In an effort to ease the credit crunch, central banks around the world are racing to the bottom. Last Monday (Dec. 15), the US Fed cut the key rate to 0.25%, the lowest rate ever in history. Today (Dec. 19), the Bank of Japan reduced its key rate to 0.1%.
Welcome to the world of ZIRP: Zero Interest Rate Policy (the difference between 0.25% and 0% is negligible). There is substantial theoretical and empirical debate on whether ZIRP actually works, but the level of the interest rate simply highlights how serious the problem is.
There are some concerns on whether US will experience the same prolonged (almost two decades long) economic stagnation Japan did. There are several reasons why it is highly unlikely to happen.
1. Spending and saving behavior
One of the reasons for Japan's rapid economic growth after World War II was the massive amount of savings households make. These savings were utilized for investments, leading to the rapid industrialization.However, provided for
Friday, December 19, 2008
Thursday, December 18, 2008
27
1. Get a Ph.D.
2. Write a book
3. Be a newspaper columnist
4. Visit Bethlehem
5. Host a TV show
6. Perform as a stand-up comedian
7. Buy a RAV-4
8. Scuba dive
9. Meet the pope
10. Get an autograph of Krugman
11. Visit Batanes
12. Visit Jolo
13. Buy a Voltron Lion Toy
14. Shake Barack Obama's hand
15. Appear in a movie
16. Experience a snowy Christmas
17. Surf
18. Watch the Olympics
19. Attend a Nobel Prize in Economics Lecture
20. Eat kangaroo meat and ostrich meat
21. Learn how to bake
22. Learn how to play a musical instrument
23. Bunjee jump
24. Parachute
25. Get at least 100 stamps on my passport(s)
26. Read the Wealth of Nations by Smith and the Theory of Money by Keynes
27. Surprise!!!
2. Write a book
3. Be a newspaper columnist
4. Visit Bethlehem
5. Host a TV show
6. Perform as a stand-up comedian
7. Buy a RAV-4
8. Scuba dive
9. Meet the pope
10. Get an autograph of Krugman
11. Visit Batanes
12. Visit Jolo
13. Buy a Voltron Lion Toy
14. Shake Barack Obama's hand
15. Appear in a movie
16. Experience a snowy Christmas
17. Surf
18. Watch the Olympics
19. Attend a Nobel Prize in Economics Lecture
20. Eat kangaroo meat and ostrich meat
21. Learn how to bake
22. Learn how to play a musical instrument
23. Bunjee jump
24. Parachute
25. Get at least 100 stamps on my passport(s)
26. Read the Wealth of Nations by Smith and the Theory of Money by Keynes
27. Surprise!!!
Monday, December 15, 2008
Warning against dubious real estate agents
An interesting article posted in GMANews.tv on Dec. 15, 2008:
The article is interesting due to several reasons:
1. The article pitted two known economists (Dr. Macaranas of AIM and Dr. Diokno of UP School of Economics) against the self-serving assessment of a certain real estate broker named Maritess Bigornia, owner of the Land Treasures Realty.
2. Ms. Maritess Bigornia is not a registered real estate broker and Land Treasures Realty is not also registered with the Housing and Land Use Regulatory Board (HLURB). The writer and editor should have checked this before publishing the article.
3. Developers and real estate brokers register with the HLURB and not the PRC. In the article Ms. Bigornia was quoted as saying that"it is important for a buyer to check whether the broker is accredited with the Philippine Regulation Commission."
4. Bigornia said that the broker must be trustworthy, "has a notable track record and preferably has an office." A web search of her company reveals a website under a certain Pedro Maque. He is in the list of registered brokers but lists his office at 7F Electra House, Legaspi Village, Makati. I checked the building and the only real estate company on the 7th floor is Leomont Realty.
5. Bigornia said that “We are already at the tail-end of the crisis. We survived and we’re not thinking about that (falling prices)" which only proves Dr. Macaranas' point"But remember, the real estate agents are only interested in commission. They don’t care if your prices collapse later."
Buyers beware!
"OFWs advised against real-estate speculation"
The article is interesting due to several reasons:
1. The article pitted two known economists (Dr. Macaranas of AIM and Dr. Diokno of UP School of Economics) against the self-serving assessment of a certain real estate broker named Maritess Bigornia, owner of the Land Treasures Realty.
2. Ms. Maritess Bigornia is not a registered real estate broker and Land Treasures Realty is not also registered with the Housing and Land Use Regulatory Board (HLURB). The writer and editor should have checked this before publishing the article.
3. Developers and real estate brokers register with the HLURB and not the PRC. In the article Ms. Bigornia was quoted as saying that"it is important for a buyer to check whether the broker is accredited with the Philippine Regulation Commission."
4. Bigornia said that the broker must be trustworthy, "has a notable track record and preferably has an office." A web search of her company reveals a website under a certain Pedro Maque. He is in the list of registered brokers but lists his office at 7F Electra House, Legaspi Village, Makati. I checked the building and the only real estate company on the 7th floor is Leomont Realty.
5. Bigornia said that “We are already at the tail-end of the crisis. We survived and we’re not thinking about that (falling prices)" which only proves Dr. Macaranas' point"But remember, the real estate agents are only interested in commission. They don’t care if your prices collapse later."
Buyers beware!
Thursday, December 4, 2008
What is the worst thing that could happen to the Philippines?
Last Wednesday, I was invited by a senior class in the Polytechnic University of the Philippines (PUP) to give a lecture on the Global Financial Crisis. As students of Bachelor in Banking and Finance, they wanted to know the effects of the crisis on the Philippine banking system.
I tried to expand the lecture in such a way that the full title of my presentation was "Global Financial Crisis: Effects on the Philippine Economy and the Banking System."
About 200 junior and senior students came to listen to my lecture (of course, not voluntarily). At the end of the lecture was the main event, the seminar organizers sang and danced in a variety show with shrieking teenagers blushing while male students dance half-naked. It was an awesome experience.
After the variety show was the forum (I read somewhere that there is no such thing as a close forum because a forum by definition is "a public meeting or assembly for open discussion.") Here are some of most interesting questions and my answer:
Q: What should we do to help the country avoid recession, spend more or save more?
This a classic Keynesian dilemma. To push a country out of recession, people must increase their consumption. With tougher times expected, people tend to save more, companies sell less, and the economy contracts further. However, the situation is different in a case where you are trying to avoid recession.
It is not a matter of spending OR saving. For me, it should be spend wisely AND save wisely. Saving money by putting it under your bed will not help the economy. The money must be placed in a financial institution, it shows your confidence on the system and increases the resources available for investments.
Spending must also be done wisely. American consumers borrowed too much and spent it on unproductive assets, similar to what the government did to the US economy. To help the economy avoid recession, people must spend more on productive assets. Buy a new computer if that will increase your productivity and not because you simply want the latest model available.
A vacation every now and then is helpful, but getting a second mortgage so that you can go to that Caribbean Cruise is disastrous. You cannot actually do that in the Philippines, but the idea on wise spending must be clear.
Q: What is the worst thing that can happen to the Philippines?
"Jinggoy Estrada elected president," I said jokingly and the students laughed. "Oh sorry. I forgot Jinggoy was your biggest sponsor." He was indeed the biggest sponsor, they thanked him at the start and at the end of the seminar. His name was also on the the top of the list of sponsors flashed on the stage.
Kidding aside, I really think that a President Jinggoy will be one of the worst things that can happen to the Philippines. Other than that was the two scenarios mentioned by Dr. Medalla in the EAEA Convention.
1. GMA trying to cling to power beyond 2010
2. Filipinos pulling their investments away from the Philippines.
A lot of foreign investors have already left when the credit crunch started in late-2007 to early-2008. Now, if Filipino investors would move all their money to other countries then that will be disastrous for the Philippines.
Q: What are the key sectors that will be affected the most by the global financial crisis?
I find this very difficult to answer. My best guesses would be sectors that are more reliant on foreign money or those more connected to the international economy. These sectors include Real Estate and Exports, especially electronics.
The fate of the BPO and call center sector is still unclear. While some call center companies in the Philippines are already downsizing, some are still expanding. The very few call centers left in the US are already trying to move out. BPOs catering to the financial sector will surely be affected. Call centers that handle complaints might be affected, if US consumers buy less products, they will complain less.
There are other questions with particular concerns over the Philippine economy, how bleak the future will be. I think, it will not be far from what we use to experience.
A plane that never took off will not crash.
update:
A clear sign that the crisis is now affecting the banking and the real estate industries.
Crisis dampens interest in home loans - Inquirer (Dec. 05, 2008)
We warned before that this will happen, but banks and developers tried to shrug it off.
I tried to expand the lecture in such a way that the full title of my presentation was "Global Financial Crisis: Effects on the Philippine Economy and the Banking System."
About 200 junior and senior students came to listen to my lecture (of course, not voluntarily). At the end of the lecture was the main event, the seminar organizers sang and danced in a variety show with shrieking teenagers blushing while male students dance half-naked. It was an awesome experience.
After the variety show was the forum (I read somewhere that there is no such thing as a close forum because a forum by definition is "a public meeting or assembly for open discussion.") Here are some of most interesting questions and my answer:
Q: What should we do to help the country avoid recession, spend more or save more?
This a classic Keynesian dilemma. To push a country out of recession, people must increase their consumption. With tougher times expected, people tend to save more, companies sell less, and the economy contracts further. However, the situation is different in a case where you are trying to avoid recession.
It is not a matter of spending OR saving. For me, it should be spend wisely AND save wisely. Saving money by putting it under your bed will not help the economy. The money must be placed in a financial institution, it shows your confidence on the system and increases the resources available for investments.
Spending must also be done wisely. American consumers borrowed too much and spent it on unproductive assets, similar to what the government did to the US economy. To help the economy avoid recession, people must spend more on productive assets. Buy a new computer if that will increase your productivity and not because you simply want the latest model available.
A vacation every now and then is helpful, but getting a second mortgage so that you can go to that Caribbean Cruise is disastrous. You cannot actually do that in the Philippines, but the idea on wise spending must be clear.
Q: What is the worst thing that can happen to the Philippines?
"Jinggoy Estrada elected president," I said jokingly and the students laughed. "Oh sorry. I forgot Jinggoy was your biggest sponsor." He was indeed the biggest sponsor, they thanked him at the start and at the end of the seminar. His name was also on the the top of the list of sponsors flashed on the stage.
Kidding aside, I really think that a President Jinggoy will be one of the worst things that can happen to the Philippines. Other than that was the two scenarios mentioned by Dr. Medalla in the EAEA Convention.
1. GMA trying to cling to power beyond 2010
2. Filipinos pulling their investments away from the Philippines.
A lot of foreign investors have already left when the credit crunch started in late-2007 to early-2008. Now, if Filipino investors would move all their money to other countries then that will be disastrous for the Philippines.
Q: What are the key sectors that will be affected the most by the global financial crisis?
I find this very difficult to answer. My best guesses would be sectors that are more reliant on foreign money or those more connected to the international economy. These sectors include Real Estate and Exports, especially electronics.
The fate of the BPO and call center sector is still unclear. While some call center companies in the Philippines are already downsizing, some are still expanding. The very few call centers left in the US are already trying to move out. BPOs catering to the financial sector will surely be affected. Call centers that handle complaints might be affected, if US consumers buy less products, they will complain less.
There are other questions with particular concerns over the Philippine economy, how bleak the future will be. I think, it will not be far from what we use to experience.
