I'm Audi 5000

One of the last things I did in town before jetting out was to hit the Audi launch event in downtown Saigon.  They were opening the first official Audi showroom in Vietnam, and showing off their A8 and Q7 vehicles.

I had neither the inclination nor the means to purchase a car, so I fit right in with the crowd.  I met the typical Saigon crowd at this thing - the wealthiest folks I met that night was probably the pair who tired of checking out the cars, the models, the cocktail waitresses and instead were closely examining the HVAC controls of this new building.  Just another night in Saigon.  But the champagne was nice though.  

So I'm out.  This is my view these days - it's not an Audi, but it's close.      

For continued interesting tidbits about the expat experience in Vietnam and Southeast Asia, check out those on the blogroll, in particular:

• Kevin at SaigonNezumni - hurry before he becomes the test case as the first expat blogger arrested by Vietnamese authorities.
• Thirsty at his wordpress Thirsty Thongs - he promises to start up again after I leave.
• Preya at Dreaming of Hanoi / Preyanka - in Bangkok, Thailand and optimistic now that her guy, Obama, won.
• Liz at Stateless and Aimless - new at this blogging thing, also in Thailand but upcountry.

Tam Biet!

Business Pods on United Airlines

On a recent flight, I was bumped into business class on United.  It was one of the planes that had been upgraded to the "pods" style seating, which was pretty cool.  Non-pod seating business class on United's international flights are crappier than Vietnam Airlines' business class.

The ample legroom:

The controls:

The other pod people. I think it would suck to fly backwards, but those folks didn't mind.

I managed to crash - um, poor choice of words for a plane post -  I managed to render ineffective the entertainment module for my seat.  After a bit it was smart enough to reboot itself.

All these travel pics are more befitting of Tray Table than a Vietnam-centric blog.  

Falafel, Again

The Pham Ngu Lao Falafel shop that I posted about earlier has a cool little freebie for its customers.  Besides the common to Vietnam free wifi setup, it boasts free international calling.

Ok, so it's free for 5 minutes and 5k/minute thereafter, but that's still kinda cool and the sort of novel marketing idea that is impressive, especially being the first on the block with it.  

WT - No ?

It's going on two years for WTO accession in Vietnam, and as a marginal market participant in this country, I'm not convinced that it is, or will be, a good thing for Vietnam going forward.

The WTO meant that Vietnam put itself on the path of competing with the world economically within its own borders, by agreeing to a set of schedules that placed timeframes on this Socialist government dismantling its trade protections.

The January 2007 accession means that the clock started to count down then, and now there are but a few years left till full implementation of the schedules.

In particular, the banking and financial industries thought it had a few years to gird itself from the expected foreign invasion, and in '06 and '07 it was trying.  But with the world markets crashing, and the resultant domestic crash, '08 was pretty much a lost year for the domestic players - if they were lucky enough not to implode, that is.

A lost year may be fine and good if you have time on your side, but the WTO clock was not paused.  Uh-oh.

There is a line of heterdoxy economics, such as Ha-Joon Chang's work "Kicking Away The Ladder," that argues the neo-lib free trade / WTO / IMF train of thought is designed not to help developing countries, you know, develop, but rather it removes the ladder towards success.

I haven't read Prof. Chang's book yet (waiting to hit my local library to borrow it.. gotta make use of those tax dollars!), but this article provides a short synopsis of his thesis.

As part of Prof. Chang's argument, he notes that places like South Korea and Taiwan have bridged the chasm between the developing and developed world within the past 30 years because of government protectionist and interventionist policies.

Will Vietnam ever become the next South Korea?  I have serious doubts.

Besides exploiting its resources (oil, mineral, land for agri- and aquaculture), and its human resources (low wage labor), what the heck is this country good in? In what industries can it become world class?

South Korea is strong in shipping/logistics, pharma, engineering and construction, consumer electronics, and autos, among others.  Most, if not all, were the results of government efforts - putting tax payer resources behind the industries as well as protectionist walls during the gestational stages.  The government helped to create the chaebols that now run Korea.   Sure, concentrated power is not ideal and the corruption in SK is kinda wild, but Korea is owned mostly be Koreans.

I fear that Vietnam was over eager to show the world that it is on its way forward, and in ghetto fab style, joined the WTO before it was ready.  Outside of the resources story, there is nothing that it does well.  And resources dwindle.

This is not to say there won't be successful companies that break out of its borders and become regional or even international players.  But the more you look, the more you see multinationals coming into Vietnam, to buy up and own things, to take over and dominate the local markets.  Colonialism without the bullets.

Here's an interesting piece from the Guardian in 2005 contrasting Mexico with Vietnam, titled "Two countries, one booming, one struggling: which one followed the free-trade route?"

How would an update of that piece read today?  And how would it read five years from now?

Cutting Thru the Communist Red Tape

So recently I had occasion to experience the red tape in this country, and, to be frank, it wasn't so bad. 

Above is the view I had for about 1.5 hours, waiting for my number to be called.. but let's start at the beginning.

