, removed many of these controls and a market driven competition started to take its course. Because of this act, many Americans started to enjoy low airfares as a result of free competition and less government regulations. More routes were added to the service as the airlines saw fit; many new airlines entered into service; the average airfare dropped by more than one-third between 1977 and 1992 after the adjustment of inflation.
The success of this airline deregulation and the reassurance of the benefits brought along by the free competition had played a key role in accelerating the breakup of Ma Bell monopoly in 1984. As many of us remember, before 1984, the whole telecommunication in America was controlled by Bell system, a conglomerate that controlled the whole communication system from the telephone and telegraph switching equipment design and manufacturing, phone line and transmission system installation, to the phone manufacturing and household phone installations. Under the Ma Bell, the long distance phone call was more a luxury that many people could not afford to, especially the international phone calls. Hardware-wize, people had no other choice but used the rotary telephones provided by the Ma Bell that had the uniform color of black. The break-up of the Ma Bell in 1984 has seen unprecedented technological innovations, greater efficiency and much lower prices for the consumers. $5 long distance calling card for 10 hours talk time and unlimited internet free chat were beyond the wildest imagination of anyone before the Bell breakup in the 1980’s. Among the technology innovations included the development of fiber optics, the internet and the wireless or even satellite communications. Today, people take fast internet transmission for granted, yet the fast internet high bandwidth communication would not have been possible if we had not broken up the Ma Bell and allowed competitions such as MCI, Global Crossing and many others to participate.
That was one of many contributions Ted Kennedy had done for his fellow folks.
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04.20.09
Posted in misc thoughts at 9:49 am by Roger
It is estimated that this current financial crisis has resulted in the evaporation of more than fifty trillion US dollars of wealth worldwide in the forms of stock loss, real estate, pension, retirement and many other losses. When people lose money, they tend to be prudent. The decline of consumer spending and the lack of money liquidity have caused the severe recession not seen since the great depression of 1930’s. Now, it seems clear that without government’s help and intervention, this “free market” based system will collapse. Maybe we should change President Reagan’s famous the State of the Union speech to this: “in the current crisis, the government is the solution to the problem, the government is not the problem.”
To get us out of the recession mess, we must make sure that people have money to spend, the companies have the money for working capital and investment, home-buyers and car purchasers must be able to get a mortgage loan and a car loan. Thus, solving banking crisis ensuring that we have a healthy banking system and the money can be flown again are the most pressing task for the Federal Reserve and the U.S. government. The Fed Chairman understands it. President Obama understands it.
Thus far, many actions are being taken by the Feds and the US Treasury to address the problem. They include bailing out (or equity investment to ) AIG, Citibank etc in the form of preferred stock or common stock purchase, buying CDO (collateralized debt obligations) and other toxic assets from banks and the mortgage giants Fannie Mae and Freddie Mac. As a result, the Administration’s fiscal year 2009 budget calls for $3.6 trillion in spending with a $1.75 trillion in deficit.
Having such high deficit naturally is something to be concerned. Would the sky-rocketing deficit someday result in severe inflation? Incidentally, Fed Chairman Ben Bernanke, also named “Helicopter Ben” by some of his critics, was known for his academic proclivity for printing money to fight for deflation during his Princeton years..
What causes inflation? Inflation occurs when there is more money than “things.” “Things” I mean both goods and services (from hereon I call it “goods”. Economics 101 taught us that the inflation is caused by too much money chasing too few goods.
We can imagine a box inside which half is money and the other half is goods. Under normal circumstances, they should be at the equilibrium point, i.e., the goods and the money should roughly equal. Since the inflation has been hovered around a few percentage in the United States for the last few decades except in the late 1970’s and early 1980’s, the money-half inside the box therefore is normally slightly higher than the goods-half. A moderate inflation is considered to be healthy and necessary because it can stimulate the consumption and therefore keep the economy rolling. However, a severe inflation will be a different story. A severe inflation will result in a significant decline in the purchase power and thus a decline in living standard. Recession will take away what you could have made; a big inflation will take away what you have already had. Therefore, inflation is as bad as recession.
