By all indications, the US recession is all but an announcement away. The $150 billion tax cuts that the Bush administration announced late last week are among the many signals to soothe a market that is still reeling under the unknown impact of the sub-prime crisis there. Unknown, because of the staggered manner in which banks are disclosing their bad assets — money lent to households that didn’t have the capacity to pay, at rates that were higher than better quality borrowers’, at a time when property prices are turning, with the pain accentuated by financial ‘innovators’ who securitised bad debts and sold them to investors — leaves much in closed books behind closed doors.

Not for a moment am I saying financial innovation should be banned. It is transparency and accountability (of rating agencies in this case, riding on whose Triple A products that were really not even investment grade) that I’m advocating. At stake is not merely the interest of investors who transacted in these collateralised debt offerings, but balance sheets of banks, through them, the poor who bought homes to live in.

When money in the US economy shrinks, US investments in non-US economies are called back — yesterday, Hong Kong was down 5.5 per cent, Japan fell 3.9 per cent, UK 3.6 per cent — by investors who suddenly feel more at ease with US assets, all other markets being ‘riskier’. The reverse flow of money is also directed by bankers, who, despite falling interest rates, are unwilling or unable to lend simply because their books need to be beefed up with capital.

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