Former Soros Fund Trader: How to Create the Asian Financial Crisis 2007-07-04 02:40 CBN Daily

Jones, former Soros fund trader: How did we create the Asian financial crisis?

Yu Gang

As one of the main operators in Soros's Asian camp that year, Jones said calmly when talking about the failure of finally having to retreat from Hong Kong, "We made mistakes [back then]", and he defended the outside world's doubts about the Hong Kong government's intervention in the market, "If the Hong Kong government hesitates any longer, the entire financial market is likely to collapse completely." ”

On July 2, 1997, according to the reconnaissance report and battle plan of Rodney Jones and other colleagues, the financial tycoon George Soros's Quantum Fund and other other hedge funds launched a violent attack on the Thai baht, and the Thai baht fell 20% against the dollar on the same day, the lowest in history, and the prelude to the Asian financial crisis began.

Today, 10 years later, when Rodri Jones described the scene to the "First Financial Daily", he still took a long breath and said slowly: "Those ten months are vivid!"

Jones, one of the executives of the Soros Fund, was based in Hong Kong, China, and traveled deep into Southeast Asian countries to study the real state of economic development in the region before the Asian financial crisis. Based on his first-hand accounts and data, Soros began to notice yet another target that fascinated him. Jones then provided a detailed plan for Soros's Quantum Fund to storm Asian currencies.

As one of the main operators in Soros's Asian camp that year, Jones said calmly when talking about the failure of finally having to retreat from Hong Kong, "We made mistakes [back then]", and he defended the outside world's doubts about the Hong Kong government's intervention in the market, "If the Hong Kong government hesitates any longer, the entire financial market is likely to collapse completely." ”

Jones recently gave an exclusive interview to the "China Business News" in Beijing, explaining in detail how he prepared in advance for a sneak attack on Asian currencies, how he waged offensive and defensive battles with the Hong Kong SAR government in the foreign exchange market, stock market and futures market, and gave his evaluation of the Hong Kong SAR government's intervention in the market and Soros's withdrawal from Hong Kong.

1 Open a short position in Thai Baht 6 months in advance

In 1996, the Thai stock market was still sluggish, and the real estate market was booming, but foreign funds and domestic banks were the driving force behind this.

Jones was stationed in Hong Kong at the time, but spent most of his time visiting neighboring Southeast Asian countries to find a breakthrough and prepare a battle plan for the Soros Fund's large-scale offensive. "We flew around the area that year, we met directly with developers, but also with banks and even local journalists. He found that there were already many bubbles in the entire housing market, and some developers had difficulty paying interest, "but the bank still helped developers find a lot of dollar loans."

Asset bubbles, the influx of foreign capital, the accumulation of short-term foreign debt of banks, and the struggling support of developers have begun to falter, "After these signals are combined, we have spent a long time carefully studying, what kind of situation will arise, and how will the situation develop?"

As a result of the study, the situation was untenable, and Jones suggested to Soros that he sell the baht short. "For this battle, we prepared 6 months in advance and gradually established a short position." He added, "Ten years ago, central bankers in Asia were not as open as they are now, and we talked to them, but they didn't think so. ”

"We started in early 1997. In January, Soros Fund, along with other international hedge funds, began an attack on the long-coveted Southeast Asian financial markets, starting with a massive sell-off of the Thai baht, which plummeted. In the face of the aggressive attack of hedge funds, the Bank of Thailand intervened in the market, using about $12 billion to absorb the Thai baht, on the one hand, prohibiting local banks from lending Thai baht to offshore speculators, and on the other hand, sharply raising interest rates, the Thai baht exchange rate remained stable for the time being.

"In May, there was a huge outflow of money out of Thailand, and Thailand began to control capital," Jones said, "but by then, we already felt that the baht could not hold on." ”

In June, hedge funds launched another fatal attack on the baht, and the Bank of Thailand had to back down because its only $30 billion in foreign exchange reserves had been depleted. On June 30, Thailand's prime minister assured the outside world on television: "The Thai baht will not depreciate, and we will let those speculators lose all their money." However, two days later, the Bank of Thailand was forced to announce that it would abandon the fixed exchange rate system and implement a floating exchange rate system. The baht plunged 20% on the day, and then the governor of the Bank of Thailand, Lencha Malaka, announced his resignation. On August 5, the central bank of Thailand decided to close 42 financial institutions, and the baht collapsed.

