Accurately Forecasting the Financial Crisis by Dr. Fengbo Zhang

Sources:      Peploe.com.cn 2008-9-23 the top media in China
  SinovisionNet TV 2008-9-22   TV News 2008-9-19 the top Chinese TV network in USA
 
International Finance Expert Dr. Fengbo Zhang                      

          Accurately Forecasting Trends of the Financial Crisis

                                                                   Based on His Experiences

 

 
"Four" is considered an inauspicious number in Chinese, as it’s pronounced as same as “death”. Its deep meaning is: “doomed to die without doubt”. Ten years ago, the world financial crisis, which originated in Asia, concluded with the bankruptcy of Yamaichi Securities, the fourth largest investment bank, and one of the companies of which I was in charge,  the 4th largest investment bank’s bankruptcy indicates that the financial storm is coming to an end. Now, once again, the fourth largest investment bank, Lehman Brothers, becomes bankrupt at a moment that marks a fundamental turning point of the financial crisis. The fourth largest investment bank's bankruptcy is the maximum any Government can withstand.  Any bank that is larger must be salvaged for economic stability. I believe the US government will use national power at all cost, to save the lifelines that ensure the financial survival of the nation.
 
 
 
               Dr. Zhang interviewed by Sinovision TV.                        The report is also published at Pepole.com.cn.
 
 

Reporter: Dr. Zhang, you have been in charge of a mortgage lending business in the United States for more than 5 years. How do you review the current mortgage crises sweeping the whole world?

Dr. Zhang: Although rising interest rates and subsequent cooling of the housing market in the United States is the blasting fuse that caused the sub-prime mortgage crisis in the USA, the reality is that the United States mortgage market is resistant to extreme fluctuations. While there is no argument that the United States mortgage market is declining overall, the price of housing is still higher than it was five years ago. Metropolitan areas where there is a high concentration of population and businesses continue on a strong upward trend. For example, in the New York Manhattan region, the average housing price in this year’s second quarter rose 15%. I have been in charge of mortgage lending for more than five years, and have personally handled hundreds of mortgage loans every year throughout the United States, but have never had an experience with a client who was unable to repay. Business increases every year, and, in fact, this year I saw the best performance to date. Currently, the increase in bank foreclosure is believed to be caused by unemployment of homeowners, who do not have the ability to repay loans.  The economic depression on top of the inevitable periods of turbulence is the real reason leading to problems with mortgage loans. We should not mistake cause for effect. The reason that the mortgage industry is suffering is because the economy is suffering, not the other way around.

The reality is that the main battlefield of this crisis is in the United States financial securities markets. Sub-prime mortgage securitization dealers, brokers and investors prefer high risk and short term high return. Overly high expectations, fanatical devotion, and hype created the financial bubble in speculation. Fluctuations in the housing market, along with the shattered confidence in investors, led to the related enterprise bonds and asset valuation plunge, which resulted in a panic, a slumping USA stock market, and even the recession of the whole global financial market.

In conclusion, investment banks and large mortgage lending institutions participating in mortgage wholesale and securitization are primarily responsible for and suffered massive destruction in the financial storm. 

 

Reporter: Following the Lehman Brothers bankruptcy, the whole world is now watching, concerned about how the financial crisis will spread. Will more large financial institutes declare bankrupt?

Dr. Zhang: No. We can observe the same trend from the previous financial storm. Ten years ago, the financial storm that started in Asia swept the whole world but had the biggest impact on the Japanese financial institutions that monopolized the world’s top ten banks and major investment banks. At that time, I was at the New York headquarters of world’s biggest bank, Fuji Bank, in charge of corporate finance with leading world enterprises. Many non-banking financial institutions were failing – in particular, investment banks. When deciding whether to save the fourth largest investment bank Yamaichi Securities – one of companies I was in charge, as the main bank we finally decided “abandoned soldier, to save the commander” and allowed the bankruptcy. We were attacked strongly by the media, with both blame and questions: “Why did Fuji Bank let Yamaichi die?” The second and third largest investment banks, however, were survived through mergers. The largest investment bank, Nomura Securities, another company I managed, had even greater financial debts and nearly faced bankruptcy. The Japanese, American and European governments worked together to rescue it, helping it ride out the storm, and so it survived. 