A plane that never took off will not crash.
update:
A clear sign that the crisis is now affecting the banking and the real estate industries.
Crisis dampens interest in home loans - Inquirer (Dec. 05, 2008)
We warned before that this will happen, but banks and developers tried to shrug it off.
Thursday, November 20, 2008
Price falls and expensive condos
We were warning about it for about a year now... Philippine property prices will fall, at least at the luxury segment where data is available.
The dangers of falling property prices are catastrophic. Developers will stop construction, those who bought through pre-selling will lose their money... and these might lead to job losses, unfinished buildings, more bad loans for banks and possible economic stagnation.
It is ironic, however, that every time a get a flier or a pamphlet of a new condominium project I shook my head in disbelief. They are so expensive... a small studio/bachelor pad in Makati is well over one million pesos. Prices of one bedroom units range from PhP1.2 to PhP2 million depending on location. If prices are expected to fall, it should be good news for first-time home buyers... right?
According to international standards for affordable housing, the median price of housing units should be about three times the median annual income. In other words, the price of your house or condo should not exceed your annual income times three, or else it is too expensive. There are a lot of technical details to be discussed (is the median income before or after taxes? does it include bonuses?), but we shall leave them out for the meantime.
If the average price of a 1 bedroom condo in Metro manila is PhP1.5 million, then the median income should be around PhP500,000 per year or PhP41,666.67 per month. I searched for data on wages in Metro Manila and there are people who earn that amount, Senior Software Engineers, HR Managers and IT Consultants.
The Minimum Daily Wage for Non-Agricultural Workers in Metro Manila is PhP382. Their annual income is around PhP100,848 if they work 22 days a month. Using the house price to income ratio: it will take them around 10 years to buy a house worth PhP1 million if they spend all their income on a house.
The bottom line is HOUSE PRICES ARE TOO EXPENSIVE!!!
There are several reasons why Filipinos in the Philippines will find it difficult to buy a house here:
1. Developers focus mainly on Overseas Filipinos, their annual income is well-above PhP500,000 (US$10,000 using PhP50 = US$1).
2. Housing loan facilities in the Philippines are almost in-existent (Banks also tend to loan more on families of Overseas Filipinos).
3. Housing programs are uncoordinated, unsustainable and ineffective.
There are more reasons... each one can be a topic for a separate blog. How to address these problems will take more space.... For the meantime... Happy Weekend!
The dangers of falling property prices are catastrophic. Developers will stop construction, those who bought through pre-selling will lose their money... and these might lead to job losses, unfinished buildings, more bad loans for banks and possible economic stagnation.
It is ironic, however, that every time a get a flier or a pamphlet of a new condominium project I shook my head in disbelief. They are so expensive... a small studio/bachelor pad in Makati is well over one million pesos. Prices of one bedroom units range from PhP1.2 to PhP2 million depending on location. If prices are expected to fall, it should be good news for first-time home buyers... right?
According to international standards for affordable housing, the median price of housing units should be about three times the median annual income. In other words, the price of your house or condo should not exceed your annual income times three, or else it is too expensive. There are a lot of technical details to be discussed (is the median income before or after taxes? does it include bonuses?), but we shall leave them out for the meantime.
If the average price of a 1 bedroom condo in Metro manila is PhP1.5 million, then the median income should be around PhP500,000 per year or PhP41,666.67 per month. I searched for data on wages in Metro Manila and there are people who earn that amount, Senior Software Engineers, HR Managers and IT Consultants.
The Minimum Daily Wage for Non-Agricultural Workers in Metro Manila is PhP382. Their annual income is around PhP100,848 if they work 22 days a month. Using the house price to income ratio: it will take them around 10 years to buy a house worth PhP1 million if they spend all their income on a house.
The bottom line is HOUSE PRICES ARE TOO EXPENSIVE!!!
There are several reasons why Filipinos in the Philippines will find it difficult to buy a house here:
1. Developers focus mainly on Overseas Filipinos, their annual income is well-above PhP500,000 (US$10,000 using PhP50 = US$1).
2. Housing loan facilities in the Philippines are almost in-existent (Banks also tend to loan more on families of Overseas Filipinos).
3. Housing programs are uncoordinated, unsustainable and ineffective.
There are more reasons... each one can be a topic for a separate blog. How to address these problems will take more space.... For the meantime... Happy Weekend!
Monday, November 17, 2008
"I thought you were Indonesian" and other snippets
I went to an international conference last weekend. I was told thrice that they thought I was an Indonesian. First by a Filipino at the registration table, next by a Malaysian participant (she said all the Filipinos she knew look Chinese) and last by a Japanese presenter.
I am definitely buying a flag pin.
- - - - -
Former NEDA Director-General Felipe Medalla said that even with the global economic storm, the Philippine ship will not sink... because it has never left the port.
However, he warned that the port might burn down with the ship.
He cited two scenarios that may spark the fire: 1) GMA clinging to the presidency after 2010; and 2) Filipinos moving their money out of the country.
- - - - -
I got a tip from a very witty and verbose professor on how to comment on a difficult paper. Just ask "What is the second-order condition?"
Since I really don't have any idea what "second order condition" is, I won't be using that tip any time soon.
- - - - -
After introducing myself as a researcher in a real estate website, most people asked me where the Philippine real estate market is going. If you tell them that the market is holding up, they will ask for an explanation and a long discussion will ensue.
When I confirm their perception that that the real estate market is going down, they shook their heads and leave me.
- - - - -
I met a lot of good and intelligent people in the conference... and I am forever indebted to them.
- - - - -
I read two interesting blog articles today:
1. When did "Married without children become gauche?" by Rachel Shukert of the Daily Beast
"But most of all, I find hardest to take the pervasive sense that a marriage isn’t really consummated until the arrival of a blessed event—that everything from “I do” until the snipping of the umbilical cord is a prelude to real life..." read more here
2. "Clarification on why I write this blog" by Prof. Willme Buiter of the London School of Economics, published by the Financial Times.
"I write this blog for me, not for my readers. Writing things down is the only way for me to communicate effectively with myself about complex issues... There are minor vanity/ego rents to having people read what I write... But all that is secondary to my need to write. I don’t know something unless I have written it down..." read more here.
(The second article was forwarded by my boss.)
- - - - -
Happy Monday!
I am definitely buying a flag pin.
- - - - -
Former NEDA Director-General Felipe Medalla said that even with the global economic storm, the Philippine ship will not sink... because it has never left the port.
However, he warned that the port might burn down with the ship.
He cited two scenarios that may spark the fire: 1) GMA clinging to the presidency after 2010; and 2) Filipinos moving their money out of the country.
- - - - -
I got a tip from a very witty and verbose professor on how to comment on a difficult paper. Just ask "What is the second-order condition?"
Since I really don't have any idea what "second order condition" is, I won't be using that tip any time soon.
- - - - -
After introducing myself as a researcher in a real estate website, most people asked me where the Philippine real estate market is going. If you tell them that the market is holding up, they will ask for an explanation and a long discussion will ensue.
When I confirm their perception that that the real estate market is going down, they shook their heads and leave me.
- - - - -
I met a lot of good and intelligent people in the conference... and I am forever indebted to them.
- - - - -
I read two interesting blog articles today:
1. When did "Married without children become gauche?" by Rachel Shukert of the Daily Beast
"But most of all, I find hardest to take the pervasive sense that a marriage isn’t really consummated until the arrival of a blessed event—that everything from “I do” until the snipping of the umbilical cord is a prelude to real life..." read more here
2. "Clarification on why I write this blog" by Prof. Willme Buiter of the London School of Economics, published by the Financial Times.
"I write this blog for me, not for my readers. Writing things down is the only way for me to communicate effectively with myself about complex issues... There are minor vanity/ego rents to having people read what I write... But all that is secondary to my need to write. I don’t know something unless I have written it down..." read more here.
(The second article was forwarded by my boss.)
- - - - -
Happy Monday!
Thursday, November 13, 2008
The Audacity of the Audacious and the Race to 2010
I am currently reading Barack Obama's second book, "The Audacity of Hope." After he was declared as the president-elect, I could not resist the temptation of not buying the book. The book is very good (I am not yet finished, though). It provides insights on Obama's view on issues. It also provides a quick review of US and world history and current events. Ten years from now, you can judge whether his presidency changed his world view, for better or for worse, by reading this book.
According to some sources, the success of the book was actually one of the reasons why he was encouraged to run for president. The publishers and Obama's handlers were very surprised on how many people show up for book signing. It is also one of the reasons why Oprah endorsed him as "the one."
I once lamented that presidential candidates in the US write books, in the Philippines, they make movies, or movies about their life or join singing contests... or any other way for them to appear on TV.
American politicians who hoped to claim their party's nomination has a book of some sort, including McCain, Hillary Clinton, Biden, Giuliani, Kerry and Gore. It elevates their status as an intellectual, a person knowledgeable of issues and events, a statesman who can grasp the problems of their constituency and a person of experience with lessons to tell.
Here, writing books are for old, retired and nearly forgotten politicians writing their memoirs as their legacy. I am not sure who to blame for it, or if blame is actually necessary. If presidentiables write a book, I am not sure if they can actually sell more than a thousand copies. Even if they give it away for free, I am not sure if 1% of the 40 million electorate will read it.
After Obama won, I told myself (and my office mates) that at least one presidentiable will claim to be the Filipino Obama. Not a week has passed and Binay was audacious enough to claim the title (ginugel ko, audacious means bold). I can cite ten reasons why Binay is not an Obama but I'll wait to hear from him more.
So far, here are the possible presidentiables and their parties
Senate President Manny Villar: Nacionalista Party
MMDA Chairman and Celebrity Duets Champion Bayani Fernando: Lakas CMD (or his own party)
Makati Mayor Jejomar Binay: PDP-LAban
Prayer leader and losing presidential candidate Bro. Eddie Villanueva: Bangon Pilipino Movement
Senator and losing presidential candidate Panfilo Lacson: Independent
Senator Mar Roxas: Liberal Party
Senator and losing vice-presidential candidate Loren Legarda: Nationalist People's Coalition
Vice President Noli de Castro: Kampi
It is already a crowded race and I am sure a few nuisance candidates will join the race. I do really hope that there will a debate of issues and not just populist causes (Villar is pro-OFW, Legarda is pro-environment, Noli is pro-housing). Although 'causes' are good they are not good enough, not one will run as an anti-OFW, anti-environment and anti-housing crusader.
A significant issue that can and must be tackled is federalism. With two former local executives running for president, they can push for more responsibilities for local leaders. However, they probably run for president to consolidate power and they will not give up that power.
When Obama won, a lot of prominent African-Americans said that they did not expect that within their lifetime America will have a black president. Shall we witness a true presidential debates and real political parties within our lifetime?
According to some sources, the success of the book was actually one of the reasons why he was encouraged to run for president. The publishers and Obama's handlers were very surprised on how many people show up for book signing. It is also one of the reasons why Oprah endorsed him as "the one."
I once lamented that presidential candidates in the US write books, in the Philippines, they make movies, or movies about their life or join singing contests... or any other way for them to appear on TV.
American politicians who hoped to claim their party's nomination has a book of some sort, including McCain, Hillary Clinton, Biden, Giuliani, Kerry and Gore. It elevates their status as an intellectual, a person knowledgeable of issues and events, a statesman who can grasp the problems of their constituency and a person of experience with lessons to tell.
