The Great Scam of the Century: The 1998 Hong Kong Financial Defense War

Before the 2008 financial crisis, there were many financial crises in the world in the 1990s, such as the Japanese economic crisis, the British pound crisis, the Mexican crisis, and the Southeast Asian economic crisis. Among them, the Southeast Asian economic crisis It covered a wide range of areas and later spread to Russia, Brazil and other countries, forming a global financial crisis.

Here we will briefly review the financial crisis in Southeast Asia, and then focus on analyzing the much-talked-about financial defense war in Hong Kong, and what people usually think of the Hong Kong financial management authorities’ achievements in blocking Soros and others. Unlike the comprehensive victory of international financial institutions, I think the Hong Kong financial authorities fell into a well-designed scam.

While Japan fell into a decade of long-term recession, the economic development of Southeast Asian countries has made remarkable achievements, and has successively produced the Four Asian Tigers such as South Korea, Taiwan, Hong Kong, and Singapore, as well as Thailand and the Philippines. , Indonesia and Malaysia are the four Asian tigers.

These countries have also accumulated a lot of problems in the process of rapid economic development. Most of these countries have implemented fixed exchange rate systems or managed floating exchange rate systems. For rapid development, most of them have accumulated relatively large amounts of foreign debt and current account balances. With long-term huge deficits and serious capital market bubbles, it has the inherent conditions to be attacked.

From the perspective of external factors, in 1994, in order to improve export competitiveness, the RMB was devalued by 50%, which significantly improved China’s competitiveness in Asia and put greater pressure on the four little dragons and four little tigers. A more important external factor is the strong dollar policy implemented by the United States in the early 1990s, which created conditions for capital outflows from these countries.

Hedge funds headed by Soros from the United States have long been covetous of the fat Southeast Asian tigers, treating them as lunch. As early as 1994, they conducted exploratory attacks. Give up because you feel the time is not right.

When the opportunity came in 1997, naturally he would not let it go. First, he took action on the relatively weak Four Little Tigers. In February 1997, Soros and others short-sold the Thai baht spot in large quantities, and at the same time bought forward Thai baht contracts, and carried out Forward foreign exchange swap transactions, the depreciation of the Thai baht is its profit, and Thailand was defeated after a little resistance.

In June, Thailand’s Finance Minister resigned under political pressure. Panicked domestic companies bought U.S. dollars to hedge their foreign exchange risk exposure. The intervention of the Foreign Exchange Stabilization Fund led to heavy losses in foreign exchange reserves. There was no crisis in the confidence of domestic residents. Relief was beyond the control of the bank. In July 1997, Thailand was forced to abandon the fixed exchange rate system and the exchange rate began to float freely. In the following six months, the ratio of the Thai baht to the US dollar dropped from 26 to 55. Moreover, the Asian crisis is showing signs of spreading to other countries.

Hedge funds and other international financial institutions headed by Soros quickly swept across Southeast Asia, using the same method to defeat the so-called Four Asian Tigers of Malaysia, the Philippines and Indonesia. Next, the Four Asian Tigers are in danger.

For ease of understanding, here is a brief explanation of the exchange rate system. The exchange rate system is divided into floating exchange rate system, managed floating exchange rate system, fixed exchange rate system, and linked exchange rate system. From the financial crisis, especially Judging from the history of currency crises, countries experiencing currency crises generally have fixed exchange rates or managed floating exchange rates. Due to space limitations, I will not explain the reasons in depth here.

The linked exchange rate system, also known as the currency board system, is the extreme case of the fixed exchange rate system. The currency board system reserves currency stocks in a country or region and assets denominated in the reserve currency (usually government bonds of the reserve country) , such as U.S. Treasury bonds), Hong Kong uses the U.S. dollar as its reserve currency. When the reserve currency stock is large enough to include the entire base currency, which is what we often call M2, a currency board system can be implemented.

Take Hong Kong as an example. The exchange rate between the Hong Kong dollar and the U.S. dollar is determined at 7.8. Just like the gold standard, the note-issuing bank must hand over the equivalent U.S. dollar as collateral when issuing Hong Kong dollars. Hong Kong gives up control of monetary policy and follows the Federal Reserve in full synchrony. Regarding monetary policy, the Hong Kong dollar and the US dollar fluctuated within a very small range around 7.8.

