Henry Paulson is absolutely right to do that and his comments on speculators and bad debts lending are perfect. In Hong Kong, we experienced the deadly collapse of our real estate market during the financial crises in 1997-98. Our then Chief Executive, Mr. Tung Che Hwa, also rejected to use government funds to bail out speculators and bad debts lending. It is entirely wrong and unfair to accuse him of causing the collapse of the property market in HK after the handover in 1997. What really caused the collapse was the bursting of the property bubble resulting from the financial tumults that hit a number of Asian countries starting from Thailand in 1997. The pity is that most people in HK put the blame on Mr. Tung! Well, this is politics and people always want to have a scapegoat when they themselves are the real culprits. History will do justice to Mr. Tung. But I guess some people in US will also protest against Mr. Henry Paulson for his rejection of mortgage relief in the same wrong way.
I was astonished to hear from a learned friend that house owners in the US could just walk away from their properties without being personally liable for repaying their mortgage debts. The mortgage is a "non-recourse" security and the banks can only look to the house as the source for repayment. What a joke! I can't believe this. In Hong Kong, all borrowers are personally liable to repay the whole mortgage debts including interest, default penalties, etc. The mortgagee or lender has full rights to sue the mortgagors personally for recovery of the debt in addition to foreclosure, realizing the mortgaged security, etc. What a vast difference between US borrowers/lenders and Hong Kong borrowers/lenders! A speculator in HK commented that he would have no hesitation to speculate on US real estate under such non-recourse mortgage and that he would definitely walk out when he could not secure good gains from the falling property market.
The question that I suddenly have is why did HSBC grant such "non-recourse" mortgages in the first place? As one of the biggest mortgage lenders in Hong Kong, HSBC must understand the importance of the personal liabilities of borrowers for repaying mortgage debts and since the situation in US was so different, why did the bank take the risks? It would be difficult to ask Mr. Paulson to help when you lent money like that??
Actually the US government seems to me to have already done too much to help. The Fed has been cutting interest rates and will do so in the future. Who will benefit from such cuts? Obviously the banks! They are and will be reducing their funding costs and their profit gains will go up and up! If anyone should be complaining, they should be those who are not so rich and the poor. Why? They must pay for the cost of interest rate cuts, namely, high inflation, skyrocketing prices for fuel, food, everything! And for those unfortunate guys who can't really afford their expensive mortgages, interest rate cuts by the Fed will not help them to bear the financial burdens.
The tax rebate that the Bush administration is introducing can hardly help these guys too. I find it funny to hear that the recipients are expected or even obliged to spend the rebates so as to top up the slowing consumer market in the US. Common sense will tell me to save up the money or use it to repay my mortgage debts and it's quite incredible to tell me to spend the money to buy consumer goods! Yes, if you all spend the tax rebate to buy consumer goods, it will be correct to say that the ultimate beneficiaries should be the exporters to US such as China, Japan, Korea, ...
What a mess we are all in! The US housing and credit crises are now spreading throughout the whole world. Honestly, I feel extremely terrible though I want to remain optimistic. Why? The collapse of the real estate market of Hong Kong after the handover in 1997 did not show any sign of real recovery driving everyone to despair and mass demonstrations when Hong Kong was hit by SARS in 2003. This is the reality that you may see when bubbles burst. Hong Kong was only saved from death by our true saviour, our Beijing Central Government, but the downfall had lasted for more than 7 years in Hong Kong. Many people in HK committed suicides during such dark ages and the whole society and economy went backwards for at least 7 years. Now think about what would happen to the people in the US and the countries that might be affected this time.
The Dow is now down around 200 pts. I guess I should say I still optimistic. God bless us all.
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