Here, writing books are for old, retired and nearly forgotten politicians writing their memoirs as their legacy. I am not sure who to blame for it, or if blame is actually necessary. If presidentiables write a book, I am not sure if they can actually sell more than a thousand copies. Even if they give it away for free, I am not sure if 1% of the 40 million electorate will read it.
After Obama won, I told myself (and my office mates) that at least one presidentiable will claim to be the Filipino Obama. Not a week has passed and Binay was audacious enough to claim the title (ginugel ko, audacious means bold). I can cite ten reasons why Binay is not an Obama but I'll wait to hear from him more.
So far, here are the possible presidentiables and their parties
Senate President Manny Villar: Nacionalista Party
MMDA Chairman and Celebrity Duets Champion Bayani Fernando: Lakas CMD (or his own party)
Makati Mayor Jejomar Binay: PDP-LAban
Prayer leader and losing presidential candidate Bro. Eddie Villanueva: Bangon Pilipino Movement
Senator and losing presidential candidate Panfilo Lacson: Independent
Senator Mar Roxas: Liberal Party
Senator and losing vice-presidential candidate Loren Legarda: Nationalist People's Coalition
Vice President Noli de Castro: Kampi
It is already a crowded race and I am sure a few nuisance candidates will join the race. I do really hope that there will a debate of issues and not just populist causes (Villar is pro-OFW, Legarda is pro-environment, Noli is pro-housing). Although 'causes' are good they are not good enough, not one will run as an anti-OFW, anti-environment and anti-housing crusader.
A significant issue that can and must be tackled is federalism. With two former local executives running for president, they can push for more responsibilities for local leaders. However, they probably run for president to consolidate power and they will not give up that power.
When Obama won, a lot of prominent African-Americans said that they did not expect that within their lifetime America will have a black president. Shall we witness a true presidential debates and real political parties within our lifetime?
Sunday, November 9, 2008
Raising the Level of Political Discourse (w/ comments on the RH Bill)
Obama won! Although my prediction on how many electoral votes he will win is way off the chart (I said 32, latest projection is 365 with Missouri's 11 votes unsettled), he won nevertheless.
As the US election campaign came to its close, it became dirtier. A lot of name-calling and fear-mongering. Obama was tagged a socialist, a radical, a liberal, a Muslim... not that they are bad or wrong to be one (definitely, I don't mind being called a radical, liberal, left-leaning Muslim.. it is just that, they are untrue).
Towards the end, McCain's campaign became more negative. In one of his speeches, he accused Obama and Democrats that "they are now planning to increase your taxes. My friends, they will raise your taxes... they are tax and spend liberals..."
There is one outrageous allegation that Obama is a baby-killer or that he will allow babies to die. With Obama and the Democrats generally pro-choice and pro-abortion, some people (especially conservative evangelicals) actually believed it.
It is actually disheartening to see the level of discourse to go that low. I am actually surprised by Mccain's gracious concession speech. It was McCain the statesman, the war hero, the maverick who reaches across the aisle speaking... not the desperate, bumbling presidential candidate.
Turning to local politics, I am disheartened and disappointed by the way the Catholic Church has responded to the Reproductive Health (RH) Bill in the House of Representatives (HB 5043). For the past few weeks, I have listened to priests denounce the RH Bill in their homilies. However, instead of focusing on the Catholic Church's belief regarding life, intimacy and creation, they often resort to fear-mongering and name calling.
Priests talk about the evil intents of lawmakers to promote DEATH. They warn that the RH bill will destroy families, lives and values. One said that human life will cease if lawmakers have their way. From yesterday's homily, the parish priest said that if children were taught reproductive health in schools then parents lose their right to teach it to their children.
(I remember one negative ad against Obama saying that Obama promotes "teaching sex education to kindergarten. Learning sex before learning how to read." Obama actually promoted age-appropriate sex education, designed to prevent sexual abuse).
A few months back, I saw on TV a priest spraying holy water on the seats of congresspeople who supported the RH bill (is he implying that RH bill supporters are possessed by the demon?).
A lot of half-truths and misleading statements are said from the pulpit. And I am in shock and awe. As far as I know, priests are required to finish a college degree. They study theology, sociology, history, language and philosophy, on top of other subjects. Those who go up the hierarchy (Monsignors, Bishops and Cardinals) study much more. Of all people, they should be able to defend the faith based on the Bible, doctrines, dogmas and Church teachings. The Catholic Church should not resort to sweeping statements or making it just a fight between good and evil (with them on the good side).
I understand the difficulty and complexity of discussing the RH bill. It deals with two sensitive topics, privacy and faith. It is very difficult to debate on faith... sometimes it is even futile. But it should not stop us from elevating the level of discourse. The discussion can be raised on so many levels, economic, scientific, medical, political, philosophical, social and theological. It must be debated and then let the people, the couples and families decide.
As the US campaign has shown, fear mongering and name calling are typically used by desperate people who are losing the debate. I am not exactly sure who is winning right now...
Kudos to professors of UP School of Economics and the Ateneo de Manila University for spearheading moves towards a meaningful discussion of issues!
Read here:
Full text of HB 5043: Reproductive Health and Population Development Act of 2008
Position papers of faculty members of:
UP School of Economics: Population, Poverty, Politics and the Reproductive Health Bill
Ateneo de Manila University: Declaration of support for the Reproductive Health Bill's immediate passage into law
and
ADMU Professors: Catholics can support the RH Bill in good conscience
Statement from the National Academy of Science and Technology in support of the RH Bill.
Catholic Bishops Conference of the Philippines: Our Firm Stand Against Contraceptive Mentality
Documents and Position papers by Couples For Christ: Foundation for Family and Life (CFC:FFL) including Catholic Teaching on Voting for Pro-Abortion Candidates.
As the US election campaign came to its close, it became dirtier. A lot of name-calling and fear-mongering. Obama was tagged a socialist, a radical, a liberal, a Muslim... not that they are bad or wrong to be one (definitely, I don't mind being called a radical, liberal, left-leaning Muslim.. it is just that, they are untrue).
Towards the end, McCain's campaign became more negative. In one of his speeches, he accused Obama and Democrats that "they are now planning to increase your taxes. My friends, they will raise your taxes... they are tax and spend liberals..."
There is one outrageous allegation that Obama is a baby-killer or that he will allow babies to die. With Obama and the Democrats generally pro-choice and pro-abortion, some people (especially conservative evangelicals) actually believed it.
It is actually disheartening to see the level of discourse to go that low. I am actually surprised by Mccain's gracious concession speech. It was McCain the statesman, the war hero, the maverick who reaches across the aisle speaking... not the desperate, bumbling presidential candidate.
Turning to local politics, I am disheartened and disappointed by the way the Catholic Church has responded to the Reproductive Health (RH) Bill in the House of Representatives (HB 5043). For the past few weeks, I have listened to priests denounce the RH Bill in their homilies. However, instead of focusing on the Catholic Church's belief regarding life, intimacy and creation, they often resort to fear-mongering and name calling.
Priests talk about the evil intents of lawmakers to promote DEATH. They warn that the RH bill will destroy families, lives and values. One said that human life will cease if lawmakers have their way. From yesterday's homily, the parish priest said that if children were taught reproductive health in schools then parents lose their right to teach it to their children.
(I remember one negative ad against Obama saying that Obama promotes "teaching sex education to kindergarten. Learning sex before learning how to read." Obama actually promoted age-appropriate sex education, designed to prevent sexual abuse).
A few months back, I saw on TV a priest spraying holy water on the seats of congresspeople who supported the RH bill (is he implying that RH bill supporters are possessed by the demon?).
A lot of half-truths and misleading statements are said from the pulpit. And I am in shock and awe. As far as I know, priests are required to finish a college degree. They study theology, sociology, history, language and philosophy, on top of other subjects. Those who go up the hierarchy (Monsignors, Bishops and Cardinals) study much more. Of all people, they should be able to defend the faith based on the Bible, doctrines, dogmas and Church teachings. The Catholic Church should not resort to sweeping statements or making it just a fight between good and evil (with them on the good side).
I understand the difficulty and complexity of discussing the RH bill. It deals with two sensitive topics, privacy and faith. It is very difficult to debate on faith... sometimes it is even futile. But it should not stop us from elevating the level of discourse. The discussion can be raised on so many levels, economic, scientific, medical, political, philosophical, social and theological. It must be debated and then let the people, the couples and families decide.
As the US campaign has shown, fear mongering and name calling are typically used by desperate people who are losing the debate. I am not exactly sure who is winning right now...
Kudos to professors of UP School of Economics and the Ateneo de Manila University for spearheading moves towards a meaningful discussion of issues!
Read here:
Full text of HB 5043: Reproductive Health and Population Development Act of 2008
Position papers of faculty members of:
UP School of Economics: Population, Poverty, Politics and the Reproductive Health Bill
Ateneo de Manila University: Declaration of support for the Reproductive Health Bill's immediate passage into law
and
ADMU Professors: Catholics can support the RH Bill in good conscience
Statement from the National Academy of Science and Technology in support of the RH Bill.
Catholic Bishops Conference of the Philippines: Our Firm Stand Against Contraceptive Mentality
Documents and Position papers by Couples For Christ: Foundation for Family and Life (CFC:FFL) including Catholic Teaching on Voting for Pro-Abortion Candidates.
Monday, November 3, 2008
Predicting an Obama win
Finally... November 4, 2008... Election Day in the United States of America.
With early voting in place, Nov. 4 is actually the last day for voting and the day votes cast will be counted. I expect Obama to win with 325 Electoral Votes against McCain's 213.
.
(Interactive electoral map from ABC News)
Based on tactics and strategy, there are several reasons why I think Obama will win.
1. His campaign is very disciplined and calculated, which I think reflects on his character. He is in control of the situation because he placed the right people at the right position.
2. As a former community organizer, Obama knows his ground game. How to encourage people to vote and how to encourage people to encourage more people to vote.
3. The campaign was able to harness the full power of the techno-savvy youth and electorate.
He was able to solicit campaign funds from people ten dollar at a time through text.
4. His eloquence helps a lot, but the research behind his speeches and interviews are remarkable. He is thoroughly briefed on the background and personal circumstances of the reporters and interviewers (not surprising why the media is biased in favor of him).
5. They were able to take advantage of the situation by focusing on the issues. When he started his campaign, the economic crisis is the yet this bad. By luck or prophecy, a campaign based on hope and change sounds better when you are in crisis (as against McCain's campaign of experience and maverick-ness).
Final note... in almost all of McCain's rallies, you'll see his wife, Cindy, behind him. It is very seldom that you'll find Michelle Obama campaigning with Barack. It is because Michelle often campaigns on her own and draws her own crowd. The same thing with vice-presidential pick Joe Biden. With Barack, Michelle and Joe campaigning separately, with the help of Hillary and Bill Clinton at times, they were able to cover more ground.
On the other hand, McCain and Palin campaigned together for one month after the Republican convention. When they campaigned separately, Palin has bigger crowds than McCain.
Once the US election is over... I hope I'll have the same enthusiasm over the 2010 Philippine Presidential Elections.
With early voting in place, Nov. 4 is actually the last day for voting and the day votes cast will be counted. I expect Obama to win with 325 Electoral Votes against McCain's 213.
.
(Interactive electoral map from ABC News)Based on tactics and strategy, there are several reasons why I think Obama will win.
1. His campaign is very disciplined and calculated, which I think reflects on his character. He is in control of the situation because he placed the right people at the right position.
2. As a former community organizer, Obama knows his ground game. How to encourage people to vote and how to encourage people to encourage more people to vote.
