What's the difference between a financial storm and a financial tsunami? The answer is the key to solving the current financial crisis.
In a financial storm, such as the one that hit Asia in 1998, international speculators such as Lehman Brothers kept on attacking victims until they had to retreat to concentrate their efforts elsewhere.
The key defence strategy was to fend off the speculators. The current financial tsunami was the result of a systemic tremor that has led to the demise of colossal financial institutions such as Lehman Brothers. And the second wave is expected to be weaker than the first.
Once we have withstood the first assault, the rest will be easy. We should therefore concentrate on efforts to prevent further damage that might trigger another tsunami.
After the first wave that hit on September 18, the world enjoyed a brief breathing space to recoup and take stock of the situation. The US scrambled a US$700 billion rescue package together, but the European Union countries each seemed to be fighting for themselves.
The European debacle might spark another wave, or tsunami, but, if the above analysis is correct, this is unlikely to be as destructive as the first onslaught.
Hong Kong's financial system is basically sound but, for some reason, it is the major disaster area of minibonds.