If you understand the linked exchange rate system, you will know that as long as Hong Kong has sufficient foreign exchange reserves and does not secretly issue Hong Kong dollars, the Hong Kong dollar is almost equal to the U.S. dollar. The further step of the currency board system is dollarization. In 1997, Hong Kong With foreign exchange reserves of US$96 billion and a sound financial situation, there is no basis for attacking its linked exchange rate system.

Hedge funds headed by Soros, with the support of international financial capital, are sweeping across Southeast Asia. As one of the Four Tigers, Hong Kong is frightened and always vigilant. It is worth noting that in July when the financial crisis occurred in Thailand, the Hang Seng Index in Hong Kong not only did not fall, but rose.

It is a pity that the Hong Kong authorities did not pay attention to this signal. Through the above understanding of Hong Kong’s linked exchange rate system, we know that there is no basis for attacking the Hong Kong dollar. You said that Soros, who has swept through many countries by launching currency wars, is not Do you know? Even the United Kingdom was defeated by him. Of course Soros knew very well that it was impossible to make profits through Hong Kong dollar forward foreign exchange swap transactions. So what was his purpose in attacking the Hong Kong dollar?

Building the plank road openly and secretly crossing the old warehouse, Soros’s initial profit goal was to short the Hang Seng Index futures. Therefore, in the context of Thailand’s financial crisis in July 1997, the Hong Kong Hang Seng Index strangely did not fall. The reverse rise is understandable. This is the period when international hedge funds short the Hang Seng Index.

By October 1997, the situation took a turn for the worse, and the Hong Kong crisis began to erupt. The trigger originated from October 20, when the Taiwan Central Bank gave up its support for the New Taiwan Dollar, and the New Taiwan Dollar immediately devalued by 9. Taiwan and Hong Kong are not closely connected, but Taiwan's foreign exchange reserves are huge, equivalent to the total foreign exchange reserves of Southeast Asian countries in the summer of 1997. If Taiwan can fail, why can't Hong Kong lose? Under this logic, it is also possible that international hedge funds have completed their short position in the Hang Seng Index.

There is a joke that late at night on October 21st, when the night was dark and windy, Hong Kong Financial Secretary Donald Tsang and Hong Kong Monetary Authority Director Yam Chi-kang respectively received a mysterious phone call. A deep voice said that Soros wanted to Attacked the Hong Kong dollar, selling US$6 billion of Hong Kong dollars on the London foreign exchange market on the 21st and 22nd, pushing the Hong Kong dollar exchange rate below the warning line of 7.75. At the same time, there were widespread rumors in the market that Hong Kong's linked exchange rate system was not guaranteed.

At this time, the Hong Kong financial authorities were frightened, seeing that Thailand, the Philippines, Indonesia, and Malaysia had fallen under the currency crisis, and Taiwan had also been defeated. With the continuous strengthening of this mindset, , may have forgotten that Hong Kong implements a currency board system pegged to the US dollar. The Hong Kong dollar is almost equal to the US dollar. Who has the courage and ability to attack the US dollar? Who can use the dollar to attack the dollar?

Tsang and Yam are facing a formidable enemy. Soros is attacking the Hong Kong dollar. This trick has been used many times in Southeast Asia. Tsang and Yam secretly said, I already knew the countermeasures. Where did you get the Hong Kong dollar? It's not borrowed from my bank. At noon on October 23, the interbank lending rate rose sharply to 280. At the same time, I called the bank to ask for guidance at the window and strictly control the short-term lending quota so that you can't borrow it even if you can't afford it. I want to There is no way to attack the Hong Kong dollar.

Hong Kong residents and foreign investors who were originally worried about the loss of the linked exchange rate have already begun to sell Hong Kong dollar assets, especially Hong Kong stocks. The sudden tightening of money and the sharp increase in short-term interest rates have made the stock market worse. The Hang Seng Index fell that day. It plummeted by 10.4 points. On October 28, 1997, Hong Kong's Hang Seng Index plummeted by 13.4 points again, and the market value of the Hong Kong stock market decreased by HK$2.1 trillion.

