Bank mergers misdirected
As I forecast in a Taipei Times letter more than two years ago, memory chipmaker ProMOS has gone out of business, failing to pay back NT$50 billion (US$1.7 billion) in bank loans, and entering receivership in November last year (Letters, July 31, 2011, page 8).
At the same time, I said that Taiwan’s shipping industry was headed for a similar overcapacity-induced disaster. According to an article in Monday’s paper, (“Slowing demand could hit freight rates, reports say,” Oct. 21, page 13) shippers are barely breaking even in international transport revenue.
Given that these companies have substantial outstanding bank loans, I reiterate my 2011 call that shareholders should immediately flee these stocks. Evergreen, Yan Ming and Wan Hai are clearly underwater — figuratively if not literally.
Monday’s editorial (“Time to get real about bank reform,” Oct. 21, page 8) said: “these banks are unlikely to improve their mediocre profitability due to the saturated and overcrowded domestic market.”
In my view, “overcrowding” is not a problem. Banks should be more like utilities, which preserve the wealth of savers, especially retirees. As the recent JPMorgan scandals show, banks should steer clear of creating fraudulent financial products and foisting them upon unsophisticated investors.
The central bank’s job should be to maintain a strong and stable currency, backed by warehouses filled with valuable industrial metals including tin, copper, aluminum, platinum, silver and gold, which can be resold to industries which require these metals to manufacture their products.
I see no reason to encourage mergers between the state-run banks and proper risk-focused responsible lenders such as King’s Town Bank. Crony state-run banks which have incestuous relationships with major industries like electricity producers and shippers, should be allowed to fail as a matter of course, as bad debts overwhelm their capital structure.
Chunghwa Post Co should increase the cash requirement to 100 percent of deposits, which would insure that long-term savers receive all of their money in the case of a major global financial dislocation.
People often forget that fractional reserve banking — where a bank uses a customer’s deposit to create loans for others, thereby increasing the overall money supply — is a scam and boosts inflation because more dollars are still chasing the same limited supply of physical goods.
This is why I strongly advocate that the central bank divest itself of US Treasury bonds, which are clearly a Ponzi scheme, and buy physical assets that have real value, such as industrial metals and gold.
Taiwan does not need to turn itself into a regional financial hub and really cannot compete with the “big dogs” on the global stage. What Taiwan needs to do is insure that it can provide food for its citizens and create its own energy resources. As an island nation facing intense global pressure from both scarcity and climate change, this is the only way forward.
The Taipei Times editorial was correct to point out that “market forces will naturally lead some well-equipped banks to stand out among their peers.” In my view, Taiwan’s banks should desist from chasing paper profits and focus on fundamentals, such as food and energy security, for the good of the public.