On the other hand, if the goods inside the box is greater than the money, then we will see a phenomena called “deflation”, i.e., too little money and too many goods. Deflation will encourage consumers to postpone spending and delay big items purchases (because the longer you wait, the lower the price of the item you want to buy). This will result in a decline in consumption and a stagnation of the economy. It could trigger a severe recession: unemployment, layoffs, mortgage and credit loans default and real estate price decline. Therefore, deflation is dangerous, too.
Now just imagine, the cash portion inside that Box suddenly decreases significantly, say from normal 50% to, say, 20%. In other words, 30% of cash inside the box evaporates into the thin air, What would happen? Not enough cash! Cash shortage (liquidity shortage) will result in server slow down in the consumer activities and spending. This is exactly what happened in the U.S. today due to the financial crisis and stock and housing market collapse: Auto sales down roughly 40%, housing price down and down again. There is simply not enough cash inside the box for the consumers to spend. The equilibrium is broken. Suddenly, cash is the king. Unemployment soars and goods pile up and factories shut down.
It is my view that the key to solving the current financial crisis is to balance the Money and Goods within this Box. How? There are a few scenarios:
1. To hope that the evaporated money (in US, it amounts to at least ten to twenty trillion dollars) will somehow make its way back to the Box.
2. To borrow money and pump the borrowed money into the Box.
3. To create (to print, or “quantitative easing” ) money and pump the money into the Box.
4. To do nothing and let the depression take over.
Scenario 4 is the worst scenario and the last thing the Obama Administration would like to see, and in fact, is the last thing people around the world would like to see, in particular the Fed Chairman Ben Bernanke, whose research at Princeton was on the very subject of the 1930’s great depression.
Scenario 1 won’t happen either. If the money inside the Box is not sufficient enough to achieve the equilibrium point, then the consumption slows to a halt and unemployment soars and recession takes place. This will directly result in company earning decline which would further worsen the stock market value and housing prices. In other words, the imbalance within the Box will further result in an increase in the money evaporation from the Box, a positive feedback process using system engineering’s term. Therefore the scenario 1, to hope that somehow the stock market and housing market will go up and the trillions of dollars evaporated will condense back to the Box can not become reality.
Thus it leaves us only two options: the option 2 to borrow money to fill in the Box or the option 3 to print money to fill in the Box.
Assume we borrow money (most of them from oversea central banks) to fill in the Box, and if the economy does recover, that is, the consumption resumes, unemployment subsides, the factories roar, company earnings take off, the stock and the real estate market recover. As a result, the federal tax revenue will go up. The increased tax revenue will help to pay back the debt and reduce the deficit. However, what if the complete recovery doesn’t’ happen? If it doesn’t happen, then the borrowing money option will result in future money shortage and what we do is just to postpone the severe recession or depression because the Money vs. Goods imbalance will occur again. Borrowing money can not solve the problem unless the borrowed money can result in the real increase in government’s tax revenue and a real reduction in deficit over the long run.
The printing money option, on the other hand, will have its problem too. Assuming that the economy recovers: federal tax revenue up, the stock market up, housing market up, factory output up, etc. All these positive reactions will condense the evaporated money back to the Box. As a result, the “printing money” scenario too will result in the imbalance of the Money vs. Goods inside the Box. However, this time there will be more money than goods.
It is my view that, the most pressing action today is to prevent the economy from sliding into depression by fixing the ailing banking and housing systems. During the fixing process, inflation would not be a threat simply because the evaporated money is still outside the Box, in the thin air. Once the economy recovers, we would need to seriously address the possibility of inflation. Fortunately there are many ways to do so. Personally I believe that we need to have an effective mechanism to take the cash out of the system when the economy recovers and when the stock wealth and others start to return to the system. The mechanism includes selling the toxic asset (by then they won’t be so toxic anymore, and some of them may even smell like a rose! ) and equity back to the private sector and take the proceeds out of the system, by a stroke of the key board at the Federal Reserve.
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03.22.09
Posted in misc thoughts at 4:36 pm by Roger
Like most Americans I was disappointed and angry to learn the outrageous $165M bonuses distributed to the AIG executives in the names of “retention program for the talented employees,” especially to those in financial services sector who were directly responsible for the debacle of the company and subsequent government’s bailout using taxpayers hard earned money. Last Monday, a highly respected Senator, Charles Grassley of the great state of Iowa, suggested that AIG executives should take a Japanese approach toward accepting responsibility for the collapse of the insurance giant by resigning etc. I can understand the enomous anger expressed by the public from all walks of life across the country.