Some people question why the Hong Kong financial authorities do not adhere to the currency board system and provide emergency liquidity to the market under such circumstances. However, they do not know that this is exactly the measure taken by the Hong Kong financial authorities to respond to attacks on the Hong Kong dollar. In the case of Soros and others Under the command of international hedge funds, the Hong Kong Hang Seng Index fell.

The subsequent two attacks on the Hong Kong dollar were repelled by Hong Kong using the same method. Some people say that the Hong Kong financial authorities won the first confrontation. In my opinion, the so-called attacks The Hong Kong dollar is not established at all. The Hong Kong financial authorities are completely dancing with Soros’s baton. They don’t even know they have been fooled. How can they win?

According to the later description of the Hong Kong Monetary Authority Chairman Yam Chi-kang, the Hong Kong financial authorities only realized in August 1998 that they had been fooled. He wrote: In August 1998, the situation we faced was more complicated. Speculators launched a coordinated, orchestrated attack on our financial markets.

Speculators have discovered that concentrated selling of Hong Kong dollars in the short term can temporarily raise interest rates under the currency board system, which will exert downward pressure on stock prices. By putting pressure on the currency in the short term and selling stocks, they may be able to make a profit on stock index futures contracts even if they cannot break through the set rate.

In fact, the Hong Kong government understood it too late. On August 13, 1998, the Hong Kong Hang Seng Index fell below 6,600 points, falling nearly 10,000 points from the high of more than 16,000 points in August 1997. The Hang Seng Index delivery period on the 28th is approaching, and it can be said that victory or defeat has been decided.

In the four attacks on the Hong Kong dollar before August 1998, Yam Zhigang responded by raising interest rates. At that time, public opinion called him any move, but this was the only move, and it was the wrong move.

After Ren Zhigang understood this, he changed his tactics and took all Hong Kong dollars from the foreign exchange market at a low price. On August 5, speculators sold more than 20 billion Hong Kong dollars, and on August 6, speculators sold more than 20 billion Hong Kong dollars. Hong Kong used fiscal funds to absorb all the HKD 100 million and stabilized the exchange rate at 7.75. At the same time, it was deposited in banks and the interest rate was also stabilized. This was the correct response that should have been adopted from the beginning, so that speculators would have no chance to take advantage of it. You also have to pay interest on the loan.

On August 14, the Hong Kong authorities understood that the foreign exchange market was nothing but a smokescreen, and that the stock market and futures market were the main battlefields. They resolutely decided to intervene in the market with huge amounts of foreign exchange funds and land funds, and cooperated with the Soros-led International speculators fight to the death.

Before he decided to enter the market, Tsang cried quietly two or three times at night. He felt deeply pressured. If he failed, he would not be able to recover the losses even by jumping off the building. After discussing with Yam Zhigang and deciding to enter the market, he immediately reported to Chief Executive Tung Chee-hwa. After making suggestions, boss Tung Chee Hwa made the decision in less than half an hour and started a fight with them.

There have been many articles describing the grand occasion of Hong Kong’s financial defense war. We will not go into too much description here and will only talk about some key things. On August 24, the Hang Seng Index was entered into the market by the Hong Kong government. The previous 6610 points were pushed up to 7820 points. In the following days, the battle between international speculators and the Hong Kong government became intense.

Since August 28 is the delivery period for stock index futures, it ushered in the first decisive battle. Just 5 minutes after the market opened at 10 a.m., the turnover of the stock market exceeded HK$3.9 billion. Half an hour later, the transaction volume exceeded 10 billion Hong Kong dollars. By the time the market closed in the morning, the transaction volume had reached a huge 40 billion Hong Kong dollars, close to the historical record of 46 billion Hong Kong dollars in daily trading volume set on August 29, 1997.

After the market opened in the afternoon, selling continued unabated and trading volume continued to rise, but the Hang Seng Index and futures index remained above 7,800 points. As the bell rang at 4 o'clock in the afternoon, the constantly beating Hang Seng Index, futures index, and transaction value on the display screen were finally locked at 7829 points, 7851 points, and HK$79 billion respectively. The general view is that international speculators short-sold the August Hang Seng Index contract at 7,500 points, and the settlement point closed at 7,851 points. International speculators suffered huge losses from short-selling the August Hang Seng Index contract.