3. The campaign was able to harness the full power of the techno-savvy youth and electorate.
He was able to solicit campaign funds from people ten dollar at a time through text.
4. His eloquence helps a lot, but the research behind his speeches and interviews are remarkable. He is thoroughly briefed on the background and personal circumstances of the reporters and interviewers (not surprising why the media is biased in favor of him).
5. They were able to take advantage of the situation by focusing on the issues. When he started his campaign, the economic crisis is the yet this bad. By luck or prophecy, a campaign based on hope and change sounds better when you are in crisis (as against McCain's campaign of experience and maverick-ness).
Final note... in almost all of McCain's rallies, you'll see his wife, Cindy, behind him. It is very seldom that you'll find Michelle Obama campaigning with Barack. It is because Michelle often campaigns on her own and draws her own crowd. The same thing with vice-presidential pick Joe Biden. With Barack, Michelle and Joe campaigning separately, with the help of Hillary and Bill Clinton at times, they were able to cover more ground.
On the other hand, McCain and Palin campaigned together for one month after the Republican convention. When they campaigned separately, Palin has bigger crowds than McCain.
Once the US election is over... I hope I'll have the same enthusiasm over the 2010 Philippine Presidential Elections.
Friday, October 24, 2008
The Democrat and Republican in you and me
As the 2008 US Presidential Election nears, I can only lament the sorry state of our political system. We don't have political parties, we have individuals with supporters who need to call their grouping a party to fulfill election requirements.
There is nothing liberal with the views of the Liberal Party. The Nacionalista Party, bought by Senator Villar is not more nationalistic than the Nationalist People's Coalition of Danding Cojuangco. At least I know that Ramos' Lakas CMD is about 'palakasan' (roughly translated as cronyism) and GMA's KAMPI party is all about 'kampihan' (us versus you). Erap's Partido ng Masang Pilipino is a party of Erap and FPJ fans. And then we have all the political leaders with their own parties, PDP-Laban, LDP, PRP, and the list continues.
I have been a member of political parties in the past... when I worked as a poll watcher in the past three elections, I had to sign the ID which basically makes me a member of the party thus eligible to be a watcher. Since my paid-poll-watching days are over, I don't think I will be a member of a political party in the future.
If I am an American, I am not sure if I will be a registered party member even if I am likely to vote for Obama, the nominee of the Democratic Party.
Democrats are generally anti-war, pro-women's rights, pro-environment, pro-choice, and pro-stem cell research. They hold the right to privacy sacred. They believe that there should be a clear separation between church and state. They favor a more interventionist government in terms of regulation, education, and health care.
Republicans are pro-life, pro-market, pro-democracy and pro-God. They place special value to the right to bear arms. They generally advocate lower taxes, less regulation and more globalization. They are more likely to think the America is the most supreme country on earth and they should go to great lengths to promote and preserve America-type democracy.
However, political beliefs are not strict dogmas to be followed strictly by all party members. People are not Blue Democrats and Red Republicans, there many shades of violets, purples and magentas in between. Politicians tend to be more centrist and populist as election nears. Individuals are allowed to reach across the isle and be bi-partisan to pass crucial legislation (almost all Filipino politicians vote for personal reasons and not according to party stand... party stand does not exist).
I am still in the process of assessing where I stand on several issues. I believe that there are government failures and market failures, and there should be a balance between regulation and letting the market work freely (where is that balance is very difficult to find). I believe couples should have access to reproductive health services but abortion is never an option. I think that the government should protect the environment but not to the extent that we ban all mining and logging. I believe that gun ownership should be strictly regulated. I think that it was wrong for America to act as the world's police and occupy Iraq.
Having written that... actually, I think I am leaning a bit more like a Democrat, to a certain extent... I think.
That was difficult!!! Being rational for your political views is actually very difficult.
Now I understand why people end up just saying "I don't like McCain (or Jovito Salonga), he is old" or "I'll vote for Obama (or Erap), he is handsome."
There is nothing liberal with the views of the Liberal Party. The Nacionalista Party, bought by Senator Villar is not more nationalistic than the Nationalist People's Coalition of Danding Cojuangco. At least I know that Ramos' Lakas CMD is about 'palakasan' (roughly translated as cronyism) and GMA's KAMPI party is all about 'kampihan' (us versus you). Erap's Partido ng Masang Pilipino is a party of Erap and FPJ fans. And then we have all the political leaders with their own parties, PDP-Laban, LDP, PRP, and the list continues.
I have been a member of political parties in the past... when I worked as a poll watcher in the past three elections, I had to sign the ID which basically makes me a member of the party thus eligible to be a watcher. Since my paid-poll-watching days are over, I don't think I will be a member of a political party in the future.
If I am an American, I am not sure if I will be a registered party member even if I am likely to vote for Obama, the nominee of the Democratic Party.
Democrats are generally anti-war, pro-women's rights, pro-environment, pro-choice, and pro-stem cell research. They hold the right to privacy sacred. They believe that there should be a clear separation between church and state. They favor a more interventionist government in terms of regulation, education, and health care.
Republicans are pro-life, pro-market, pro-democracy and pro-God. They place special value to the right to bear arms. They generally advocate lower taxes, less regulation and more globalization. They are more likely to think the America is the most supreme country on earth and they should go to great lengths to promote and preserve America-type democracy.
However, political beliefs are not strict dogmas to be followed strictly by all party members. People are not Blue Democrats and Red Republicans, there many shades of violets, purples and magentas in between. Politicians tend to be more centrist and populist as election nears. Individuals are allowed to reach across the isle and be bi-partisan to pass crucial legislation (almost all Filipino politicians vote for personal reasons and not according to party stand... party stand does not exist).
I am still in the process of assessing where I stand on several issues. I believe that there are government failures and market failures, and there should be a balance between regulation and letting the market work freely (where is that balance is very difficult to find). I believe couples should have access to reproductive health services but abortion is never an option. I think that the government should protect the environment but not to the extent that we ban all mining and logging. I believe that gun ownership should be strictly regulated. I think that it was wrong for America to act as the world's police and occupy Iraq.
Having written that... actually, I think I am leaning a bit more like a Democrat, to a certain extent... I think.
That was difficult!!! Being rational for your political views is actually very difficult.
Now I understand why people end up just saying "I don't like McCain (or Jovito Salonga), he is old" or "I'll vote for Obama (or Erap), he is handsome."
Tuesday, October 21, 2008
The biggest crisis of our life?
The past few weeks are among the most turbulent times in the global financial market. It may actually be the biggest economic crisis since the Great Depression (1929 - 1939). To most of us, we do not have any idea what that means.
The closest Filipinos can relate to are the 1983 economic crisis, when the US decided to stop financially supporting the Marcos regime. The next economic crisis after that was largely due to the military adventures launched by the now- Honorable Senator Gringo Honasan. Still, they were textbook readings for me as I was still a kid when those happen.
The 1997 Asian Crisis is a little bit clearer. I entered college in June 1998, Ramos welcomed us with the great accomplishments of his administration. Then the economic and political disaster named Erap (1998 - 2001). Most people really didn't care much about the economy back then, pro-Erap people pinned the economic woes on Ramos. Anti-Erap people blamed Erap.
And now the current global financial mess. This is the first economic and financial mess I am able to follow in my professional life. It is both intriguing and extremely exhaustive to understand. Mankiw and Mishkin (textbooks) tell you one thing while the whole world tells you another. One problem is that US textbooks go to great lengths to explain the US economy (as expected), while better systems exist.
Case in point, I am examining the effects of the financial meltdown on three developed Asian economies that are all heavily reliant on exports, Singapore, Hong Kong and South Korea. Singapore adjusts monetary policy through their exchange rate, Hong Kong adopts US interest rates while South Korea adjusts interest rates but heavily subsidizes different parts of the economy. And everything in between is chaotic.
How about the Philippines... we are more complicated actually. The Bangko Sentral ng Pilipinas adjusts key interest rates but banks follow the Treasury bills rate which is controlled by the Bureau of Treasury, which is under the department of Finance... meaning, Teves has more control over lending rates than Tetangco.
Our stock market is very small, nobody cares how the international crisis affects us. No international news agency reports what happens to our stock market. A few percentage point loss in the US stock market is enough to wipe out our entire stock market. in the late 1990s, The Economist included the Philippines in their Key Statistics for Key Emerging Markets, recently they dropped us in favor of Pakistan.
It is very depressing... but I am quite sure, there will be more crises, as in more crises that our generation will encounter through our lifetime.
The closest Filipinos can relate to are the 1983 economic crisis, when the US decided to stop financially supporting the Marcos regime. The next economic crisis after that was largely due to the military adventures launched by the now- Honorable Senator Gringo Honasan. Still, they were textbook readings for me as I was still a kid when those happen.
The 1997 Asian Crisis is a little bit clearer. I entered college in June 1998, Ramos welcomed us with the great accomplishments of his administration. Then the economic and political disaster named Erap (1998 - 2001). Most people really didn't care much about the economy back then, pro-Erap people pinned the economic woes on Ramos. Anti-Erap people blamed Erap.
And now the current global financial mess. This is the first economic and financial mess I am able to follow in my professional life. It is both intriguing and extremely exhaustive to understand. Mankiw and Mishkin (textbooks) tell you one thing while the whole world tells you another. One problem is that US textbooks go to great lengths to explain the US economy (as expected), while better systems exist.
Case in point, I am examining the effects of the financial meltdown on three developed Asian economies that are all heavily reliant on exports, Singapore, Hong Kong and South Korea. Singapore adjusts monetary policy through their exchange rate, Hong Kong adopts US interest rates while South Korea adjusts interest rates but heavily subsidizes different parts of the economy. And everything in between is chaotic.
How about the Philippines... we are more complicated actually. The Bangko Sentral ng Pilipinas adjusts key interest rates but banks follow the Treasury bills rate which is controlled by the Bureau of Treasury, which is under the department of Finance... meaning, Teves has more control over lending rates than Tetangco.
Our stock market is very small, nobody cares how the international crisis affects us. No international news agency reports what happens to our stock market. A few percentage point loss in the US stock market is enough to wipe out our entire stock market. in the late 1990s, The Economist included the Philippines in their Key Statistics for Key Emerging Markets, recently they dropped us in favor of Pakistan.
It is very depressing... but I am quite sure, there will be more crises, as in more crises that our generation will encounter through our lifetime.
Thursday, October 2, 2008
Do we need a Pinoy Obama?
Years from now, wikipedians, historians and pundits will look at the past two weeks as the reasons why Obama won the US presidency in 2008. There are 5 main reasons why Obama won:
1. Sarah Palin (if she is not lying, she is fumbling)
2. Presidential Debates (to go or not to go)
3. Economy (it's the economy, stupid)
4. Campaign Ads (Lipstick on a pig)
5. Iraq War (tell that to the Marines)
Barrack Hussein Obama, Jr. will be the first African-American president of the USA, not a descendant of a slave traded in colonial times but literally the son of an African-Kenyan and an American. He is an intellectual heavyweight with humble roots. His parents met in the University of Hawaii, where his mother earned her PhD in Anthropology. His father Barrack Obama, Sr. was a graduate scholar in Hawaii, and later earned a Master's degree in Economics from Harvard. (Can a Ravanilla be the first Asian-American president of the US?)
Barrack Obama, the Democratic presidential nominee, has degrees in Political Science from University of Columbia and Law from Harvard. He worked as a community organizer, a law senior lecturer at University of Chicago, an Illinois State Senator, and a US Senator of Illinois.