Criticism was also mounted on Treasury Secretary Timothy Geithner for his prior knowledge of such bonuses and his succinct acquiesce on this matter. Mr. Geithner explained later on, after President Obama’s stepping in and the strong public outcry, that he “feared the possible lawsuits by those executives against the company.” Larry Summers, the director of National Economic Council also commented, “The government can not just abrogate contract.”
What are the retention bonuses? Retention bonus is a scheduled payment of cash to some specific key employees in order to provide more incentives for them to stay on in the company for the betterment of the company. Usually the payouts are over 3 to 5 years time span distributed on some specific dates such as the employee’s anniversary with the company. Being an executive in high-tech area for many years myself, I have distributed over the years the very retention bonuses to various key employees whose departure would have had deep and negative impacts on the company’s normal operations and the shareholders’ value. However, in every single case, we had a clear written legal stipulation attached to the contract something to the effect that the distribution of the retention bonus is subject to the company’s financial situation (more specifically, profitability) and deferred payment is possible if the Board of Directors deems it necessary.
Like stock options, the retentions bonuses for executives are subject to the Board’s approval under normal circumstances. If AIG did not include the aforementioned clause or stipulation to the retention bonus contract, then it is the great blunder and incompetence with AIG top management and its Board of Directors. It doesn’t come as a surprise considering how mess the company is today.
Assume the AIG was so incompetent that it did not include the clause in the bonus contracts and the contracts were now legally binding, then how can we solve the dilemma (put aside the emotional aspect of the subject matter) between the law and morality? How can we balance how our heart feels and how our head thinks, if they are not consistent?
Larry Summers and Timothy Geithner may be right in a sense that the government cannot abrogate the contract. In fact, once the contract is signed, all parties involved should carry out the contractual obligations and should not breach the contract, whether we like it or not, as long as it is legally signed and its content is legal under the law. If anyone could arbitrarily abrogate contracts that are legally binding, it would spell the end of the western civilization. Losing confidence or trust in the Wall Street or AIG or Timothy Geithner is terrible; losing trust in Contracts is disastrous.
Now the key question is if the AIG contract is legal under the law of this land. Before answering this question, one should have a clear idea of what the law is. The most widely accepted definition of law is “as any rule that society will enforce.” As Harvard Law School professor Robert Emerson pointed out in his book “Business Law” 4th Edition, that “Law generally represents the developing, common morality of human beings… the relationship between law and morality is not mere speculation. Contracts may be found illegal if in violation of ‘public policy’, that is, contrary to the “public good.” In this sense, we could argue that the AIG retention bonus contract may be illegal because it is “contrary to the public good.” However, said argument is tenuous at best and the Court could go either direction.
Of course, the best solution is for those AIG executives who received the uncalled bonuses to return the money to the company at their own volition. This will solve the dilemma between law and morality. However, for those executives of AIG (and for that matter, all government bailout companies) that are legalistic enough to not return the taxpayers’ hard earned money, the best remedy is to solve it in a legal way, i.e., to pass a law to impose hefty taxes on these bonuses. It is not un-constitutional, as some House Republicans content; it is quite constitutional because it is not specifically punishing certain group of people, but it is protecting certain group of people: the majority of Americans.
That is just what is happening. The House has just passed a Bill , 328 to 93, to impose 90% tax rate on the bonuses for those folks involved whose income is above $250,000. This action probably is the best approach to resolve the dilemma between law and morality.
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03.08.09
Posted in misc thoughts at 5:32 pm by Roger
A review of the Inaugural Address by Franklin Roosevelt (attached below) is worth the time for all of us facing the financial crisis today:
“And I am certain, that on this day, my fellow Americans expect that on my induction into the Presidency I will address them with a candor and a decision which the present situation of our people impels. This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life, a leadership of frankness and of vigor has met with that understanding and support of the people themselves, which is essential to victory. And I am convinced that you will again give that support to leadership in these critical days.
In such a spirit on my part and on yours, we face our common difficulties. They concern, thank God, only material things. Values have shrunk to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of our industrial enterprise lie on every side; farmers find no market for their produce; and the savings of many years in thousands of families are gone.