On September 7, 1998, the Hong Kong Monetary Authority promulgated new regulations on foreign exchange and securities trading and settlement, which greatly restricted the speculation of speculators. The Hang Seng Index soared 588 points that day and closed at 8,076 points. Coupled with a series of factors such as the appreciation of the yen and the stabilization of Southeast Asian financial markets, speculators' funds and exchange costs increased significantly, and they had to retreat: on September 8, the price of the September contract rose to 8,220 points. The futures contracts rolled over at the end of August will have to be liquidated and exited, resulting in a loss of HK$40,000 per contract.

At this point, international speculators saw that the situation was over and abandoned their armor and fled.

The Hong Kong government invested 118 billion Hong Kong dollars in the entire Hong Kong financial defense war. Some people predict that Soros lost 800 million U.S. dollars in the Hong Kong blocking war and fled.

Is the actual situation really as revealed in the Hong Kong Financial Defense War that the Hong Kong authorities achieved a complete victory? Let’s review. The attack on Hong Kong began in October 2007. Soros had been carefully preparing for the attack on Southeast Asia in 1994. It can be said that all preparations were made before launching the attack on Hong Kong in October 1997. Soros has a profound understanding of the currency market.

Of course we know that it is impossible to profit from attacking the Hong Kong dollar. Attacking the Hong Kong dollar is a plank road. Soros’s main battlefield is stock index futures. In August 1997, the Hong Kong Hang Seng Index was above 16,000 points. There is no doubt that It provides him with a good opportunity to short the Hang Seng Index futures, and there is reason to believe that Soros has sufficient time to complete the short position of the Hang Seng Index futures at a high level.

When the attack on the so-called Hong Kong dollar began in late October 1997, the Hang Seng Index plummeted in just a few days, losing 2.1 trillion Hong Kong dollars in market value. Soros did not need to be there at this time. When building a position on heavyweight stocks in the stock market, even if there is a small amount of chips used for suppression, it can be completely ignored. At this stage, the profit from short-selling stock index futures is almost pure profit.

Similar attacks had occurred four times before August 1998. Each time the Hong Kong Monetary Authority used the same method to raise short-term interest rates to make Soros profit from short-selling the Hang Seng Index.

Friends who have common sense about stock index futures all know that the main force in shorting stock index futures must have a sufficient number of heavyweight stock chips, otherwise it will be like meat on the felt board at the mercy of others.

Analyzing the trend of the Hang Seng Index, Soros and others may have started building positions on heavyweight stocks in the Hong Kong stock market below 10,000 points, and may have built large-scale positions around May 1998 to hedge the risk of short-selling futures indexes. In June and July, the Hang Seng Index climbed to around 8,000 points. At this time, hedge funds once again heavily shorted the Hang Seng Index. By August 14, the Hang Seng Index hit 6,610 points. In the previous 19 trading days, the Hang Seng Index plummeted by more than 2,000 points. Each contract can earn more than 100,000 Hong Kong dollars, and the profit is unimaginable.

Short the Hang Seng Index futures. Every time the Hang Seng Index falls by 1 point, each contract will make a profit of 50 Hong Kong dollars. From the 16,000 points when Soros initially opened the position, each contract can earn more than 500,000 Hong Kong dollars. Even if it is held With 10,000 contracts, more than 5 billion Hong Kong dollars were earned. Even the most greedy people should have harvested at this time. What's more, experts like Soros should have liquidated a large number of positions in early August 1998. During this time period, since the specific position of his short-selling Hang Seng Index could not be found, it was impossible to calculate how much money he made.

According to some reports, Soros lost HK$1.2 billion in the short-selling Hang Seng Index contract delivered in August 1998. The loss for each contract delivered in August was more than HK$30,000, that is, It is said that Soros's newly opened open contracts should be more than 30,000, and his entire Hang Seng Index short selling contract should be hundreds of thousands, and his profits are incalculable.

For the main short sellers of stock index futures, the heavyweight stock chips they hold in the stock market are mainly to ensure the safety of their futures contracts. They must be able to hold down the market when the market rises, and when the market falls, When suppressed, chips are usually replenished in a timely manner at a low level. Sometimes we see buying high and selling low, which is difficult to understand. For the main force, after buying high and selling low, as long as they can get it back at a lower price, their stock market value will be lost. It's very small. If it rises, there will still be profits.

