China enthused about toxic purge
TEXT OF INTERVIEW
Bob Moon: This is the day the Obama administration is supposed to spell out its much-anticipated toxic purge plan. Given the incredibly complicated nature of the details that have leaked out so far, We know this will be a public-private partnership that relies on private investors to put up some money, with the government offering some guarantees to sweeten the deal. And why would investors take the risk on something they’ve been avoiding up to now? One administration official says, “Because we need them to,” and “they’re kind of doing us a favor.”
Now, will this plan live up to investor expectations? Seems Asian markets are already sold on what they’ve heard so far. Overseas markets soared today — which is saying something, considering their pessimistic outlook lately. Marketplace’s Scott Tong joins us from Shanghai. Scott, what’s changed over there?
Scott Tong: Well, I spoke to a trader in Singapore, and they’re talking about Tim Geithner and his plan. And the currency trader in Singapore said two things about the Geithner plan: number one, it’s finally here, and number two, it appears to be credible. And that’s all markets need, to look for a little bit of hope on a day like this. But we have to remember how hard markets around the world, including Asia, have fallen. Let’s take Japan: Back in September, its main index was up to 12,000. And today, with all this joy, it was returning to 8,000. So if there was any hurray, it was kind of a whisper, Bob.
Moon: OK (Whispers) “Hurray.” Haha. So what do Asian markets have to do with U.S. banks?
Tong: Well if we learned anything from this financial crisis, it’s that the world is still very, very global. Korea got hit very hard, still trying to get off the floor. Japan as well. The other point is that many of these banks are all interconnected. They’re either under the same umbrella or they’ve lent to one another, and they’re all trying to excise the same cancer, these toxic assets.
Moon: Well, China may be the most important in all of this. Any additional signs of optimism there?
Tong: There was a rumor today that the leadership in Beijing may add more money to the stimulus package here in China, so a little bit of optimism there. But the point is China is still a small economy if you compare it to the U.S. economy — it’s one-fourth the size of the U.S. economy, and the per capita number is one-tenth of that in the U.S. So sure, China matters, but the U.S. matters a whole lot more, and that’s what Asian traders think about.
Moon: Marketplace’s Scott Tong in Shanghai. Thanks.
Tong: Thank you, Bob.
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