A few weeks prior to the picture, I submitted paperwork to relevant governmental agencies in order to secure a business license and, more importantly, the right to purchase one of these stamps:

In the U.S., business formalities have moved past the "sign and seal" stage of authenticating signatures.  Back in the day when most people were illiterate, the need to sign and seal documents made sense.  Now, not so much.

U.S. contracts these days may still say "sign and seal" under the signature, but this is merely an anachronism, as it isn't legally necessary.  Even the 'requirement' to notarize signatures are not technically legally necessary - it's just a safe harbor in order to expedite the process if the signature was ever challenged as being authentic.

In Vietnam, and in some parts of Asia, the seal requirement is still paramount. Documents are not legal unless they have a seal - be it from a company, a government agency, or whomever.  Documents are never accepted with simple signatures. Everything has to be original documents.. good luck passing off a photocopy of your documents, unless they've been authenticated with a government seal.

Because of this, when you're hanging out at the international departure terminals in Vietnam, you can locate those locals emigrating elsewhere by their dress (Sunday best, naturally) and by the black Samsonite briefcase that they're clutching.  In it will be all manners of original, signed and sealed documents that cost a fortune, in terms of man-hours, to procure.  My folks still have that black Samsonite filled with yellowed documents in a back closet somewhere.

So here I am, sitting in this government office, to get my own seal.  The place is packed, there is no AC and I'm in a coat and tie.  Um.. not good.

I snatch a number, like at a deli counter, realize my position in the queue, and then head towards the folks mingling at the doorway.  This is Vietnam, there are always alternatives.

After some discussion with a few folks in my limited Vietnamese, I learned that I could outsource the wait on line for between 500-750k, but that I would not be able to get the seal today.  If I personally waited, I would get my seal.  Needing to mail out an "official" document today, I bit the bullet, rolled up my sleeves and waited it out.

The room is, as mentioned, packed.  About a 50/50 mix in terms of sex. Most of the guys are either Korean or Japanese expat business folks.  The majority of the women are young sherpas, guiding these guys through this regulatory process.  I figured I could do it on my own.

And after about two hours, I was right.  There were some missteps along the way - I had to run down the street to get my passport photocopied, then head to the police station to pay 2k VND (that's like 15 cents) to get the photocopy authenticated - but the stern dude, dressed in his pea soup green army uniform, who manned the counter was pretty nice and helpful underneath that fascade.

So it was pretty good, not much different than heading to the DMV or Register of Deeds office in the U.S.

A lot of expats have a fear of the regulatory agencies in Vietnam - so they either hire someone to do this work for them or just straight up avoid it altogether and break the law (like riding around without a license).  I met a German expat recently who told me how relatively painless it was for him to get a motobike license in Vietnam.

The assumption amongst expats that nothing gets done in the government, however big or small, without a bribe attached is pervasive.  But it is certainly not true.  Sure niceties grease the wheels, but the same is true everywhere in the world. 

If you've ever had to personally go and file a deed in the U.S., you'll see the runners from the mortgage and title companies plying treats to the filing clerks, who in turn share this corpulence with the rest of their minions, in order to get better service.

It's just that in Vietnam, foreigners have a more limited skill set with respect to 'being nice' to local folks, government clerks or otherwise.   For some expats, their toolbox starts and ends with money.

Take out Pho

There is a lot to like about the national noodle dish of Vietnam, pho, but one thing about this relatively quick meal is that it is difficult to buy it to go, or so I thought.

Here is how Pho24 does its takeout:

The whole shebang, pre-assembly.  Note how many plastic containers one get just for one simple bowl of noodles.  Man, how much does this kill their margins?

This is the top vessel, containing the rice noodles and the meat portion.  This was the pho bo dac biet (special beef pho) version, I think.

Enter the veggies, mostly bean sprouts and sliced white onions and other sundries.

Don't forget the greenery.

Be careful with the splashing when you pour in the MSG goodness.  

A multitude of containers, keeping the cold side cold, the hot side hot.  This is like the McDLT or something.  And you know how that went in the marketplace.  

Please Dial "3"

This month, the local, which is to say, national, which is to say *only*, landline telephone company, Vietnam Posts and Telecom (VNPT), announced a change in all landline phone numbers.  

In HCMC and Hanoi, all landline numbers now grow from 7 digits to 8 digits.  Plus the two digit city code.  In the outlying provinces that used to have 6 digit numbers, they also grow by one to 7 digits.  While provinces that got recently "upgraded" to 7 digits stay at 7.

For all of HCMC and Hanoi numbers, you now add a leading "3" to the old numbers to create the new 8 digit telephone number.    

A lot of business here, even more than in the US, is conducted via mobile phones.  With no wide acceptance of voicemail, folks carry multiple cell phones.  But still a lot of folks, like us for instance, will be affected by this new landline number change.

And this change is idiotic.  The more reasonable way to go about things is to add an area code "overlay," and not to simply lengthen numbers.  Split HCMC and Hanoi into new area codes, instead of just maintaining one city code.  My hometown has four new overlay area codes since the time of my childhood - and my childhood home number didn't change for 25 years until we sold the joint and moved.  