For the main short-selling stock index futures, the index is basically in a balanced range, and the amount of short-selling futures is roughly equivalent to its heavyweight stock chips to hedge risks. When its short-selling stock index contract is closed at a profit, its heavyweight stock chips for hedging risks need to be cleared. Generally speaking, it is used as a means of downward pressure and is not for the purpose of profit.

At this point in the analysis, I think you have probably understood that between the 6,600 and 8,000 points of the Hang Seng Index, most of the main short-selling futures contracts of hedge funds have closed their positions at profits.

The most important task at this time is how to ship out the large number of heavyweight stocks held to hedge risks. Ren Zhigang and other Hong Kong financial authorities from October 1997 to 1998 Before August 2018, Soros and other hedge funds attacked the Hong Kong dollar four times but failed to fully understand the main battlefield for hedge funds to make profits. At the last critical moment, they understood it all at once. I suspected that this was what Soros told them.

Soros actually opened a position at 7,500 points of the Hang Seng Index. Less than 40,000 short-selling Hang Seng Index contracts delivered in August 1998 were completely decoys to cover 100 billion heavyweight stock chips to complete his victory escape. Tsang and Yam finally learned the secrets of the hedge fund, and after crying a few times, they decided to fight Soros to the death, which was quite tragic.

In the face of Soros's crazy selling, the Hong Kong government used its abundant foreign exchange funds and land funds to place orders to take over all selling orders from hedge funds at all costs. It also pursued the victory, raised the stock price, and asked Soros to sell A good price was obtained. In fact, the Hong Kong government may have been so anxious at that time that it did not check how many short-selling index futures contracts there were. In fact, it should be possible to check.

Judging from the fact that Soros lost HK$1.2 billion in short-selling stock index futures contracts delivered on August 28, it was less than 40,000 contracts, more than HK$300,000 each, and the total market value was less than 1.5 billion 100 million Hong Kong dollars, but the Hong Kong government spent 118 billion Hong Kong dollars to drive up the stock price and took over the chips of the hedge fund headed by Soros in just ten trading days, helping it achieve its goal of a victory escape.

Perhaps some friends still don’t quite understand. Judging from the intensity of the Hong Kong defense war, the 118 billion Hong Kong dollars in chips taken over by the Hong Kong government should basically be thrown by international speculators, although there are inevitably other retail investors among them. The chips released by the shock, the chips of international speculators such as Soros should be more than 100 billion Hong Kong dollars. According to statistics, Soros lost US$800 million in the defense war of Hong Kong, which is almost 6 billion Hong Kong dollars. This includes short-term interest on borrowing Hong Kong dollars. Blue-chip stocks The losses from chip suppression, transaction fees, and ultimately the short-selling futures index August contract loss of HK$1.2 billion as bait were used as bait.

Having said this, you should understand that Soros completed the impossible task of shipping 100 billion Hong Kong dollars in chips in just 10 trading days at a cost of 6 billion Hong Kong dollars, and he also achieved it. The stock index rose from 6600 points to 7829 points. This astronomical amount of chips was shipped, and it basically reached its highest point in the last few days. However, the stock index rose by nearly 20 points, and the profit from the increase in the stock price was more than 6 billion Hong Kong dollars. . How brilliant is this? Do you think the Hong Kong government has won the battle to defend Hong Kong?

The Hong Kong government did achieve victory in the Hang Seng Index futures contracts in August and September 1998, and its HK$118 billion investment in the Tracker Fund also achieved good returns a few years later.

Let’s take a look at how much money the international speculators led by Soros have made. As analyzed above, in the final shipment process, Hong Kong's financial defense war was used to achieve high-level shipments. We assume that this process has made up for its losses and costs, and the profit from short-selling stock index futures in the early stage is the net profit. .

According to the previous analysis, in the equilibrium range, the hedge fund’s short-selling futures index position is basically the same as its heavyweight stock chips to hedge risks. It is now known that the market value of its stock at around 8,000 points is more than 100 billion Hong Kong dollars. The corresponding short position size of the futures index is also more than 100 billion. Each point of the Hang Seng Index futures corresponds to 50 Hong Kong dollars, and each contract of 8,000 points is worth 400,000 Hong Kong dollars. In other words, the short selling contract of the Hang Seng Index futures held by international speculators headed by Soros More than 250,000 copies.

