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The right way to tackle current Subprime Crisis



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Aug 13 2007
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The decision by Asian central banks in refraining from joining U.S. and European counterparts in pumping additional cash into their markets should be lauded and would be the correct measure to tackle the current subprime mortgage crisis in the United States. Central banks in South Korea, the Philippines, Singapore, Indonesia, India, and Malaysia have said they were prepared to add cash into their systems if required.

Bloomberg reported that the Reserve Bank of Australia today supplied less than the usual amount of money to its financial system. The European Central Bank, the U.S. Federal Reserve and other central banks injected $154 billion to their systems on Aug. 9 and $135.7 billion on Aug. 10 to cool a credit crunch. The Bank of Japan today provided 600 billion yen to bring the overnight call loan rate to 0.53 percent from a high of 0.55 percent.

FinanceTwitter think the decision by Malaysia not to join in the craze of pumping cash into the financial market is the best ever, not that the country has huge cash like China or even Singapore to fight current crisis from U.S. Supposing the current issue was caused by a systematic plan by chain of speculators or fund managers to create volatility and panic to scoop profit, how much does the country has and willing to spend to fight it? Remember the 1997-1998 Asia Economic Crisis? Although the current issue is not comparable to the 1997 Crisis, the basic concept of fighting the plunging market is the same.

Even if Malaysia could win this war against the speculators (assuming they are the culprit), what could be the ultimate result if not the not-so-much-left reserve drained? Worst still, what if the country loses the war to the speculators? So you see, either result will not profit the country – one way or another. So it’s best to ignore the current game of injecting more funds but instead just watch from sideline, the same way most stocks investors are doing now.

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