Obama runs on a platform of change and hope. With almost everything screwed up in the US today, he has a lot of things to change: the economy, budget, housing, finance, labor market, two wars and everything else in between. The task is enormous and it makes Obama's HOPE mantra more powerful.
In difficult times, more than the ability to make difficult decisions, pick the right people, and push difficult reform provisions, a leader must be able to inspire people. The need to inspire is the same reason why people vote for politicians they can relate to, candidates who can feel (or at least appear to feel) their pain.
(This is the same reason why Erap became president and why he remains popular. He does not have a college degree, the same with about 60%-70% of Filipino adults. Erap would love to talk with the average-hockey-mom from Alaska, and they will have thousands of things to talk about.)
The ability to inspire people to do things for themselves separates good leaders from less notable ones. More than just being the highest technocrat or bureaucrat, leaders who inspired people leave a lasting memory, they move a nation for a greater cause... Abraham Lincoln, Winston Churchill, Ramon Magsaysay and Junichiro Koizumi, to name a few.
With the crisis the Philippines is facing, do we need an Obama? Probably not... as Obama said in one of his most mocked statements "we are the ones we have been waiting for." We should not spend countless hours looking for people to inspire us, we should strive hard to be an inspiration for other people.
We do not need to look outside to find great inspirations, we have Among Ed Panlilio of Pampanga, Grace Padaca of Isabela, and Jessie Robredo of Naga City. But what have we done? Local politicians in Pampanga are trying to unseat Among Ed. Robredo and Padaca are trapped in a system that it seems they cannot be elected to a higher office. And we are left with politicians on the national level rewarded for mudslinging, defamation and grandstanding.
Reform and change are very difficult. We need leaders with the political will to do the reforms, the technical skills to implement them and the charisma to rally the nation behind him. Not just rhetoric and showing off, We need a change that we can believe in.
1. Sarah Palin (if she is not lying, she is fumbling)
2. Presidential Debates (to go or not to go)
3. Economy (it's the economy, stupid)
4. Campaign Ads (Lipstick on a pig)
5. Iraq War (tell that to the Marines)
Barrack Hussein Obama, Jr. will be the first African-American president of the USA, not a descendant of a slave traded in colonial times but literally the son of an African-Kenyan and an American. He is an intellectual heavyweight with humble roots. His parents met in the University of Hawaii, where his mother earned her PhD in Anthropology. His father Barrack Obama, Sr. was a graduate scholar in Hawaii, and later earned a Master's degree in Economics from Harvard. (Can a Ravanilla be the first Asian-American president of the US?)
Barrack Obama, the Democratic presidential nominee, has degrees in Political Science from University of Columbia and Law from Harvard. He worked as a community organizer, a law senior lecturer at University of Chicago, an Illinois State Senator, and a US Senator of Illinois.
Obama runs on a platform of change and hope. With almost everything screwed up in the US today, he has a lot of things to change: the economy, budget, housing, finance, labor market, two wars and everything else in between. The task is enormous and it makes Obama's HOPE mantra more powerful.
In difficult times, more than the ability to make difficult decisions, pick the right people, and push difficult reform provisions, a leader must be able to inspire people. The need to inspire is the same reason why people vote for politicians they can relate to, candidates who can feel (or at least appear to feel) their pain.
(This is the same reason why Erap became president and why he remains popular. He does not have a college degree, the same with about 60%-70% of Filipino adults. Erap would love to talk with the average-hockey-mom from Alaska, and they will have thousands of things to talk about.)
The ability to inspire people to do things for themselves separates good leaders from less notable ones. More than just being the highest technocrat or bureaucrat, leaders who inspired people leave a lasting memory, they move a nation for a greater cause... Abraham Lincoln, Winston Churchill, Ramon Magsaysay and Junichiro Koizumi, to name a few.
With the crisis the Philippines is facing, do we need an Obama? Probably not... as Obama said in one of his most mocked statements "we are the ones we have been waiting for." We should not spend countless hours looking for people to inspire us, we should strive hard to be an inspiration for other people.
We do not need to look outside to find great inspirations, we have Among Ed Panlilio of Pampanga, Grace Padaca of Isabela, and Jessie Robredo of Naga City. But what have we done? Local politicians in Pampanga are trying to unseat Among Ed. Robredo and Padaca are trapped in a system that it seems they cannot be elected to a higher office. And we are left with politicians on the national level rewarded for mudslinging, defamation and grandstanding.
Reform and change are very difficult. We need leaders with the political will to do the reforms, the technical skills to implement them and the charisma to rally the nation behind him. Not just rhetoric and showing off, We need a change that we can believe in.
Friday, September 26, 2008
Parallels between the Crises in Asia (1997) and the US
Despite all the complexities of financial markets and financial products, when there is a crisis the problem can often be broken down to simple economic issues. The parallels between the 1997 Asian Financial Crisis and the current US Financial market meltdown are so staggering, chief central bankers in Asia can be sent now to US to lecture Bernanke and Paulson.
Here are the similarities:
1. Overexposure to real estate
Awash with foreign earnings, Asian banks started lending heavily to companies. Since it was very easy to obtain credit, private companies invested heavily in real estate, even if their main business has very little to do with property. Even fly-by-night companies can get a loan to build a subdivision or condominium.
In the US, the mortgage market kept on expanding since China's appetite for American securities seem insatiable. Small mortgage companies provided housing loans to everybody, including NINJAs (people with No Income, No Jobs, no Assets).
2. Lack of regulation
The expansion of the financial market in Asia in the 1980s and early 1990s was so fast, regulators (Central Banks, SECs and finance departments/ ministries) were caught flat-footed. Institutions for monitoring and regulating real estate markets were either missing or ill-equipped. In the Philippines, the alphabet soup of regulatory agencies (McCain's favorite term, until recently) dealing with the housing market is still in disarray. The agencies with housing in its name include HLURB, HUDCC, HMF (Pag-ibig Fund), NHMF, NHA, HGC, and SHFC (with so many homeless people in the Philippines, I am not sure what do they all do).
In the US, the regulations put in place after the Great Depression were gradually removed by the government. Hence, there is a call for greater regulation and oversight in the current US elections. (Actually after the US$70 billion bailout package, they don't need to regulate anything anymore since they'll end up partially owning the entire financial industry.)
3. Corruption
Companies owned by government officials, their families and cronies benefited a lot from the housing and lending booms in Asia before the crisis struck. And when the government injected money to revive the industry, they benefited once more (I think we have a very rich senator who made a lot of money from banking and real estate).
In the US, the corruption is not that obvious... they call it lobbying. Lobbyists push congress and the government to loosen regulations and to look the other way. Worse, they actually use economic studies to push their corrupt cause.
4. Politics
In several countries in Asia, the financial crisis led to a change in leadership. Populists with a pro-poor agenda won in South Korea, Indonesia, Thailand and the Philippines. On whether they fulfilled their campaign promises is another matter.
In the US, the economic mess by the Republican Bush administration seem to benefit the Democrats led by Barrack Obama.
5. Bailout
With the economy in a mess, it needs bailing out. In Asia, the IMF, ADB and World Bank contributed for bailout funds for the Asian economies.
In the US, they are bailing out themselves probably by borrowing internationally. If they were in Zimbabwe, they would simply print more money until everybody becomes a trillionaire.
Here are the similarities:
1. Overexposure to real estate
Awash with foreign earnings, Asian banks started lending heavily to companies. Since it was very easy to obtain credit, private companies invested heavily in real estate, even if their main business has very little to do with property. Even fly-by-night companies can get a loan to build a subdivision or condominium.
In the US, the mortgage market kept on expanding since China's appetite for American securities seem insatiable. Small mortgage companies provided housing loans to everybody, including NINJAs (people with No Income, No Jobs, no Assets).
2. Lack of regulation
The expansion of the financial market in Asia in the 1980s and early 1990s was so fast, regulators (Central Banks, SECs and finance departments/ ministries) were caught flat-footed. Institutions for monitoring and regulating real estate markets were either missing or ill-equipped. In the Philippines, the alphabet soup of regulatory agencies (McCain's favorite term, until recently) dealing with the housing market is still in disarray. The agencies with housing in its name include HLURB, HUDCC, HMF (Pag-ibig Fund), NHMF, NHA, HGC, and SHFC (with so many homeless people in the Philippines, I am not sure what do they all do).
In the US, the regulations put in place after the Great Depression were gradually removed by the government. Hence, there is a call for greater regulation and oversight in the current US elections. (Actually after the US$70 billion bailout package, they don't need to regulate anything anymore since they'll end up partially owning the entire financial industry.)
3. Corruption
Companies owned by government officials, their families and cronies benefited a lot from the housing and lending booms in Asia before the crisis struck. And when the government injected money to revive the industry, they benefited once more (I think we have a very rich senator who made a lot of money from banking and real estate).
In the US, the corruption is not that obvious... they call it lobbying. Lobbyists push congress and the government to loosen regulations and to look the other way. Worse, they actually use economic studies to push their corrupt cause.
4. Politics
In several countries in Asia, the financial crisis led to a change in leadership. Populists with a pro-poor agenda won in South Korea, Indonesia, Thailand and the Philippines. On whether they fulfilled their campaign promises is another matter.
In the US, the economic mess by the Republican Bush administration seem to benefit the Democrats led by Barrack Obama.
5. Bailout
With the economy in a mess, it needs bailing out. In Asia, the IMF, ADB and World Bank contributed for bailout funds for the Asian economies.
In the US, they are bailing out themselves probably by borrowing internationally. If they were in Zimbabwe, they would simply print more money until everybody becomes a trillionaire.
Tuesday, September 16, 2008
Is the worst yet to come?
The financial market is in a mess. The 158 year old investment bank, Lehman Brothers went bankrupt. The US government bailed out Freddie Mac and Fannie Mae, America's mortgage giants. Bank of America, the largest commercial bank in the US, swallowed Merrill Lynch. Bear Stearns was swallowed by JP Morgan Chase, with the help of the Fed. The Fed is about to swallow AIG.
As Bush tried to explain the crisis in July, "Wall Street got drunk... It got drunk and now it's got a hangover." Two months later, it seems Wall Street is not just sobering up, it is detoxifying. It got high while authorities are watching investors take drugs.
When I was researching about the US mortgage market a year ago, I was surprised and baffled by their system. When interest rates are falling, borrowers can refinance their loan, i.e. adjust the conditions of the loan to bring down the interest rate. In most cases, refinancing also include increasing the loan amount to reflect the increase in property value.
Most loans are fixed for 20 or more years. So when interest rates are rising, borrowers would simply hold to the loans. Borrowers can also choose from a wide array of mortgage options. In one mortgage option, borrowers don't have to pay anything for the first five years.
The system is almost risk free for borrowers. It seems too good to be true... and it was too good to be true. After a mortgage lender has released the loan, mortgages are bundled together and sold as mortgage-backed securities (MBS). A big chunk of these securities were bought by Freddie mac and Fannie Mae. The rest are bought by commercial banks, investments banks, mutual fund companies, trust funds and different financial institutions.
When property values started falling, the value of MBS fall. When borrowers started defaulting on their mortgages, these MBS became worthless. And this is why all these financial institutions are in trouble. Well, there are other reasons why they are in trouble including higher interest rates, higher inflation and weaker economy but the sub-prime mortgage crisis is the main root of the current financial crisis.