Now, ten years later, the same scenery appears: When the fourth largest investment bank Lehman Brothers faced bankruptcy, no commercial banks came to its rescue. However, the third largest investment bank, Merrill Lynch, survived through merger. The US government will certainly rescue AIG and the two largest investment banks – Goldman Sachs and Morgan Stanley – through direct investment or through indirect subsidization to large commercial banks. Unfortunately, only the fourth largest bank was too big for commercial banks to rescue, yet too small for the government to help.

"Four" is considered an inauspicious number in Chinese, as it’s pronounced as same as “death”. Its deep meaning is: “doomed to die without doubt”. Ten years ago, the world financial crisis, which originated in Asia, concluded with the bankruptcy of Yamaichi Securities, the fourth largest investment bank, and one of the companies of which I was in charge, the 4th largest investment bank’s bankruptcy indicates that the financial storm is coming to an end. Now, once again, the fourth largest investment bank, Lehman Brothers, becomes bankrupt at a moment that marks a fundamental turning point of the financial crisis. The fourth largest investment bank's bankruptcy is the maximum any Government can withstand.  Any bank that is larger must be salvaged for economic stability. I believe the US government will use national power at all cost, to save the lifelines that ensure the financial survival of the nation.

The current financial crisis is much less tragic compared to the one ten years ago. At that time, many senior executives of bankruptcy companies were committed suicide, and many more were prosecuted and subsequently sentenced. However, in today’s financial crisis, senior executives of bankrupt companies are not being investigated for legal responsibilities, and they even received large compensations when they left their companies. 

 

Reporter: Are there any solutions and how should one deal with the current financial crisis?

Dr. Zhang Risk comes with opportunities, and this very profound crisis is nonetheless accompanied by enormous financial opportunities for the smart investor.  Professionals in the industry are very excited about it, as they see the current situation as a golden business opportunity and are preparing to seize the opportunity present due to this.  As the entire US's house price decline range is still limited, with certain areas being hit very hard, there is less of an opportunity to purchase a large number of inexpensive properties than one may think. Currently, the main business opportunities in the housing market are foreclosures or short sales houses due to many homeowners being unable to pay the mortgage. However, in the financial, securities market, the field of corporate mergers and acquisitions contains enormous opportunities to purchase devalued product.   There is a greatly underestimation of the mortgage industry-related companies at a low price, or entering the low market, to purchase related stock bond.  Certainly, compared with the investment in real estate, this type of investment risk is bigger, and requires carefully selecting an investment opportunity, and utilizing the appropriate timing for maximum return.

Ten years ago, the financial crisis resulted in Japan losing their dominant position in international financial markets. Today’s financial crisis will cause another major reshuffle of the world's financial industry. A number of financial giants that have been dominating the scene will disappear, and more the rising stars in finance will come to the forefront. 

 

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Comments by Reader  [Peploe.com.cn 2010-03-04 11:07:34]

 

          Dr. Zhang made penetrating analysisaccurate forecast, in this inteview two yaers ago!

         Two years ago, when the financial crisis began to sweep the USA, following Lehman Brother’s bankruptcy, most media believed that more large investment banks would fall to bankruptcy. When the reporter raised the opinion in this interview, Dr.Zhang denied the prediction, pointing out that Lehman Brothers becomes bankrupt at a moment that marks a fundamental turning point of the financial crisis. The fourth largest investment bank's bankruptcy is the maximum any Government can withstand.  Any bank that is larger must be salvaged for economic stability. He believed the US government will use national power at all cost, to save the lifelines that ensure the financial survival of the nation.

        Actually, "four" is considered an inauspicious number in Chinese; it's pronounced as same as “death”, doomed to die without doubt.

 

 

 

 [Peploe.com.cn 2010-09-23 13:12:44]

In September, 2008, when the financial crisis sweep the USA, following Lehman Brother’s bankruptcy, most media believed that more large investment banks would fall to bankruptcy, financial storm will expand. When the reporter raised the opinion in this interview, Dr.Zhang denied the prediction, pointing out that the 4th largest investment bank’s bankruptcy indicates that the financial storm is coming to an end. 

Now, on September 21st 2001, the National Bureau of Economic Research finally announced that, the recession has ended in June 2009. The conformation is late, but is authoritative. 

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