This new VNPT edict will just create business for the print shops, because now all our business literature - business cards, letterheads, envelopes, marketing materials, etc., etc. - will need to be redone.  Arrgghhh.

And given that short term memory is about 7+/- 2 digits*, as I remember from Psych 101, these new 8-digit phone numbers will start messing with your head.  Mobile numbers in Vietnam are at least 8 digits long, plus at least a two digit mobile provider code.  No one can remember these long assed numbers, that's why people buy and peddle "so dep" - pretty numbers.  One buys a nice and pretty mobile number just to have a number that can be remembered.  

After two years, I've finally been able to memorize my own mobile number!            

* this magical 7+/- 2 standard was put forth in a 1956 paper, since then, and my time in the lecture hall, new research has suggested that we can remember 2 seconds worth of spoken content.  For English speakers, this would be 7 plus or minus 2 digits, depending on how quickly one normally speaks.  For Chinese speakers, the number of digits recallable in short term memory is closer to 10, because the words are shorter.  My impression is that the Vietnamese speak slowly and they'll be closer to the 7+/-2 measure.     

Feds in the Money Market

Ok, I am more interested in food, with a side of business/economics, than say, a dude like Tyler Cowen, the George Mason econ professor, with a foodie side.  But the current business/economic discourse in the media just seems so wrong that I can't just talk about food here.  

So skip this if you're looking for food pictures.

I read this USAToday Op-Ed about the benefits of small banks today.  The basic argument is that small banks (whatever that means.. though the authors allude to a George Bailey-esque bank - from A Wonderful Life - as the model) are better than big banks because they make loans that do not default.  "Better" loans makes for "better" banks.  Small banks can make such better loans because they have an "informational" advantage - they know their customers and know the good credit risk from the bad. For good measure, the Op-Ed proposes some sort of special tax on securitizations.

Wow, what a load of naive crock.   

There are no banks that serves big population centers in America that works this way.  The closest thing to a "small" bank that most of us see is our local credit union.  Credit unions are not inherently better at assessing risk than my Citibank branch - the only extra information they may have on me is the activity in my accounts. What's my savings history, my checkwriting history, etc.  But if you get a regular mortgage (as opposed to those "no-documentation" ones), you've disclosed such account history to Citibank as well.

And what's wrong with making loans to folks with higher credit risks?  If there is any failure here in this mortgage business, it is the failure to properly price risk.

Now the momentum has swung the other way.  People with money (banks and investors) are charging too much for risk. That is why the markets are stuck - no one is lending at prices that are business appropriate.  

Thankfully, the Feds are stepping in to not only issue commercial paper directly (i.e. short term loans to provide working capital to functioning businesses), it also has just set up a money market facility to buy current commercial paper from financial institutions that are seeing massive redemptions from their money market investors.

If the Feds play their cards right (i.e. pay appropriate prices for the asset purchases), they (or we, as taxpayers) can end up making a killing when markets are talked down from this pricing panic.

Of course, we're talking about the US government here, so the "we" who will end up making money will not be the taxpayers, but political cronies.  Sounds like current day Vietnam.

Tailor at Work

Here's the tailors at work. They haven't been perfect, but overall they've been decent. As mentioned in an earlier post, I've gone back after mistakes because it would cost more time and money to find someone else.

9 Things to Do in Vietnam

As any long term (be it two week or two months) blogger in Vietnam is wont to do, here is my obligatory "things to do in Vietnam" post.

1. Go get your hair washed

A lot of guidebooks that write about Vietnam gush about the affordability of it all.  I would generally disagree with this - yes, it is easier and cheaper to live comfortably here, but this country is certainly not cheap, but maybe that is because I've been to China a few times and compare Vietnam's prices to there.

Most everything here is cheaper than the US, but also most everything here is more expensive than in China. But that makes sense, for they were all made in China!  So you won't find much in the way of inexpensive goods, but you can find mind-blowing deals (if you're used to US prices) on services.

Housework, chauffeur and childcare services are insanely cheap in comparison, and about equal or less than China even.  But the average tourist isn't gonna use such services.

Instead, take in the affordable and very Vietnamese luxury of getting your hair washed. The hair salons in Vietnam do more business providing hair washes than they do in actually cutting hair. They'll also provide other expected services, such as mani- and pedicures, Asian style services, such as earwax picking, face washes, and clothed massages.  If you look real hard I'm sure you can find places that provide other services, but I'm pretty blind on that account.

A hair wash can be 50k or less.  Just remember to tip.  If you don't like to get your hair wet then go get a foot massage.

2. Enjoy the herb

I don't me the sticky sorta herb, but rather the panoply of SEAsian herbs that are virtually part of every local meal here.  In the US, even at decent Vietnamese restaurants, you're limited to generic things like cilantro, mint and thai basil.  Here, there is so much more, half of which I can only identify by smell and taste.  Out of all the food products in Vietnam, I think I'll miss the basket of herbs the most.  The main reason I like to eat seafood on the streets here is because of the herb mix that comes with it.