One problem in Wall Street is that there was a lack of transparency, something heard more referring to governments. Financial institutions refuse to divulge how much they invested in these troubled assets. For an investment bank to disclose how much it invested in a particular sector is like telling other companies their investment strategy.
The financial market is not as efficient as economists hope it should be, it is prone to the influence of animal spirits, self-fulfilling prophecies and voodoo dolls and feng-shui. If everybody expects markets to crash and pull out their investments and then the market will surely crash. These financial institutions think that if they keep their losses until the worst is over then they might survive the crisis.
And now here are the problems. Monetary and fiscal authorities failed to exercise their supervisory and regulatory power. The US government bailed the Freddie Mac and Fannie Mae this year that should have been done last year. The Fed helped JP Morgan buy Bear Stearns, by lending it money. If Bear Stearns was allowed to fall, Lehman would not have hoped that the Fed would also help them.
The problem is called in economics as moral hazard problem. As authorities give explicit or implicit guarantees to institutions that are "too big to fall" they become reckless. In a market-based economy characterized by competition, there are always winners and losers. There are No too-big-to-fall winners and no too-big-to-fall losers.
Inefficient and under-capitalized banks and financial institutions must be allowed to collapse before the market can get better. More banks should be allowed to fall. More financial institutions should be allowed to collapse. They took high risks and their investments failed. And no matter what happens, it is small investors like me who will pay eventually.
As Bush tried to explain the crisis in July, "Wall Street got drunk... It got drunk and now it's got a hangover." Two months later, it seems Wall Street is not just sobering up, it is detoxifying. It got high while authorities are watching investors take drugs.
When I was researching about the US mortgage market a year ago, I was surprised and baffled by their system. When interest rates are falling, borrowers can refinance their loan, i.e. adjust the conditions of the loan to bring down the interest rate. In most cases, refinancing also include increasing the loan amount to reflect the increase in property value.
Most loans are fixed for 20 or more years. So when interest rates are rising, borrowers would simply hold to the loans. Borrowers can also choose from a wide array of mortgage options. In one mortgage option, borrowers don't have to pay anything for the first five years.
The system is almost risk free for borrowers. It seems too good to be true... and it was too good to be true. After a mortgage lender has released the loan, mortgages are bundled together and sold as mortgage-backed securities (MBS). A big chunk of these securities were bought by Freddie mac and Fannie Mae. The rest are bought by commercial banks, investments banks, mutual fund companies, trust funds and different financial institutions.
When property values started falling, the value of MBS fall. When borrowers started defaulting on their mortgages, these MBS became worthless. And this is why all these financial institutions are in trouble. Well, there are other reasons why they are in trouble including higher interest rates, higher inflation and weaker economy but the sub-prime mortgage crisis is the main root of the current financial crisis.
One problem in Wall Street is that there was a lack of transparency, something heard more referring to governments. Financial institutions refuse to divulge how much they invested in these troubled assets. For an investment bank to disclose how much it invested in a particular sector is like telling other companies their investment strategy.
The financial market is not as efficient as economists hope it should be, it is prone to the influence of animal spirits, self-fulfilling prophecies and voodoo dolls and feng-shui. If everybody expects markets to crash and pull out their investments and then the market will surely crash. These financial institutions think that if they keep their losses until the worst is over then they might survive the crisis.
And now here are the problems. Monetary and fiscal authorities failed to exercise their supervisory and regulatory power. The US government bailed the Freddie Mac and Fannie Mae this year that should have been done last year. The Fed helped JP Morgan buy Bear Stearns, by lending it money. If Bear Stearns was allowed to fall, Lehman would not have hoped that the Fed would also help them.
The problem is called in economics as moral hazard problem. As authorities give explicit or implicit guarantees to institutions that are "too big to fall" they become reckless. In a market-based economy characterized by competition, there are always winners and losers. There are No too-big-to-fall winners and no too-big-to-fall losers.
Inefficient and under-capitalized banks and financial institutions must be allowed to collapse before the market can get better. More banks should be allowed to fall. More financial institutions should be allowed to collapse. They took high risks and their investments failed. And no matter what happens, it is small investors like me who will pay eventually.
Thursday, September 4, 2008
Obama in, GMA out. McCain in, GMA stays?
Iraq War. Historic high oil prices. Sub-prime mortgage crisis. Philippine occupation.
What do they have in common? They all happened while a Republican is in the White House.
Flashback: 1901
US is an emerging US power. US President William McKinley, a Republican, annexed the Philippines, Puerto Rico and Guam after winning the Spanish-American War.
As a colony, the highest government offices in the Philippine Islands were all held by Americans. This continued to the next decade as Republicans continue to rule the US. While the Philippine-American War was ongoing, the government implemented "Benevolent Assimilation", intended to teach "brown monkeys" civility.
Things changed in 1913, when Woodrow Wilson, a Democrat became president. The US government changed its track in dealing with their colonies, a series of policy changes which eventually led to Philippine independence. Why the shift in policy? The Democrats realized that it was too costly to maintain the Philippine Islands as a colony.
In 1933, a Democrat-led US Congress passed the Hares-Hawes-Cutting Law overriding a veto by Pres. Herbert Hoover, a Republican. It was the first law dealing with the decolonization of the Philippines. However, the Philippine Senate led by Manuel Quezon rejected the law.
In 1934, a revised version of the law was passed, the Tydings-McDuffie Law or the Philippine Independence Act. It was signed by Pres. Franklin Roosevelt, a Democrat. It led to the creation of the Commonwealth of the Philippines in 1935 with a ten-year transition period before full independence.
Interrupted by World War 2, there were talks that the Philippines should not be independent in 1945. But with a Democrat US president, Harry Truman, the Philippines became independent in 1946.
When Ferdinand Marcos declared Martial Law in 1971, the White House was occupied by Republican Richard Nixon. When Martial Law was lifted in January 1981, the White House was occupied by Democrat Jimmy Carter.
The ousting of Marcos might have happened earlier if Democrats continued to occupy the White House. However, because Republican Ronald Reagan was president from 1981-1989, we had to endure more of Marcos. Marcos was ousted by People Power in 1986, but Reagan allowed Marcos to live in exile in Hawaii.
Back to the present:
Iraq is the new Philippines (remember that Macario Sakay, the last Filipino general to surrender to Americans, was called an Insurgent). Republican John McCain is against pull-out from Iraq. Democrat Obama is calling for an end to American occupation of Iraq.
Republicans have a long history of keeping loyal dictators in power as long as they support the US against whatever it is fighting... communism then and terrorism now.
GMA supported the War in Iraq and she was elected in May 2004. In July 2004, sure that she "won" the election, she ordered a pull-out of Philippine troops from Iraq so that kidnap victim Angelo delaCruz can be released.
Now, here is where the conspiracy theorist in me gets excited. Remember when GMA went to the US and tried to meet both US candidates... she was able to talk in person to McCain but not to Obama (he called her instead)...
What are the chances... Obama in White House in 2008, GMA out of Malacanang in 2010. McCain in White House, GMA stays...
Historical Sources:
Corpuz, O.D. (1997). An Economic History of the Philippines. Quezon City, UP Press.
Constantino, R. (1996). Ang Bagong Lumipas. Quezon City, UP Press.
What do they have in common? They all happened while a Republican is in the White House.
Flashback: 1901
US is an emerging US power. US President William McKinley, a Republican, annexed the Philippines, Puerto Rico and Guam after winning the Spanish-American War.
As a colony, the highest government offices in the Philippine Islands were all held by Americans. This continued to the next decade as Republicans continue to rule the US. While the Philippine-American War was ongoing, the government implemented "Benevolent Assimilation", intended to teach "brown monkeys" civility.
Things changed in 1913, when Woodrow Wilson, a Democrat became president. The US government changed its track in dealing with their colonies, a series of policy changes which eventually led to Philippine independence. Why the shift in policy? The Democrats realized that it was too costly to maintain the Philippine Islands as a colony.
In 1933, a Democrat-led US Congress passed the Hares-Hawes-Cutting Law overriding a veto by Pres. Herbert Hoover, a Republican. It was the first law dealing with the decolonization of the Philippines. However, the Philippine Senate led by Manuel Quezon rejected the law.
In 1934, a revised version of the law was passed, the Tydings-McDuffie Law or the Philippine Independence Act. It was signed by Pres. Franklin Roosevelt, a Democrat. It led to the creation of the Commonwealth of the Philippines in 1935 with a ten-year transition period before full independence.
Interrupted by World War 2, there were talks that the Philippines should not be independent in 1945. But with a Democrat US president, Harry Truman, the Philippines became independent in 1946.
When Ferdinand Marcos declared Martial Law in 1971, the White House was occupied by Republican Richard Nixon. When Martial Law was lifted in January 1981, the White House was occupied by Democrat Jimmy Carter.
The ousting of Marcos might have happened earlier if Democrats continued to occupy the White House. However, because Republican Ronald Reagan was president from 1981-1989, we had to endure more of Marcos. Marcos was ousted by People Power in 1986, but Reagan allowed Marcos to live in exile in Hawaii.
Back to the present:
Iraq is the new Philippines (remember that Macario Sakay, the last Filipino general to surrender to Americans, was called an Insurgent). Republican John McCain is against pull-out from Iraq. Democrat Obama is calling for an end to American occupation of Iraq.
Republicans have a long history of keeping loyal dictators in power as long as they support the US against whatever it is fighting... communism then and terrorism now.
GMA supported the War in Iraq and she was elected in May 2004. In July 2004, sure that she "won" the election, she ordered a pull-out of Philippine troops from Iraq so that kidnap victim Angelo delaCruz can be released.
Now, here is where the conspiracy theorist in me gets excited. Remember when GMA went to the US and tried to meet both US candidates... she was able to talk in person to McCain but not to Obama (he called her instead)...
What are the chances... Obama in White House in 2008, GMA out of Malacanang in 2010. McCain in White House, GMA stays...
Historical Sources:
Corpuz, O.D. (1997). An Economic History of the Philippines. Quezon City, UP Press.
Constantino, R. (1996). Ang Bagong Lumipas. Quezon City, UP Press.
Tuesday, September 2, 2008
Why change (and poverty alleviation) is difficult?
Change is good... and so is poverty alleviation... but even if everybody agrees that poverty must be eradicated (or reduced at the least), it is not easy, it never was and never will be.
One reason is that poverty alleviation involves change, and change involves uncertainty... and everything in between is complicated. From an individual point of view, change may be desired generally but the fear of uncertainty is too great that (s)he would rather settle for the current status... no matter how mediocre or how pitiful the current situation is.
For instance, the government intends to relocate people living under bridges or next to esteros and canals. There are several reasons for their relocation, it is dangerous for those living there, especially when there are storms and floods. The informal settlers impede the flow of water, worsening flooding. They throw their waste directly into the water, leading to pollution.
Relocating them might be good for the general public and to them as well. They can be provided temporary housing or permanent relocation site or a fare back to their province. But all the options involve uncertainty for them. The relocation site might be far and inaccessible. They might not be able to find jobs there. They might not be able to find people to look after their children when they work. All these uncertainties may be enough to convince them that they are better off looking for a nearby bridge or estero to live at.
There is another problem... with great changes come much greater expectations. You hope for changes and improvements... But what if you get disappointed... During elections, we here politicians promise change, some old politicians promise the same things they promised the previous election. Some people vote for the dismal current state simply because they don't want to be disappointed.
The secret to happiness... says one joke... lowered expectations. This is probably the reason why poverty is easier to escape than to eradicate.
