SOSC Science Technology and Society Dr. Vincent Duffy - IEEM Week 1 - Lecture 1 - Great Authority, Great Responsibility September 4, ieem.ust.hk/dfaculty/duffy/111

QOTD Economic Confidence n n Q.1. Are you confident in your family’s financial affairs? YNNS n n Worried about suffering financially in the next 12 months? YNNS n n Do you support the government intervention in the stock market? Not sure? Y N NS n n Do approve or disapprove recently of the job the Chief Executive is doing? Y N NS

QOTD n n Q.2. If you had $1 Million HKD, what would you do with it? n n HK assets? n n Overseas assets? n n All of it? How much of each?

How would you decide? n Information right? u Information technologies u Internet news access u electronic stock quotes etc. n Truth? Is it true? u China says (SCMP Aug. 31) F ‘Speculators lied about possible devaluation’ u Implications? Effects? u Let’s consider what happened….

HKMA- Monetary Authority n Used authority to purchase stocks on behalf of the government u they said ‘to defend the currency’ n Why not just change to USD? u Can HK Gov’t print USD? u Ability to print money is an issue of economic and political sovereignty.

But why worry about speculators n It’s a free market right? n Consider Arbitrage (technology) u What is it? u Allows large scale fast electronic transactions for large trading companies F just like my Visa card right?

50 Largest companies How large are they? And H.K.? Will this influence their relationships? Large Countries (based on $ Assets/size of economy) Small Countries (based on $ Assets/size of economy) Businesses & Governments

Problem n If ‘lies’, in the information technology that provides the information for decisions u it can effect perception/confidence and the local markets n For example, the HKD stability can influence the Hang Seng Index. n The large traders and trading companies can make large purchases quickly to as to upset natural market forces

What did the government do? n Round 1 u purchase the HKD being sold (through borrowing of HKD by overseas traders) u raise the interest rates to borrow to offset the potential profits and make it more expensive for the traders n Round 2 u Purchase stock futures

Should the government buy stocks? n Do you trust the government to do this? u Who are the government officials? F Public servants F Who are public servants? Highest paid and supposed to be the best available for the jobHighest paid and supposed to be the best available for the job n Distrust because of bad economy? u Do you trust your local police? u Do you distrust them if crime increases? n Do you trust yourselves? u You may be the next public/civil servants

O.K. Civil Servants, but what is a role of government? n To buy stocks?

What is a role of government? n Protector!

Governments role as protector n If military, u then with guns n If economic, u then through economic measures n Protect from what? It’s a Free market, right? u Arbitrage trading - gives competitive advantage to large traders u ‘double play’ F same guys selling the HKD (causing worry) are the same guys selling short (betting against the HK stocks).

But what did you do with your money? n Your 1M HKD n HK$ (HK assets, flats, etc)? n Overseas investments (US$)? n Not sure?

What would happen if half the HK people changed assets to USD? n Very simple. u If half the people changed their HKD to USD u the HK Government would lose the ability to protect the HKD. u Compromise? Change the rate? Not now. n Your government needs your support now! n What has happened in history? u Consider a brief historical perspective on government protection.

"We Can Do It!" by J. Howard Miller, Produced by Westinghouse for the War Production Co-Ordinating Committee, National Archives, Still Picture Branch [179-WP-1563] During WWII in the 1940s, the US Government asked the people to support the government by buying US Bonds (the equivalent here to buying HKD). Women worked and people lived on small rations.

‘Tung's rating rises in line with economic confidence’ Thurs 3 Sept SCMP n Mr Tung's approval rating gained nine percentage points to reach 65 per cent. n A poll conducted by Hong Kong University's Social Sciences Research Centre found 38 per cent of respondents supported the government intervention in the stock market, 22 per cent opposed it, 14 per cent chose to stay neutral and 26 per cent said they "did not know or found it hard to say".

Summary n Science Technology and Society connection u issue: use of technology to decide on how to invest u problem: arbitrage electronic transactions by companies with assets near as large as the HK Gov’t unfairly used u effect: government economic and monetary policy affected u ultimately: it affects your daily life

What next? n Round 3 u government changes the trading rules for arbitrage short sales n The moral of the story? u Support your government in its role as protector n Remember Abe Lincoln - history u President 1860s during U.S. Civil War u He said... F ‘A house divided against itself can not stand.’

Monday n Brief syllabus and content discussion