During this period, hedge funds also launched attacks on the Philippine peso, the Malaysian ringgit and the Indonesian rupiah, and finally Southeast Asian currencies, including the Singapore dollar, were lost one by one.

"But we suffered some losses in Indonesia," Jones said of the only "imperfection" in the first wave of the campaign, "because we overestimated the government's capacity and built our empty positions a little conservatively." ”

2 "We believe that the Hong Kong SAR government will not survive"

After sweeping Southeast Asia, international speculators led by Soros set their sights on Hong Kong. "Hong Kong's fundamentals weren't as bad as Thailand's, but there were also a lot of real estate and stock market bubbles. Jones analysed why Hong Kong was chosen as the main battlefield for the second wave of shock.

In the years leading up to the 1998 Hong Kong financial crisis, property speculation was rife in Hong Kong's asset prices, especially property prices, and negative long-term real interest rates. Between 1984 and 1997, the price of major properties rose 12 times, and the resulting economic overheating caused wages and the stock market to soar. In the first half of 1997, the Hang Seng Index rose from more than 12,000 points to more than 16,800 points, and in July, the Hang Seng Index hit a record high 11 times in one month.

Jones believes that "the Hong Kong stock market, the stocks of real estate companies and banks are very important, and if the bubble bursts in both areas, the stock market will be in danger at any time." "In fact, the property bubble has also caused a deterioration in the economic environment, which has led to an increase in the cost of production and sales, and the gradual accumulation of inflationary pressures in Hong Kong, and the Hong Kong dollar has a tendency to depreciate in the future according to the theory of purchasing power parity.

"And we thought it would be expensive to maintain the Linked Exchange Rate System, and we decided that the Hong Kong SAR Government would not be able to survive," Jones said, pointing out that when the decision was made to attack the Hong Kong dollar, one of the main reasons was that the Hong Kong SAR Government was not optimistic that the Hong Kong SAR Government would be able to maintain the Linked Exchange Rate System.

Subsequently, hedge funds began a continuous attack on the Hong Kong dollar for more than a decade. Macro hedge funds launched a three-dimensional attack on the Hong Kong dollar in an all-round way in the foreign exchange market, stock market, and futures market: first, they shorted a large number of Hong Kong dollars in exchange for US dollars, and at the same time sold short Hong Kong dollar futures, and then sold Hong Kong stock spot stocks in the stock market, and sold a large number of futures contracts in the Hang Seng Index futures market before and after.

In January and June 1998, hedge funds sold the Hong Kong dollar when the rupiah and yen were plummeting, but the resistance of the Hong Kong SAR government failed to destroy the Hong Kong dollar in three attacks.

Hong Kong's financial markets are in turmoil in August

However, in August 1998, the situation changed, and the speculation atmosphere of the Hong Kong dollar in the foreign exchange market accumulated, various rumors spread, and market confidence was in jeopardy. On August 5, with the US stock market plummeting and the yen exchange rate plummeting, hedge funds launched a fourth shock to the Hong Kong dollar.

This time, the Hong Kong government intervened in the market to save hedge funds, but it also drew criticism that it undermined the "principle of free market".

Talking about the time when his elaborate battle plan was ruined by the intervention of the Hong Kong government, Jones defended his opponents on the battlefield, "The accusations against the Hong Kong SAR government's intervention in the market are inappropriate," he said, "At a time when market confidence is facing a total collapse, the government's intervention has boosted market confidence, avoided a larger crisis, and saved the market from an eventual collapse." ”

The battle that almost brought Hong Kong's financial market and linked exchange rate system to the brink began on August 5, and from the 5th to the 7th, hedge funds sold up to 46 billion Hong Kong dollars, and the Hong Kong Monetary Authority rose to the challenge, using foreign exchange reserves to receive 24 billion Hong Kong dollars, and other banks also received 4.6 billion Hong Kong dollars.

It is estimated that in the first two days of the defensive battle, the HKMA took on about HK$30 billion to HK$40 billion, far exceeding the estimated fiscal deficit of HK$21.4 billion in the financial year of that year, and the Hong Kong dollar thrown by hedge funds was also close to the scale when it hit the Hong Kong dollar in October of the previous year. In the first few days, hedge funds failed to make a move in the foreign exchange market.