There are other problems with change... sometimes, the road to hell is littered with good intentions. Proposals intended to protect or help the people in the short run, might be disastrous in the long run. These might include legislated across the board wage increases, rent control, VAT abolition, and zero-rated loans.
And sometimes, it boils down to implementation... The devil is in the details. A hydroelectric dam that will provide renewable source of energy, irrigation and drinking water involves the destruction of villages and relocation of thousands of people. The Clean Air Act prohibited incinerators, instead of burning we are burying our garbage, including dangerous, contaminated hospital wastes.
Some people might call me a pessimist, for me, I think I am a "realist". Realizing that poverty alleviation is difficult puts into context why so many great ideas failed and will continue to fail. Change involves everybody, everybody (or at least the majority) must agree that they want change.
Poverty alleviation involves everybody, but not everybody agrees how to reduce poverty.
One reason is that poverty alleviation involves change, and change involves uncertainty... and everything in between is complicated. From an individual point of view, change may be desired generally but the fear of uncertainty is too great that (s)he would rather settle for the current status... no matter how mediocre or how pitiful the current situation is.
For instance, the government intends to relocate people living under bridges or next to esteros and canals. There are several reasons for their relocation, it is dangerous for those living there, especially when there are storms and floods. The informal settlers impede the flow of water, worsening flooding. They throw their waste directly into the water, leading to pollution.
Relocating them might be good for the general public and to them as well. They can be provided temporary housing or permanent relocation site or a fare back to their province. But all the options involve uncertainty for them. The relocation site might be far and inaccessible. They might not be able to find jobs there. They might not be able to find people to look after their children when they work. All these uncertainties may be enough to convince them that they are better off looking for a nearby bridge or estero to live at.
There is another problem... with great changes come much greater expectations. You hope for changes and improvements... But what if you get disappointed... During elections, we here politicians promise change, some old politicians promise the same things they promised the previous election. Some people vote for the dismal current state simply because they don't want to be disappointed.
The secret to happiness... says one joke... lowered expectations. This is probably the reason why poverty is easier to escape than to eradicate.
There are other problems with change... sometimes, the road to hell is littered with good intentions. Proposals intended to protect or help the people in the short run, might be disastrous in the long run. These might include legislated across the board wage increases, rent control, VAT abolition, and zero-rated loans.
And sometimes, it boils down to implementation... The devil is in the details. A hydroelectric dam that will provide renewable source of energy, irrigation and drinking water involves the destruction of villages and relocation of thousands of people. The Clean Air Act prohibited incinerators, instead of burning we are burying our garbage, including dangerous, contaminated hospital wastes.
Some people might call me a pessimist, for me, I think I am a "realist". Realizing that poverty alleviation is difficult puts into context why so many great ideas failed and will continue to fail. Change involves everybody, everybody (or at least the majority) must agree that they want change.
Poverty alleviation involves everybody, but not everybody agrees how to reduce poverty.
Friday, August 22, 2008
Poverty... causes and effects
Poverty... ahhh.... sweet, sweet poverty. Not a day passes without a mention, a glimpse or a discussion about poverty. It causes everything and is a result of everything.
In the Philippines, poverty causes migration, corruption, starvation, prostitution, abortion, destruction, rebellion, deprivation, malnutrition, and lack of education. Further, poverty affects peace and order, the credibility of elections, the efficiency of workers, and the temperament of the president. It leads to housing congestion, squatting and urban slums. It even worsens global warming.
And what causes poverty, the same things... migration, corruption, rebellion, deprivation, malnutrition, and lack of education. The lack of peace and order causes poverty.
The idea is best captured in the Vicious Cycle of Poverty. Poor households have more children because they see them as assets that can help them escape poverty. Some say that they might be lucky that one of their children will be able to go abroad to become rich (or marry a rich spouse). They think that the more children they have the bigger the chances that one of them will become rich.
Some poor households are less fatalistic, they see their children as labor stock. More children means more workers and more money. They see their children as their pension, health insurance and disability compensation.
But alas... because they have so many children resources are stretched. Their children end up undernourished and uneducated. The entire family ends up poorer than before. The cycle of poverty comes around.
Poverty causes poverty. Because of its power to explain everything and anything, it explains nothing.
Despite all the efforts of the World Bank and the Asian Development Bank to see a world without poverty, poverty is here to stay. It is very difficult to solve poverty.
It is actually easier to escape poverty than to solve it. And perhaps, poverty is not a problem. Poverty is just a symptom of several problems.
In the Philippines, poverty causes migration, corruption, starvation, prostitution, abortion, destruction, rebellion, deprivation, malnutrition, and lack of education. Further, poverty affects peace and order, the credibility of elections, the efficiency of workers, and the temperament of the president. It leads to housing congestion, squatting and urban slums. It even worsens global warming.
And what causes poverty, the same things... migration, corruption, rebellion, deprivation, malnutrition, and lack of education. The lack of peace and order causes poverty.
The idea is best captured in the Vicious Cycle of Poverty. Poor households have more children because they see them as assets that can help them escape poverty. Some say that they might be lucky that one of their children will be able to go abroad to become rich (or marry a rich spouse). They think that the more children they have the bigger the chances that one of them will become rich.
Some poor households are less fatalistic, they see their children as labor stock. More children means more workers and more money. They see their children as their pension, health insurance and disability compensation.
But alas... because they have so many children resources are stretched. Their children end up undernourished and uneducated. The entire family ends up poorer than before. The cycle of poverty comes around.
Poverty causes poverty. Because of its power to explain everything and anything, it explains nothing.
Despite all the efforts of the World Bank and the Asian Development Bank to see a world without poverty, poverty is here to stay. It is very difficult to solve poverty.
It is actually easier to escape poverty than to solve it. And perhaps, poverty is not a problem. Poverty is just a symptom of several problems.
Tuesday, August 19, 2008
Friday, August 15, 2008
Wall-E, Socialism and CommercialiSM
Wall-E, the latest movie from Walt Disney, has several serious undertones despite the pretensions that it is a heart-warming comedy about a lonely robot left to clean-up the earth. Aside from the obvious warnings over the environment and laziness, the movie plays on what humans can and cannot do. On the surface, it seems a blatant attack on consumerism and commercialization. In the future, only one company will remain and it will take over the role of the government. In marketing and industrial behavior, linkages have several advantages. Right now people withdraw money from henry sy bank to buy henry sy items in henry sy mall. Soon, you will ride the henry sy train to go to three different henry sy malls before going home to your henry sy condominium.
In the movie, after the humans left the earth while a robot cleans it they live in a utopian society. Humans in the spacecraft Axiom live in complete equality, no social divisions, no countries, no races, no income classes (no work, too), and no gender (no sex, also). Everybody eats the same thing. They wear the same clothes (though you can change the color by a touch of a button). Everybody does the same thing (which is nothing). What governments failed to achieve in USSR, China, North Korea and Cuba, was done by a private company.
And for me, that was the creepy part. Humans live harmoniously and peacefully simply because they do not interact with one another. There is no poverty, no struggles. All the impossible goals of the world achieved. But in achieving these goals, people ceased to be humans. They became huge blobs of fat, wandering off in space. They live long, uneventful lives. Life is boring but they are surviving. And as the ship’s captain said “I don’t want to survive, I want to live.”
So, the next time I feel like I want to complain, I’ll probably watch Wall-E to see how lucky I am that my life is full of challenges.
P.S.
Connecting Wall-E to housing, housing markets in socialists countries are boring subjects. The government builds housing units for everyone. People live in similar, monotonous flats except for party officials who live in bigger, more luxurious units (All pigs are equal but some pigs are more equal than others, with apologies to George Orwell). No house price cycles because people are not allowed to sell their government-issued housing units. Housing markets in capitalist societies are probably the worst, except all those that have been tried from time to time (again with apologies to Winston Churchill).
Friday, August 8, 2008
Predicting a housing market crash
Late last year, I was quoted as saying “substantial market reform would be needed to sustain the real estate boom. Though the market is positive, there are warning signs…” These warning signs include imminent oversupply, the appreciation of the peso against the dollar and slow growth (even fall) in property lending despite the “real estate boom.”
22 Dec, 2007 2008 PROPERTY FORECAST: ‘Positive growth from OFWs, but be wary’ (Inquirer.net)
http://showbizandstyle.inquirer.net/lifestyle/lifestyle/view_article.php?article_id=108291
The positive outlook on the housing market is shared with this article.
23 Dec, 2007 Will 2007 real estate boom go on in 2008? (Manila Times)
http://www.manilatimes.net/national/2007/dec/23/yehey/top_stories/20071223top4.html
In April this year, we wrote that Asia’s housing market will likely slowdown due to the rapid increase in oil and rice prices. The Philippines is particularly vulnerable because of the warning signs I have already mentioned.
21 April, 2008 Slowdown looms for Philippines’ housing market (Business World/ GMA News)
http://www.gmanews.tv/story/90554/Slowdown-looms-for-Philippines-housing-market
When property developers announced that they were hiking their prices by 5% to 20%, I was asked again on whether the market can accommodate the increase. In the article I said “The real estate market typically goes through a cycle of rising and falling prices, it seems that we are now near the end of the house price boom.”
26 June, 2008 End to local housing boom in sight (Business World)
http://www.bworldonline.com/BW062608/content.php?id=101&src=2
full article available here http://philrealtyinfonews.blogspot.com/2008/06/end-of-local-housing-price-boom-in.html
15 July, 2008 Should one buy property now to beat price increases (Inquirer.net)
http://globalnation.inquirer.net/propertyfocus/propertyfocus/view/20080715-148542/Should-one-buy-property-now-to-beat-price-increases
Of course, real estate developers and agents disagree with my prognosis. Several articles say that the real estate market is actually doing fine. One statement even boasts that the Philippines is the hottest real estate market in the region. However, people should be able to differentiate a press release from news.
Press releases typically do not cite facts and figures. They are full of colorful and glossy statements of what may happen that will lead you to either buy the property they are selling or invest your money in their company.
Where is the housing market heading? Let me give you a run through of news from January to August.