3. Go to the beach

I haven't really travelled around all that much in Vietnam, but I've been to some of the beaches here and they're definitely worthwhile. With its long coastline, Vietnam has a whole host of beaches to choose from - some are small and desolate (Sam Son), some are wide, crowded and dirty (Vung Tau), and some are pretty and peaceful (Cua Dai). Sure, it probably doesn't compare to Thailand, but life is pretty good whenever you have sand between your toes while swigging a beer, looking over the sound of crashing waves to the sun peeking over the horizon.

4. Get some clothes made

Before making this recommendation, a few caveats: custom tailored clothing is much cheaper in China (about 50% less), and labor costs here are cheap. Why is the latter a warning? Due to cheap labor, the concept of measure twice, cut once isn't employed here in Vietnam.

In all my dealings with the local labor pool, I find that folks are generally careless and error-prone. At first I attributed this to a lack of work ethic.  But I've slowly come around to the thought that such errors are due to cheap labor.  It costs so very little to rectify mistakes that it doesn't make sense within the local work culture to spend extra resources upfront to minimize mistakes.

It's sorta like the low-cost manufacturing facilities in China and elsewhere - it is cheaper to make 100 items with a 5% defect rate than 95 items with a 1% defect rate. If you engage in the former, you'll pay less and get more good product.

So, even though you should expect mistakes in your tailored clothing, and even though it isn't the cheapest in the world, why do I suggest getting clothes made here?  Because you'll likely end up looking pretty good when all is said and done.

Most Americans, myself include, wear off the rack clothing that is just too big for us. The locals, men and women, almost regardless of age, wear clothes so tight fitting, it would make Fredrick's of Hollywood proud.  So the tailors here are geared towards a more fitted, slimmer cut that ends up more flattering, no matter the customer.  Just make sure to emphasize that you want a more comfortable fit, or else you'll end up with some nut-hugger pants.

A dress shirt made in D1, depending on the fabric choice, costs between a regular off-the-rack Brooks Brothers shirt and the same shirt on sale. But the fabric and the cut will be much better.

5. Go to the mountains

As a country geographically oriented like Chile, the beaches are on the forefront of a tourists' itinerary. But if you want something slightly different, head to the mountains. Places like Fan Si Pan (the highest point in Vietnam), or Dalat or Tam Dao. One of the best times we've had was when we visited Tam Dao.

Of course there is Sapa also. But be aware of the "Sapa Curse" - it's a relatively well known and well subscribed to phenomena amongst the locals.  People say that if you go to Sapa, which is home to the ethnic minorities such as the Hmong and Yao, the women there will put a spell on you and you won't leave until you end up marrying a local ethnic minority and taking them back to the city with you.

It may be an old wives' tale, but I've heard of business colleagues who went to Sapa on vacation, disappeared for months, and returned with a Sapa wife.  And I personally know of a long term Hanoi ex-pat who met and married his wife in Sapa.

6. Play some golf

If you're an American golfer, you have got to play some golf when you're in Vietnam. The courses here are generally in very good condition, but besides that, having a caddy is just something that needs to be experienced. Sure, most of the caddies are not the sort that you would rely on for tournament golf, simply because, unlike the States, the average caddy here does not play the game so their knowledge of it is limited. But if you've thanked the inventor of the Izzo dual-strap, then you'll appreciate someone else humping your bag around the course.

Again, remember to tip, because they get very little, if any, part of the "caddy fee" that is on your bill. Locals tip between 100-200k per 18 holes.  I find that the local HCMC players tip more generously than their Hanoi brethren, so pay attention to where you're playing.

7. Go nhau

"Nhau" - it's a very Vietnamese word.  Loosely translated, it means go out drinking, but it's not really that.  "Go out drinking" sounds more like something you do on a Friday, Saturday, Sunday (and Monday, Tuesday, Wednesday, Thursday) night while in college. 

It's not really that.  It's probably more akin to 'getting a pint' - but I dunno, I'm not from a commonwealth country.

No matter the proper translation, you should go out and nhau, especially with some locals.  It's practically a way of life here.   It's fun to sit on some plastic stools, grab some peanuts and Vietnamese style bar food (i.e. stir fried stuff that you can share and/or eat with your hands) and drink the local beer. Don't worry about getting too drunk - for all the bravado of the locals, by and large they don't drink all that much. When locals drink, they end up drinking more ice water than actual beer.

8. Slow down and look around

Visitors pretty much hang in the cities of HCMC or Hanoi, and longer term ex-pats definitely count these cities as their main stomping grounds.  The only comparison to these places are other Asian cities (well, perhaps S.America, Africa and the Middle East.. but I've never been).  It's crowded, it's hectic, and there is so much going on.

But once in a while, just pump your brakes and slow down.  Really look at your surroundings, and the people that inhabit it.  Take it all in and connect with this time, this place.

I am not talking about observing folks and passing judgments, ascribing some sort of bs quiet nobility to the poor and the working poor.

