Monday, October 13, 2008

Economic Crisis - Gainers and Losers

As news breaks on France, Germany, the UK and the US pledging incredible sums of money to shore up markets worldwide we need to bear in mind that when such actions take place it is ultimately the tax payers who are footing the bill. That is the only way governments obtain the 'cash' to spend.

While it may be the duty of 'governments to help their peoples, businesses, savers' and all - it is not the duty of governments to rein in the greed that the 'ordinary' citizen has. Flashback to 1997 when then PM Goh declared that 'greed is good.'

The outcry against 'minibonds' in Singapore are a reflection of a deeper seated problem. That of simple, blind and perhaps uncalled for ultimate trust in the government or such equivalent 'authorities.'

All the social engineering that the Singapore government has done has led to a nation of uncritical thinkers. The ability to think critically and challenge authority has been so well stamped into the Singaporean psyche that it may take generations to undo the stigma of independent thinking.

Investors who have 'lost' money may be losing their retirement savings and hard earned money but should there have been gains as massive as the losses have been would these investors have petitioned to force the government's hand to tax them? It makes one wonder - more so when many of these investors happen to be teachers ...... prior to retirement.

What is needed is not just more financial literacy classes which teach about savings and interest rates (how they compound) and budgeting as is done in numerous secondary schools and JCs now but that of independent thinking including that of encouraging the challenging of authority.

Some half a decade ago the then celebrated Nobel laureate Paul Krugman - economist extraordinaire, and I believe professor at MIT - decried the free market economic model. It fell on deaf ears. People were too busy 'making hay while the sun shines.'

There is inherent instability in an economic system that proposes quantum growth through the introduction of derivatives. These instruments, basically based on nothing but paper and credit, for the investment backbone of many an investment house. The money reaped during the good years by top investment bankers, several of whom have collapsed faster then you can say 'boo,' ...... wonder what happens ..... is it fair for some to 'knowingly' benefit at the expense of the masses?

These net gainers pulling in multi-million packages, sounds familiar?, are basically getting away scot free in that nothing illegal has been performed. The regulators worldwide have moved too slowly and are even hesitant of moving now since many prominent toes will be crushed. What then becomes of the 'ordinary investor' and 'saver?'

History is replete with lessons of the masses getting done over in a variety of ways and means ....... but the lesson never really sticks ..... much like the soap for gold or oranges for gold scams resurfacing every so often ......... why would this be?