The Lee-Tseung Lead Out Theory

[critic]

How should the Governments handle the discredited and disgusted Financial Papers from the many 'once trusted financial institutions'?

Let us list out the alternative solutions without commenting on them in this round.

(1)   The Governments back up their Banks who issued these Financial Papers.
(2)   The Governments allow their Banks to default and collapse.
(3)   The Governments work out deals with buyers of such bonds at different levels. For example,
l   All can get the first USD100,000 back.  This will help the retirees and small investors.
l   The remaining balance will be selectively repaid.  If the investor has a good ‘meaningful economic activities’ proposal, some of the money will be released earlier.  This will stimulate a huge amount of ‘meaningful economic activities’ â€" such as mutual credits, various models, lead-out-energy machines and flying saucers.

[critic]

(1)   The Governments back up their Banks who issued these Financial Papers

Advantage:
(a)   Confidence is restored quickly.
(b)   No major changes to existing financial structure.

Disadvantage:
(a)   Government deficit will greatly increase.
(b)   The reckless behavior is effectively endorsed.

[critic]

(2)   The Governments allow their Banks to default and collapse.

Advantage:
(a)   Follow the principle that “The Market is Almighty”.  It will sort itself out.
(b)   Governments do not need to do anything.

Disadvantage:
(a)   Banks will hold on to cash for survival.  The credit system will fail.
(b)   Many paper holders will redeem for cash.  Panic mode and financial meltdown will happen.  Many Companies will collapse and high unemployment will result.

[critic]

(3)   The Governments work out deals with buyers of such bonds at different levels.

Advantages:
(a)   Can work out deals appropriate for different Governments.
(b)   Confidence can be restored.

Disadvantages:
(a)   Extremely complex and not easy to negotiate.
(b)   Affected parties will demand vigorous supervision.

When Goldman Sache and Morgan Stanley both want to become commercial banks, the future and concept of Investment Banking will be dim.  In the present mood, no buyers will trust any papers from Investment Banks.

As one of the Lehman Brother paper buyers said, “The maximum profit is 3%.  The maximum loss is 100%.  The agent Banks must be liars in recommending that as low risk investment.”

[critic]

Let us list out the alternative solutions without commenting on them in this round.

(1)   The Governments back up their Banks who issued these Financial Papers.
(2)   The Governments allow their Banks to default and collapse.
(3)   The Governments work out deals with buyers of such bonds at different levels. For example,
l   All can get the first USD100,000 back.  This will help the retirees and small investors.
l   The remaining balance will be selectively repaid.  If the investor has a good ‘meaningful economic activities’ proposal, some of the money will be released earlier.  This will stimulate a huge amount of ‘meaningful economic activities’ â€" such as mutual credits, various models, lead-out-energy machines and flying saucers.

Let me summarize the three alternatives.

Alternative (2) will definitely cause the Global Financial Meltdown.  The George Bush Government started on it but soon realized its catastrophic effects.

Alternative (1) will temporarily halt the Meltdown.  But it cannot continue as before.  Once the trust is gone, buyers of derivative papers will be very careful.  No new financial papers from the USA investment banks will be accepted.  The present papers may be the last ‘free, uncontrolled junk honored by the Governments’ from Wall Street.

Alternative (3) will require a huge amount of meaningful economic activities to absorb the cash to be released from the financial papers.  Which think tank will take on the challenge?  Hong Kong, China, Japan, USA or all together?