Unlike most American cities, you can see all of Vietnam from virtually any street corner here.  So slow down and breathe in the beauty, the warts, the frustrations, the wealth and poverty, the yearning, and the humanity of it all.  This is current day Vietnam looking back at you, so take it all in before looking away.

9. Leave

At the end of it all you should leave.   You weren't raised here, you don't have many ties here, you're not really from here.  A life spent with an updated passport and a visa needing to be renewed yet again is a life in limbo.

Stay too long and you'll end up like the well-worn caricature - a bitter, whiny, complaining, ugly foreigner.  Do yourself a favor and leave.  Or marry someone local.  I hear the weather is nice this time of year in Sapa.

Subprime Problem in Vietnam?

This blog is mostly about the food that we eat in Vietnam, my quest to find a really decent martini and playing some bad golf in some beautiful settings. To feed all those cravings, in my non-blog life I'm usually thinking about how to make money.

As an inveterate New Yorker, some of those ideas have been of the illegal kind - such as taking advantage of all the young local idiots who have no concept of online fraud and therefore they post their personal information and bank account numbers (!) all over the internet. But thankfully I'm preoccupied with morals to proceed any further.

Given the current world economic climate, I've pondered a bit about the problems in the US (Overselling the Subprime Problem, Market Meltdown Hysteria), which, for all intents and purposes is a confidence issue. Banks do not trust each other, so they do not lend to one another = no money sloshing through the system to lubricate the economic engine. All this talk of doom and gloom in the US is fun and games, sorta like the perverse pleasure of picking at a scab, but optimism will prevail as more people will make more money selling optimism. I'm confident enough to have recently put my 2 cents behind XLF - check back in 6 months to see how that goes.

Spurred on after reading B. Hawkins Pham's post, "The New Look of Saigon," on Saigon Blues, I thought more about why at this point I'm not as optimistic in Vietnam. There are a host of reasons, the main one being that the down global market, and in particular the down US market, makes Vietnam comparatively less compelling. Life is relative, and so are economic opportunities.

As part of the doom-and-gloom trade, business commentators in the US are quick to cite thing such as the WSJ's estimate that 1-in-6 homeowners are underwater (i.e. owe more on the mortgage than the current fair market value of the house). While this is certainly not a good thing, is this really that bad? Surely, housing occupies a certain mindspace for housing consumers - likely a combination of being the largest purchase, the largest asset, the largest debt for the average person - it is still a purchase.

As long as folks can make payments, being underwater affects their psyche, but it does not mean that everyone will suddenly become homeless. "Underwater" - sounds scary and threatening, and meant to evoke the idea of drowning, but for nearly all purchases on credit you will be underwater.

Did you just buy an iPhone with a Visa card, or that shiny new aluminum Macbook? Guess what, you're underwater. Does that matter to you in that setting? No, not really. So too housing. 

Or take a look at most folks' second largest consumer purchase, an automobile. The auto trade is tanking right now, but historically (I'm young and naive enough to mean the past 15 or so years), 90+% of the folks who buy a car finance, and they on average put about 15% down. For the average consumer in the average car, with the well known phenomena of 'drive off the lot depreciation,' that means that the auto is instantly underwater. Where was that doom-and-gloom talk over the past decade? Non-existent. 

As a business/investment climate, the worse America gets hammered, the worse Vietnam becomes.

But that's not to say there are no issues here. As a relatively closed economy, Vietnam is not directly affected by the supposed US Subprime issue because banks here did not buy US debt and derivative instruments. The effect is an indirect one, caused by lowered FDI commitments and, more importantly, lowered actual FDI inflows.

But the banks here have a Vietnamese style subprime problem - that of non-performing loans (NPLs). The credit system here is relatively rudimentary and is based more on an antiquated asset-based lending standard than a modern cashflow-based lending standard.

If I was a lender, I would favor the cashflow outlook, because at the end of the day I want to know if you'll have the money to pay me back. I would not want to have an asset-based lending outlook, because I am in the business of making money on interest and fees, not on foreclosures.

Banks here that do asset-based lending typically have the infamous "red book/document" - the red deed book issued by the government and used to confirm use rights or ownership of property - as collateral. With local property price declines, and more importantly, an illiquid market, these asset backed loans quickly devolve into NPLs.

A reason for the rudimentary credit system here is a lack of credit ratings agencies. There is no such thing as a FICO score, so effectively most (all?) individuals and businesses are subprime borrowers. The indifferent legal environment makes it easy for borrowers to stiff the lenders - at worst, the borrower would walk away from an underwater property, and that action has little impact on their ability to get a subsequent loan from another bank using a different piece of collateral.

As the saying goes in the US, 'if you owe the bank a million dollars , it is your problem; if you owe the bank a billion dollars, it is their problem.'  The same is true in Vietnam, except you replace "dollars" with "dong" - and a billion dong is low barrier, so the banks are holding a lot of problems.

But I am an optimist, and I see good things going forward for the Vietnamese economy and like elsewhere, as an economy improves the financial sector will lead the gains. It's just that the American financial sector will make more gains in the near future. So why deal with the Vietnamese issues?