At the same time, hedge funds are also in the stock market, as investors worry that the Hong Kong dollar will continue to be hit, the Hong Kong dollar interbank rate has soared, and the blue-chip companies that have announced interim results have performed poorly, the Hang Seng Index fell nearly 100 points as soon as the market opened on August 6, and then went all the way down to close at the lowest level of the day at 7254 points, down 212 points, or nearly 3%. In the following days, hedge funds took the opportunity to slam the stock market, and the Hang Seng Index finally fell below the 7,000-point mark, falling to 6,600 points on August 13.

"The Hong Kong SAR government has chosen a very good timing"

During the four days from 10 to 13 August 1998, hedge funds continued to hit the Hong Kong dollar in the foreign exchange market, and at the same time, they sold futures indices and sold stocks to make huge profits from the capital market during the market panic. But at this stage, the Hong Kong government, which appears to be struggling to cope, is planning a major counterattack.

As the counter-hedge funds are prepared to come up with about $96 billion of the Exchange Fund and the Land Fund. This is the family property accumulated by all Hong Kong people through years of hard work, and it is regarded as the last barrier to protect Hong Kong's economy, so the Hong Kong SAR government has to carefully and repeatedly weigh it.

Finally, on August 14, the Hong Kong SAR government, which had been on the defensive in this offensive and defensive battle, finally chose to counterattack.

"When asked about the lessons learned from the battle in Hong Kong, we were skeptical that the Hong Kong SAR government's intervention would be effective, because timing and tactical choices were crucial. Now it seems that the Hong Kong SAR government chose a very good time to act at that time. Ten years later, Jones still expresses considerable admiration when he recalls the resolute action of the Hong Kong SAR government that day.

The 14th is Friday, and the stock market, which has been falling for a week, has fallen nearly 6,500 points by Thursday, at a record low in the past five years. But early in the morning, a well-planned counterattack was quietly unfolding.

Half an hour before the stock market opened, Anthony Nething-pong, then chairman of the Hong Kong Securities and Futures Commission, received a solemn notice from the then Financial Secretary Donald Tsang: In order to defend the linked exchange rate and crack down on international speculators, the Hong Kong government decided to intervene in the stock and futures markets. Subsequently, the Hong Kong government convened an emergency meeting of the Hong Kong Exchange Fund Advisory Committee and reached a consensus on the use of the Exchange Fund to intervene in the stock market.

In the morning of the same day, Hong Kong stocks continued to slump; by noon, news came out of the market that "the Government's Exchange Fund would enter the market." In the afternoon, the chief executive of the HKMA, Yam Chi-gang, personally took command, and the Hong Kong government intervened in the stock market and the futures market, officially launching a counterattack.

At the moment when the Hang Seng Index fell to 6,500 points, the SAR government really entered the market with a huge amount of money, and through three brokerages such as the Bank of China, regardless of the price, the Hang Seng Index rose 564 points, an increase of 8.47%, the second largest increase of the year, with a turnover of up to 8.5 billion Hong Kong dollars, greatly exceeding the usual level of 3 billion to 5 billion Hong Kong dollars. At the same time, the HKMA has raised bank overnight lending rates sharply, making it impossible for hedge funds to raise short-term funds. On the same day, it was estimated that the Hong Kong SAR government had used at least HK$4 billion.

The timing of the Hong Kong government's move on the 14th is just right, because the next three days are closed for the weekend and the anniversary of the victory of the Anti-Japanese War. By the time the market reopened, the US stock market had recovered sharply, and the yen exchange rate gradually stabilized amid possible intervention by the Japanese government, and Asian stocks began to rebound as a result. Subsequently, stimulated by many external positive factors, the Hong Kong stock market rebounded strongly and the Hong Kong dollar exchange rate returned to stability.

According to data from the Hong Kong Monetary Authority, in the two weeks between August 14 and 28, the government absorbed about HK$120 billion in stocks, equivalent to 7% of the market value at the time, all of which were later managed by the Hong Kong SAR government's "Tracker Fund".

"The Hong Kong SAR government's decision is very firm and their timing is very good. Jones summed up the thrilling battle by saying, "We made mistakes and we had to correct them quickly." ”