If all positions are opened above 16,000 points, the profit margin of each contract is 8,000 points. Even if not all positions are opened at high levels, as we analyzed earlier, most of the positions should be opened at high levels. Underestimating the average profit margin is 6,000 points, then the profit of each contract is 300,000 Hong Kong dollars, and the profit of more than 250,000 contracts is at least more than 75 billion Hong Kong dollars, nearly 10 billion US dollars.

Because it is impossible to know the size of the short futures position of international speculators led by Soros, previous analysis was an estimate, but compared with the trillions of Hong Kong dollars in market value losses in the Hong Kong stock market, this is nothing.

Through my careful analysis, I wonder if you have understood that the so-called Hong Kong financial defense war in 1998 was dancing under the command of Soros's baton from beginning to end. You must know that hedge funds mainly operate on leverage. His main money was borrowed from financing, judging from the current financing situation of Goldman Sachs and Morgan Stanley.

Generally, the annual interest rate is 10. Waiting for four or five years to slowly ship is tantamount to suicide. Treating Soros's incomparable shipments as a hasty escape. The so-called victory is just to move the Hang Seng Index from 16,000 points. The drop to 8,000 points, which is a huge gap, is not included in the calculation. It is calculated based on the delivery in the last two months of August and September 1998. It is completely self-deceiving and Ah Q's victory method.

Soros’s financial attacks on the Four Asian Tigers, including Thailand, the Philippines, Indonesia and Malaysia, cannot be called a scam. It is completely unscrupulous and naked robbery with a stick.

The attack on Hong Kong can be called the extremely sophisticated and well-planned scam of the century. While Soros was happily celebrating his victory in Hong Kong, he secretly returned home with a money box full of US dollars. Before leaving, I did not forget to say my warmest congratulations to Donald Tsang and Yam Chi-gang in a gentlemanly manner on their victory in the battle to defend Hong Kong’s financial sector.

You have successfully defended Hong Kong's linked exchange rate system (I can't tell you that the Hong Kong dollar is the US dollar under the linked exchange rate, and attacking the Hong Kong dollar is nonsense), and made a bold decision to use 118 billion Hong Kong dollars to hold the Hang Seng Index at 7,800 points. (My heart says I can’t remind you that the Hang Seng Index has dropped from 16,000 points. Otherwise, who would have the ability to take over my selling orders?) This caused me to close my short-selling Hang Seng Index contract at a loss (My heart says I can’t remind you that my main contract I have long since closed my position and made a profit.

This is just a bait to lure you to take over. These days, I can’t let go of my children. I have nothing left but money. When you finish celebrating your victory, Come to the United States to help me count my money when you have time. I really can’t figure out how much I earned. Congratulations again on your victory.

Afterword:

Hong Kong’s brazen bailout back then was thankless. The international community has always criticized Hong Kong for violating the principles of free market economics. Look at the United States today, the leader of free market economic principles. With the actions of the defenders, Hong Kong’s financial defense battle to truly defeat Soros is as simple as child’s play: take as much as you sell of the Hong Kong dollar, and then deposit it in the bank, providing unlimited liquidity support to all Hong Kong banks.

In this way, any further Hong Kong dollars borrowed by Soros will be free of interest, and all the Hong Kong dollars will be transferred back to the bank. Moreover, the bank will be afraid that Soros will not borrow as much Hong Kong dollars as it wants. This way, the exchange rate remains unchanged. Interest rates will not rise even if funds are abundant. If you want to take the opportunity to suppress the stock market, there is no way. Issue a short-selling order to prohibit short-selling Hang Seng Index futures. The profits from short-selling Hang Seng Index futures are considered improper profits and will be confiscated.

As for the stocks Soros bought, there is no need to worry about them. There is no other way but to sell them at a loss, otherwise they can only contribute to the long-term stability and prosperity of Hong Kong. You say they are clever or not. Only by playing cards that do not follow the rules can we destroy these guys. Being despicable is the pass for despicable people.