Weekend Eats and Other Stuff

I was walking about D1 this weekend to do some shopping.  Ended up at the Parkson's Mall when hunger kicked in.  Unfortunately their food court is undergoing renovations, so I hit the street, hit the wall of steam and quickly decided that I neede to get indoors stat.  So I ventured to the food court at Eden Mall across the street instead.  This is the second time I've eaten at this food court, and again I'm impressed. Maybe I should go here more often.   

I got the above from Little Manila, which also has a full fledged outlet in PMH.  What captured my fancy on the menu was the whole fried Tilapia, for 45k.  Not bad, especially for an aircon food court.  The entirety above was like 120k.  

I don't know if it's a Filipino thing, or if it was just prepared incorrectly, but when the menu said "whole fish" I didn't really expect a whole fish, guts and all.  Maybe someone can enlighten me.  Save for the guts, the rest of it was pretty good.   

It's been a long while since I've had pizza in Vietnam.  It's one of those 'why bother' foods for me in this country.  As in, why bother eating it when you can wait for the next trip home.  But I was lazy and therefore wanted delivery.  Ordered from Pepperoni's in the backpacker area, and it was delivered in about 20 minutes to the CBD.  It was pretty decent, considering where I was eating it.  This large, 8-slicer good for about 2 adults was 110k or so.         

Of course, once in a while one has to do "work," so I attended the grand opening of the first HCMC branch of Tien Phong Bank, which may be more commonly known as the bank FPT (with some others) started.

I didn't do anything but watch the proceedings, yet it was freaking exhausting.  Whomever thought to have a protracted outdoor ceremony in the midday sun in Vietnam should really rethink their event planning skills.    

But the expected dragon dance was still cool.  

It was late, the restaurant was starting to shutter its operations for the day, so the older lady who owns the place broke out her Wii to get some tennis in.  This was more amusing to me than the drunk dude below.

Some dude by the name of Thirsty has been stalking me.  Here he is rolling on a moto, smoking up a cigar.

And again, next to a guy who had a really, really good evening out.  

I've been on a chao kick recently; here is the way they serve it at this particular Chinese joint on Nguyen Trai, which is one of the places in HCMC to grab some late night food after having your fill of beer. 

Fish at Jaspas, Pre-Inflation

As a comparo to the recent photo in Fish at Jaspas, here is a similar fish dish on the Jaspas set lunch menu from about 6 months ago.  Same fish species too (barramundi, if you're interested), so it's not like a bigger slice of salmon vs. a more delicate cut of something pricier.  

Visual evidence of the recent inflation, perhaps.  Actually, I don't really pay all that much heed to the local inflation - I'm more focused on inflation in the U.S.  

Corporate Communications Problem?

So the Highlands rat story hit the local Vietnamese language media.  See this VNExpress web article.  The persons who bought that infected cake refused to be interviewed by the press, according to the story.  

This blog is not very popular, as it's really geared towards a small circle of family and friends back home.  But in the last few days there is a bunch of search engine traffic - the screenshot above is of the recent keyword search term.  Apparently a lot of people are looking for rats.

I wonder how much of this negative pr is caused by the slow response of the staff at the coffee shop.      

Overselling the Subprime Problem

These days the US Presidential race is getting down to the final days - less than a month left. As with most Presidential races, it boils down to 'the economy, stupid.' Two months ago, talking about the indifferent economy mainly dealt with oil prices, and those big, bad guys, the "oil speculators."

That was a joke of a bogeyman, and now, a few months later, when oil is down to less than $90, no one is talking about those speculators - now those folks who bought when oil was $140 are no longer evil speculators, just bad investors. Then, the mainstream business media didn't really explain how oil "speculation" could have a negative long-term impact on things.

These days, the monster under the bed is subprime mortgages. You know, those Wall Streeters and their financial engineering, their "securitizations" - my gosh, what a long word, it must be a complex and difficult to understand concept, I mean, it even has a 10-point Scrabble tile in it, it must be nefarious!

The popular understanding of securitization is some sort of fancy slice-and-dice that turns bad assets (subprime debt) into multiples of good assets, but this understanding is just wrong.

Everyone knows what a mortgage is, and most understand correctly that subprime mortgages means loans to people who, on average, will default on their loans more often than the regular ("prime") market. To offset the fact that they will default more often, you as the bank charge a higher interest rate. Makes sense, and simple enough.

Making a loan and pricing the loan (i.e. setting the level of interest to charge) is a forward looking bet. All else being equal, the price you charge for a loan depends on how likely the borrower will pay you back. So how do you predict whether the borrower will pay you back? You use things such as credit scores, and divide borrowers into subprime and prime markets.

But what if you can make a backwards looking bet? What if you can build a time machine, so you don't need to predict whether someone will pay you back (regardless of their credit score), you'll actually know if they will pay you or not?

If you can know the future, you can make money. This is what securitization tries to do.

A few decades back some financial types and lawyers (I'm assuming) got another simple idea: let's build something close to a time machine.

How do you do this?

First, let us assume that 25% of all subprime loans will default. That sounds bad, but that also means 75% will pay you.