15 Jan 2008 Property demand seen close to peak of cycle: Analysts say boom may last for 2-3 years (Inquirer.net)
http://business.inquirer.net/money/breakingnews/view_article.php?article_id=112371
25 Feb, 2008 Fil-Estate offer fails to draw enough interest (Inquirer.net)
http://business.inquirer.net/money/topstories/view/20080225-121167/Fil-Estate-offer-fails-to-draw-enough-interest
26 March, 2008 Metro Pacific ended losing streak in '07 (Inquirer.net)
http://business.inquirer.net/money/topstories/view_article.php?article_id=126420
04 April, 2008 RP Property firms look closer to home for sales (Inquirer.net)
http://blogs.inquirer.net/househunter/2008/04/14/rp-property-firms-look-closer-to-home-for-sales/
20 June, 2008 Construction cost up 20%; property firms hurting (Inquirer.net)
http://business.inquirer.net/money/breakingnews/view/20080620-143724/Construction-cost-up-20-property-firms-hurting
(note: if property developers raised their selling prices by less than 20%, it means they are absorbing some of the costs, this leads to lower revenues and profits)
22 July 2008 BPO space, condo glut seen (Manila Times)
http://www.manilatimes.net/national/2008/july/22/yehey/business/20080722bus1.html
(note: excellent article based on the latest Colliers Market Report)
03 July, 2008 Property stocks tumble on expected interest rate hikes (Inquirer.net)
http://business.inquirer.net/money/breakingnews/view/20080703-146196/Property-stocks-tumble-on-expected-interest-rate-hikes
04 July, 2008 Philippine properties ‘hottest’ in Southeast Asia (Inquirer.net)
http://showbizandstyle.inquirer.net/lifestyle/lifestyle/view/20080704-146540/Philippine-properties-hottest-in-Southeast-Asia
16 July, 2008 When flat is top (Opinion) (Manila Times)
http://www.manilatimes.net/national/2008/july/16/yehey/opinion/20080716opi6.html
(note: a reaction to the news above)
29 July, 2008 Eton projects in full blast despite tough conditions (Manila Standard Today)
http://www.manilastandardtoday.com/?page=business3_july29_2008
03 August, 2008 DMCI Homes sees 11% growth in sales (Inquirer.net)
http://business.inquirer.net/money/breakingnews/view/20080803-152431/DMCI-Homes-sees-11-growth-in-sales
(note: if they raised their selling prices by 12% but sales/ revenues rose by 11%, it means they actually lost money. When adjusted for inflation, their sales actually fell. )
04 Aug, 2008 Prices of construction materials expected to rise (Philippine Star/ ABS-CBN News)
http://www.abs-cbnnews.com/storypage.aspx?StoryId=127197
08 Aug, 2008 Fil-Estate widens losses on bigger expenses (GMA News)
http://www.gmanews.tv/story/112338/Fil-Estate-widens-losses-on-bigger-expenses
22 Dec, 2007 2008 PROPERTY FORECAST: ‘Positive growth from OFWs, but be wary’ (Inquirer.net)
http://showbizandstyle.inquirer.net/lifestyle/lifestyle/view_article.php?article_id=108291
The positive outlook on the housing market is shared with this article.
23 Dec, 2007 Will 2007 real estate boom go on in 2008? (Manila Times)
http://www.manilatimes.net/national/2007/dec/23/yehey/top_stories/20071223top4.html
In April this year, we wrote that Asia’s housing market will likely slowdown due to the rapid increase in oil and rice prices. The Philippines is particularly vulnerable because of the warning signs I have already mentioned.
21 April, 2008 Slowdown looms for Philippines’ housing market (Business World/ GMA News)
http://www.gmanews.tv/story/90554/Slowdown-looms-for-Philippines-housing-market
When property developers announced that they were hiking their prices by 5% to 20%, I was asked again on whether the market can accommodate the increase. In the article I said “The real estate market typically goes through a cycle of rising and falling prices, it seems that we are now near the end of the house price boom.”
26 June, 2008 End to local housing boom in sight (Business World)
http://www.bworldonline.com/BW062608/content.php?id=101&src=2
full article available here http://philrealtyinfonews.blogspot.com/2008/06/end-of-local-housing-price-boom-in.html
15 July, 2008 Should one buy property now to beat price increases (Inquirer.net)
http://globalnation.inquirer.net/propertyfocus/propertyfocus/view/20080715-148542/Should-one-buy-property-now-to-beat-price-increases
Of course, real estate developers and agents disagree with my prognosis. Several articles say that the real estate market is actually doing fine. One statement even boasts that the Philippines is the hottest real estate market in the region. However, people should be able to differentiate a press release from news.
Press releases typically do not cite facts and figures. They are full of colorful and glossy statements of what may happen that will lead you to either buy the property they are selling or invest your money in their company.
Where is the housing market heading? Let me give you a run through of news from January to August.
15 Jan 2008 Property demand seen close to peak of cycle: Analysts say boom may last for 2-3 years (Inquirer.net)
http://business.inquirer.net/money/breakingnews/view_article.php?article_id=112371
25 Feb, 2008 Fil-Estate offer fails to draw enough interest (Inquirer.net)
http://business.inquirer.net/money/topstories/view/20080225-121167/Fil-Estate-offer-fails-to-draw-enough-interest
26 March, 2008 Metro Pacific ended losing streak in '07 (Inquirer.net)
http://business.inquirer.net/money/topstories/view_article.php?article_id=126420
04 April, 2008 RP Property firms look closer to home for sales (Inquirer.net)
http://blogs.inquirer.net/househunter/2008/04/14/rp-property-firms-look-closer-to-home-for-sales/
20 June, 2008 Construction cost up 20%; property firms hurting (Inquirer.net)
http://business.inquirer.net/money/breakingnews/view/20080620-143724/Construction-cost-up-20-property-firms-hurting
(note: if property developers raised their selling prices by less than 20%, it means they are absorbing some of the costs, this leads to lower revenues and profits)
22 July 2008 BPO space, condo glut seen (Manila Times)
http://www.manilatimes.net/national/2008/july/22/yehey/business/20080722bus1.html
(note: excellent article based on the latest Colliers Market Report)
03 July, 2008 Property stocks tumble on expected interest rate hikes (Inquirer.net)
http://business.inquirer.net/money/breakingnews/view/20080703-146196/Property-stocks-tumble-on-expected-interest-rate-hikes
04 July, 2008 Philippine properties ‘hottest’ in Southeast Asia (Inquirer.net)
http://showbizandstyle.inquirer.net/lifestyle/lifestyle/view/20080704-146540/Philippine-properties-hottest-in-Southeast-Asia
16 July, 2008 When flat is top (Opinion) (Manila Times)
http://www.manilatimes.net/national/2008/july/16/yehey/opinion/20080716opi6.html
(note: a reaction to the news above)
29 July, 2008 Eton projects in full blast despite tough conditions (Manila Standard Today)
http://www.manilastandardtoday.com/?page=business3_july29_2008
03 August, 2008 DMCI Homes sees 11% growth in sales (Inquirer.net)
http://business.inquirer.net/money/breakingnews/view/20080803-152431/DMCI-Homes-sees-11-growth-in-sales
(note: if they raised their selling prices by 12% but sales/ revenues rose by 11%, it means they actually lost money. When adjusted for inflation, their sales actually fell. )
04 Aug, 2008 Prices of construction materials expected to rise (Philippine Star/ ABS-CBN News)
http://www.abs-cbnnews.com/storypage.aspx?StoryId=127197
08 Aug, 2008 Fil-Estate widens losses on bigger expenses (GMA News)
http://www.gmanews.tv/story/112338/Fil-Estate-widens-losses-on-bigger-expenses
Friday, August 1, 2008
Promoting Housing for All
In her 2008 SONA, GMA asked Congress to allow SSS and GSIS to increase the allowable amount of loans for housing from the current 10% limit. This is to address here earlier promise of housing for everyone. In her previous SONAs, she talked about housing in terms of increasing the amount of loans provided by Pag-ibig, the state owned housing lending corporation. She also mentioned the number of housing units constructed and distributed by the National Housing Authority.
The government’s approach to housing is archaic, the state directly involved in the production of housing units or the provision of housing loans. Except for the city-states of Singapore and Hong Kong where you can literally count the population, direct provision of housing by the government typically lead to disastrous consequences.
If the government intends to promote housing, the government should instead cut taxes that impede the housing market. This includes the 6% Capital Gains Tax (CGT), which is a misnomer. In other countries the CGT is imposed on the increase in property values or capital gains. Only in the Philippines that the capital “GAINS” tax is imposed on the entire selling price.
Aside from the CGT, the seller also has to pay 5% real estate agent’s commission, 1.5% documentary stamp tax and legal fees. The buyer, on the other hand, pays for the local transfer tax (0.5% - 0.75%), registration and notarial fees and his lawyer.
Because of the prohibitive costs, a prospective seller is discouraged from selling the property unless the actual gains are enough to cover all the taxes involved in selling the property. For instance, if the value of your property rose by 15% but upon selling it you have to pay around 13% for taxes and commission, then you are left with only 2% net income. Because property owners are discouraged from selling their property, the enormous housing deficit worsens, leading to more expensive properties.
With the costs of buying and selling properties in the Philippines among the highest in Asia, it is no wonder why there are so many homelessness people and squatters here.
Removing or reducing the 6% CGT would not lead to much tax loss anyway. According to a study in 2001, sellers report a lower selling price (by as much as 2 times lower the actual selling price) to minimize the CGT. The resulting transparency in real estate transactions is more than enough to compensate from the minuscule tax loss. Moreover, if sellers report the real price of the property, the government will be able to collect more property taxes which are more sustainable.
There are other measures needed to promote housing including simplifying the property registration process. In the Philippines, you have to deal with 3 government offices for registration (the City or Municipal Office, the BIR and the Land Registration Authority). The process is completed in 3 months to a year depending on how much you are willing to produce for grease money. In New Zealand, you deal with only one office and the registration process is completed in two days.
To promote housing, abolish the 6% CAPITAL GAINS TAX!
P.S.
After an eternity, the proposed bill creating The Land Registration Authority passed the committee level in the House of Representatives. I wonder how many eternities we have to wait before it is enacted into a law.
Wednesday, April 23, 2008
Explaining in TheExplainer
Monday… arriving late for work, this offline message from my boss greeted me:
Manolo Quezon saw the inflation press release and asks if you can appear on his program this Tuesday evening.
I tried to dismiss it as an April Fool’s joke… until my boss approached me...
“I said yes in your behalf, is that okay?” he said with a sheepish grin.
I gave him a blank stare.
I was more surprised when I learned that the main topic was the rice crisis. The press release was about the possible effects of rising fuel and food prices on
What do I know about rice (except for that stupid comment on rice from my previous blog)…
We tried to contact Mr. Manolo Quezon and warned him that I know nothing about rice… I am seriously trying to back-out (especially after learning that it will be broadcast live at 6pm).
Mr. Quezon called me and discussed the flow of the show. He assured me that I have nothing to worry about.
And there I was… I was the guest on TheExplainer on their April 22, 2008 (Earth Day) episode. A replay will be shown on Saturday, April 26 at 10:00 am on ANC.
Wednesday, April 16, 2008
Stupid Solution to Rice Crisis
There is a rice price crisis... here is a stupid solution...
And here is a stupid statement regarding the pullout of NFA rice from public markets:
“If they are saying that there is enough supply of rice so why hide it? Besides 90% of Filipinos are already poor so it will be best if the NFA rice remains in the market, if not then [President] Gloria [Macapagal-Arroyo] is playing with fire. If their plan pushes through then she will again face the wrath of the people and she may finally be ousted,” said Kilusang Magbubukid ng Pilipinas (KMP) chairman Rafael “Ka Paeng” Mariano.
I wonder where they get their statistics and logic...
Why are newspapers quoting them?
Vicente Domingo, national chairman of the Kapisanan ng Magsasaka, Mangingisda at Manggagawa ng Pilipinas (KAMMPInc.), recommended a three-phase “speed move” to avert the rice crisis -- to form a new politics, get rid of political dynasties, form a new congress and a new republic.
http://newsinfo.inquirer.net/topstories/topstories/view/20080415-130565/Problem-is-price-not-supply-says-ex-NFA-execAnd here is a stupid statement regarding the pullout of NFA rice from public markets:
“If they are saying that there is enough supply of rice so why hide it? Besides 90% of Filipinos are already poor so it will be best if the NFA rice remains in the market, if not then [President] Gloria [Macapagal-Arroyo] is playing with fire. If their plan pushes through then she will again face the wrath of the people and she may finally be ousted,” said Kilusang Magbubukid ng Pilipinas (KMP) chairman Rafael “Ka Paeng” Mariano.
I wonder where they get their statistics and logic...
Why are newspapers quoting them?
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