I am prepared, under my constitutional duty, to recommend the measures that a stricken nation in the midst of a stricken world may require. These measures, or such other measures as the Congress may build out of its experience and wisdom; I shall seek, within my constitutional authority, to bring to speedy adoption.
For the trust reposed in me, I will return the courage and the devotion that befits the time. I can do no less.
We face the arduous days that lie before us in the warm courage of national unity; with a clear consciousness of seeking old and precious moral values; with the clean satisfaction that comes from the stern performance of duty by old and young alike. We aim at the assurance of a rounded, a permanent national life.
We do not distrust the future of essential democracy. The people of the United States have not failed. In their need they have registered a mandate that they want direct, vigorous action. They have asked for discipline and direction under leadership. They have made me the present instrument of their wishes. In the spirit of the gift, I take it. “
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02.23.09
Posted in misc thoughts at 1:07 pm by Roger
Not long ago, I walked by an electronic store along a narrow Hong Kong street and heard a shop assistant saying to a potential customer, “this one is based on CMOS image sensor with 2G flash card.” Of course, it was spoken in Hong Kong dialect with English words “2G” and “CMOS” in between.
It appears that what the assistant said was a very normal and prosaic sentence. However, it suddenly occurred to me, that behind the sentence, lies the greatest generation of our times.
In his book, Tom Brokaw, deeply touched by the scene at the Normady commemoration, described America’s WWII veterans and their generation as the Greatest Generation. Yes, there is no question about this generation: selfless, hard working with strong family value and high moral ethics. Yet, I would add that, the Greatest Generation for human advancement belong to the technology entrepreneurs and the technology geeks of the late 70’s and 80’s. It is those folks who made the great technological advancement in human history. Who could have imagined that by holding a cell phone of size no bigger than a chocolate bar, one can reach virtually anyone around the globe? Who could have pictured the scene where someone can relax on his backyard chair and access to virtually any information in the world?
The greatest generation of human technology advancement goes to Ted Hoffman who designed the first 4-bit microprocessor; Kilby and Noyce who invented the IC; LJ Sevin, Robert Palmer and Robert Proebsting who founded Mostek; Steve Jobs and Steve Wozniak, co-founders of Apple; Bill Gates and Paul Allen of Microsoft; Robert Noyce and Gordon Moore who founded Intel; Joe Parkinson and Ward Parkinson who founded DRAM house Micron Technology; Vinod, McNealy of Sun Microsystems; Michael McNeilly, founder of Applied Materials; and Burton Wheeler, a lithography pioneer. And don’t forget the CTOs like Bill Joy of Sun Microsystems, Tyler Lowrey of Micron Technology, Pat Gelsinger of Intel; Stefan Lai who pioneered NOR flash memory concept; Cheming Hu of UC Berkeley for his pioneering device reliability and circuit simulation work; S.M Sze, whoes Device Physics book was an institution for all semiconductor engineers. The greatest generation fo humman advancement also include many circuit designers, programmers, layout designers and process, device and technology pioneers. Many technological pioneer companies are now defunct but their legacies live on.
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02.22.09
Posted in misc thoughts at 8:03 am by Roger
Due to proximity I travel to Hong Kong from time to time. In fact, Hong Kong is one of my favorite cities due to its beautiful landscape, convenient public transportation, English language friendliness and last but not least, a variety of fine restaurants that provide cuisines from famous local dim sum, shark’s fin soup and bird’s nest soup to northern China’s peking duck to the mouth watering Ruth’s Chris steak house to ostentatious Queen her majesty afternoon tea and kidney-pie in many five-star hotels.
One thing I have noticed is that during the weekends, particularly on Sundays, there are many females in their 30’s and 40’s, doing the potluck in the parks, on the street sidewalks and almost all public places in Hong Kong. It is ubiquitous. I was told that these are folks from the Philippines, working as house maids for Hong Kong more affluent families. They usually work six days a week and have the Sunday off so they can socialize and discourse with their fellow maids from the Philippines, exchanging information, delivering items to and from their love ones back home and, just relax and enjoy themselves.