So if you make one loan, you have a 75% chance of getting 100% of your money and a 25% chance of getting 0% of your money back (disregarding partial payments prior to default).

Second, we would quickly realize that if you make 100 loans (or 1,000 or 1M, etc.), then you know that statistically you will get 75% of your money back.

So how do I build this (imperfect) time machine with these realizations? Well, you first bundle up a lot of subprime loans to get statistics on your side (law of large numbers and everything), and then you divide up the loans into discrete packages.

So we bundle up 100 subprime loans and then divide them into four packages, each package having the rights to payments from 25 loans. And now, to sprinkle on the (imperfect) time machine dust, we say that the first package will be entitled to the first 25 loans out of the 100 that gets paid off, the second package will be entitled to the next 25, and so on.

This is the financial engineering magic - instead of having 100 random subprime loans with an expected value of 75%, we can bundle up the loans and then divide them up into smaller packages *with conditions attached* to turn the 100 loans into four packages, the first three having an expected value of 100% and the last package of 25 loans having an expected value of 0%.

If you are an investor buying package 1 or package 2, you'll feel pretty confident of getting repaid. If you are buying package 3, statistics say that you will get repaid 100% but you are a little bit uncomfortable.. so Wall Street gets an insurance company, say AIG, to guarantee that, out of those 25 loans, AIG will pay after the first 5 defaults. The expected default rate for package 3 is 0%, so AIG is comfortable in accepting an insurance premium to write this type of insurance - after all, statistically and if the assumptions hold up, it will never have to pay out on the insurance. Now, with the insurance, the investor is comfortable that it will get repaid and therefore will buy package 3 at a price that makes Wall Street money.

That, simply put, is what securitization does. The idea is that simple. And because the financial and legal types like to think of themselves as geniuses, they call these packages "tranches."  So is this creating value out of crap? Financial mumbo-jumbo, a slice-and-dice that ends up shredding investors?

No, it's just unlocking hidden value. 100 random subprime loans can (and are) worth more when you package them into tranches. There are a lot of things in life that are worth less than the sum of its parts.  Look at a car junkyard - it's a business only because a car parted out is worth more than the whole car.  So too subprime loan, parted out through securitization, are worth more than the original loans.

There is a lot of talk about Wall Street securitizing loans, and making all these fancy and exotic investment vehicles which then turned out to be worthless, but I just don't buy it.  No matter how many packages you divide a bundle of loans into, you cannot create more than the original 100 loans, so financial engineering doesn't expand the universe of loans (i.e. doesn't expand the universe of risk), it just divides it up into smaller packages.

So the subprime collapse only happens when reality is different from assumptions. We assumed a 25% default rate. What happens when it is actually 35%? Well, tranche 1 and 2 are still the same (65 loans get repaid, and 1 and 2 "take up" only 50 loans). Tranche 4 is still the same, it's still crap (0 loans get paid).

For tranche 3, the investors expected to get fully repaid (i.e. 25 good loans), but with a 35% default, there are only 15 good loans left (65-50 = 15).  AIG, our insurer, also expected 25 good loans remaining when it insured against 5 bad loans.

With a 35% default rate, the tranche 3 investors will collect on the 15 actual good loans and the 5 insured loans from AIG, and will take a loss of 5 loans.  AIG will take a loss of 5 loans against their income from the insurance premium.

So is there a subprime problem?  Yes and no. Yes, in reality default rates have likely been higher than the assumed rates in the models used to price the tranches, but the failures are not due to problems with black magic. It's a simple error in assuming default rates by investors and insurers.

Investors and insurers only lose more money than expected when the default rates are higher than expected.  Outside of "naked" insurance policies (aka naked Credit Default Swaps), there is no expansion of risk in securitization.  AIG lost money because it did not assess the risk in providing insurance properly.

And the answer is "No" because, for all the negative press on the subprime market, it is surprisingly not that bad.  While the data is dated, as of last year the total dollar amount of outstanding subprime loans is 1.3 trillion, with a default rate of 14.5%, and the average loan amount being $180k.

That means that about $200B worth of loans is in default. So why is there a $700B bailout?

Market Meltdown Hysteria

As a foreigner in a foreign land, one of the touchstones to home is sports. We don't really get ESPN here, instead we get an ESPN/Starsports hybrid, alongside three other sports channels. There is an African sports channel, an Aussie one and a Thai channel.. it can be interesting at times because you'll see a lot of obscure sports, like deep sea fishing, futsal world cup, all sorts of para-olympic sports, equestrian events, etc. But in the end, I probably watch the ESPN hybrid the most.

So yesterday, the two lead stories on this version of Sportscenter was about soccer and F1 racing. Good enough, because I've grown interested in the former and I've always been a car guy, so the latter is up my alley.

Except that the stories weren't sports stories, but rather they tried to inject the current economic crisis in the stories. For the soccer bit, the reporting was about how much top teams in the English (Barclays') Premier League were paying their players in salary, opinion that given the current world financial situation those salaries may have to go down, and a report about how UEFA is looking into punishing teams that have too much debt. The ESPN dudes go on to make it sound super-ominous that teams have debt and that somehow this was a bad thing for the game.

Ugh. This is like a lot of bad journalism that goes on these days within the business press and in the general press corp. There is all this hysteria about, and frankly it is sickening.

I mean, it's a *good* thing that EPL teams have debt - it shows you that someone must think that the team as a business is a good risk, and that's why they lend the team money.

EPL teams have no salary cap, and undoubtedly more money buys you better players. If I'm a fan of a team, darn it, I want them to spend as much money as possible in buying players. And getting into debt will allow that (just don't raise ticket prices too, too much!).

This shallow sort of reportage is such an affront to my sensibilities. Don't these reporters and editors understand that debt can be a hallmark of a good business?

Just imagine you're Ray Kroc and you opened the first McDonalds' and proved the concept of your business. So how do you expand? You can do a cash-financed expansion, which is basically waiting until you've saved enough profits from the first location in order to pay for opening the second location. Or you can do a debt-financed expansion, which is basically borrowing money (from a bank or your franchisees) to open your second location.

So borrowing money can help businesses become bigger and better businesses. After all, if the business borrows money at 10%, then that business expects to get returns at 10+%. And if a business does not expect to get returns at 10+% and therefore chooses to not borrow money, couldn't an argument be made that such business should just sell itself off and close up shop? Then they can just take that money and loan it to someone else at 10%. You'll make 10% without having to work, isn't that better?

It's frustrating enough these days to watch TV and read the papers, can't I get my sports free from malformed economic thoughts?

Saigon Sights

Some sights while walking about HCMC:

I saw this boat anchored in the tributary near the golf driving range I hang out at.  It's odd to see this sort of pleasure craft in Vietnam, I'm guessing because you can use it to sneak things (and people) across the border.  I've come to find out that the person who owns this also owns an airline without any planes.  I guess they traded a Boeing for a 30ft boat.   

A friend told me that there was a Mercedes McLaren in town, but I was a bit incredulous because said friend wasn't a full-fledged car guy.  Turns out he's right, as I spotted this outside of Diamond Plaza on a weekend.  

The "new" Vietnam is filled with fat kids.  Family sizes are much smaller than they used to be, in both the white collar class and the blue collar class in the city.  I believe this kid is a valued son to a shopowner nearby.  It's hard to blame parents for overfeeding their kids when they themselves can so easily remember existing on rations.  The bike is a start though.        

This picture is a small example of how things seem weird here until you look more closely... if you do, then maybe only half of the things are weird here!

I walk down this street a lot.  One day I see a small pile of bricks and debris, and I just though that the street cleaners hadn't come by yet.  But the pile was still there the next day.  Over time, it would grow, and then wane after a rain storm.  

One day I walked past during a heavy downpour and I finally realized what this was.  This debris sits outside a building that has underground parking.  You get to the parking spaces by taking a subterranean ramp that feeds out to the street.  When it rains moderately, the street corner drains are quickly overwhelmed and the parking ramp funnels the collected downpour into the garage.  This mound of discarded construction materials helped to provide a lip blocking that flow.  An interesting, if temporary and ugly, solution.     

Fiat 500 in Vietnam

It's a Fiat 500, and I must declare, it's a very good looking small  car. It doesn't seem to be trying too hard to look chic, like the Mini Cooper does.

According to the security guard / car model, this is being imported by Mekong Autos and will be sold here in 2009 for $40k USD, which is not too bad for this market.

Mekong Auto was one of the first passenger car assemblers here after the Doi Moi era - ten, fifteen years ago the only personal ride in town was their eponymous vehicle, the Mekong, which was sorta like a Jeep Cherokee replica.  I got a lift in once recently, and those Mekongs are rough and ancient, but still running!  

Incompatibility

So it has been about two years plus since the equity market runup here in Vietnam (and twelve months since the tumble).

Recently I headed to my brokerage to see the state of the portfolio, and I come to discover that while this place is owned by a major local bank, it does not have a system in place whereby you can check, in Saigon, the balance of an account that was opened in Hanoi.

So they had to print it out up north and fax it down. Crazy, considering how well capitalized this company continues to be.

Cheap Internet

I've never really noticed the Internet cafe pricing in Vietnam, because I'm more of an expat than a tourist, but the other day while running some errands I noticed the pricing menu of this joint.

22k for an hour of computer time - that's pretty darn reasonable, and cheaper than AOL's per minute charges back in the day.

The "Internet card" pricing is for an Internet phone calling card, again not too shabby.

I'm sure you can find cheaper access elsewhere, as this was a more 'upscale' joint in a relatively nice ac'ed shopping center in District 1.

Speaking of the Internet, I met this American guy the other day who was here on vacation with his Vietnamese wife of about a year. They met online four years ago, she in HCMC and he in the US. He's of the cohort who would've served here during the war, while she was actually alive on this planet during it, if just barely.

He seemed like a decent enough chap, save for the multiple laments that he had enough of American women's "attitude" - I wish him luck because he obviously doesn't understand Vietnamese women's attitudes!