As one may know, the average income and average living standard in the Philippines is significantly lower than that in Hong Kong. A big portion of the Philippines’ foreign reserve is from the cash sent back home by these maids oversea, mainly from Hong Kong.
Upon observing further, I have noticed that these maids, though from poor family background and working as maids in another country, are quite elated, happy, vibrant and jovial. They talked openly; they laughed loudly; they seemed to be genuinely happy and worry-free. The last thing in their mind is the global financial crisis and the stock market melt-down. They are more interested in enjoying the nice weather outdoor, good home-made food brought to by the fellow maids and the conversation on home town events and sharing of working experience. I would not be surprised if their conversation is around sharing and mocking their master’s recent distress and depression over the financial crisis.
A few street blocks away, I stopped by the Peninsula, one of the most prestigious hotels in Hong Kong with Rolls Royce limos parking neatly outside the hotel front door. I sat down in the opulent lobby café to have a cup of afternoon tea. After all, it is Hong Kong, a former British colony where drinking afternoon tea has been somewhat considered to be an institution, fashionable and gentleman-like.
In between sipping the tea, I could not help overhearing some of the conversations from a few nearby tables occupied by Rolex-wearing gentlemen with Armani suit in style, and LV or Gucci hang bag-carrying ladies who wore so much jewelry that they could fill up my shoe box. By the way, the last thing I wanted to do is to mock the Rolex watch. I think it is a great watch and I wear one myself.
Contrary to the the Philippines maids’ elated and sanguine colloquial talks on the sidewalk outside where heavy traffic background noise was hardly bearable, the conversations among these self-conscious folks of high social status with soothering background live violin and piano music were saturnine, characteristically filled with deep fears over the investment loss, distress and desperation over the economic crisis. Their words epitomize a typical atmosphere nowadays among the riches (or formerly riches) in Hong Kong, Singapore and many other places.
I tried to focus on sipping the British tea, devouring the kidney pie and enjoying the light background music. Suddenly a question dawned on me: why the Phillipines maids are much happier than those who hire and employ them? If happiness is everything, then why these “masters” who have the choice to become maids themselves are not willing to transmute themselve to being maids and be happy? And why those maids who are happy but have no other choices today are trying hard to earn more money in hope of becoming the “master” themselves someday?
Maybe what human-beings are searching for are beyond happiness. Maybe it is the knowledge, hope and challenges that people are really looking for and search after.
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11.23.08
Posted in sub prime crisis at 4:45 pm by Roger
It is believed that the current financial crisis was triggered by the decline of the American home prices. After many years’ steady rise, the house bubble bursted, then the chain reaction started.
By definition, the “Housing bubble” means the price of a typical American house rises to a point that it becomes no longer sustainable in the market place and no longer bearable for the potential house buyers.
How much an average American house price has increased over the recent years after all? I believe that the best stick to measure whether the US house price is too high, too low or reasonable can be explained in terms of its relationship to an average American household income (before tax). For many years, the median American home price (I call this HousePrice/Income Ratio) had been hovered around 3 times the house owners’ medium household income. However, over the last few years, due to various reasons, mainly the easy access of credits, this number has been increased to around 4.5. The average household income in American in the year of 2007 was some $50,000. This number was somewhat higher, say $60,000, for the Americans who owned one or more houses (70% of Americans are house-owners). This translates into the average house price in America was $60,000 x 4.5 = $270,000. If the historical number of 3.0 is a proven and sustainable ratio, then the American median house price should be reduced to, $60,000 x 3.0 = $180,000, an 30% drop in the housing value in order to achieve the equilibrium state. In my personal view, the US house bubble will continue to burst until the median American house price drops to $180,000 level, unless somehow, the medium household income gets a boost within a very short period of time of which I doubt it would happen.
For a typical mortgage loan with a typical interest rate, the yearly house payment for the borrower is roughly 10% of the total mortgage amount. For example, if you take a $200,000 mortgage, the total annual house payment will be approximately $20,000. If the HousePrice/Income ratio 3.0 is used, then annual mortgage payment will be 3.0 x 10% => 30%. In other words, the maximum tolerable level for a typical American household mortgage payment is 30% of their total household income. During the housing bubble years, with the ratio of 4.5, the average mortgage payment in American was 45% of the average household income, which was, obviously in light of today’s crisis, too high to be bearable.
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