2/26/2009

Minibonds and the stock market - Which is more destructive?

We have seen the victims of the minibonds and toxic financial products. Of course no one is responsible for the mess and the loss of millions from our investors. These investors are expected to be smart enough to know what they were doing, and stupid enough to lose all their monies in things they do not know enough. They should count themselves lucky, to be able to point the fault at the products and the agencies selling them, including the ‘irresponsible’ marketeers. I am not sure if it is fair to blame this group of scapegoats. But what these people have lost in the minibonds is nothing compare to the billions lost in the stock market. Blame it on the contagion effect affecting the whole financial world. No one is to be blamed. Really? OK, OK, better not to blame anyone if we want people to listen. Once people think that they are being put on the spot, their guards will be up. In our hurry to build a big stock market after the collapse of CLOB, have we been too quick and too loose in expanding our stockmarket, with all kinds of stocks from China and a little from other emerging countries launching their IPOs here? Now we are seeing how risky they can be without the close quarter monitoring. We are seeing frauds after frauds, with managements running away or accounting irregularities. Have we thrown caution into the winds just to achieve our ambitious plan of expanding at all cost? Then there is the operating system that favours the big boys who can muscle out the small investors by brute force, force selling all the way down, or vice versa. Not only the investors were hurt, corporations also see their stock values hammered to levels beyond recognition, far below their net asset values. Now IPO listing is a stigma that few would even contemplate. No body have faith any more in IPOs and our market. Derivative markets are as good as dead. Before we ask where are we going from here, please ask how much have been lost, or how many billions have been lost. The sad thing is that unlike the minibond fiasco, it is difficult to pin point at one single fault. So there is no avenue to seek redress. Caveat emptor, caveat emptor! Everyone looks like an angel. Yes I can see the halo ring above the heads. Where is the moral responsibility, the public duty, and professional conduct and accountability to ensure that the system is sound and fair to all participants in the market? Are we happy at the way the market is running and at the way money is being lost in the market? Actually the money were not lost. They were being scooped away. It is high time that something be done to stamp the incessant loss of money in the market? Anyone bothers? Anyone responsible? Who cares, the apple still look ravishingly red and sexy outside. All we are hearing is that we have one of the best regulated market in the world. Best in what and to whose benefit? Anyone want to ask the opinion of the small investors? Who is laughing all the way to the bank? And whose bank accounts are being emptied? It is a tragedy! Nothing less. PS. Japan is worried that confidence in their stockmarket and financial system is breaking down and is seeking ways to intervene in the stock market to prime it up. They are preparing billions to buy into the stock market. I think we will do nothing. It is all caveat emptor. We have the best system in the world, and it will run to a halt on its own. Have faith. Trust that the system is in good hands.

5 comments:

Matilah_Singapura said...

"I view derivatives as time bombs, both for the parties that deal in them and the economic system. [...]

Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counter-parties to them. [...]

The errors usually reflect the human tendency to take an optimistic view of one’s commitments. But the parties to derivatives also have enormous incentives to cheat in accounting for them. Those who trade derivatives are usually paid, in whole or part, on “earnings” calculated by mark-to-market accounting. "
Warren Buffet [source]

"Mark to market accounting" ==> 'legal' method of present using numbers to dupe market participants.

Anonymous said...

How is mark-to-market accounting dupery?

If the derivative bomb detonates, the domino effect would be huge! This is hundreds of trillions!

Anonymous said...

There's still the derivatives issue, the pension fund issue and the credit card debt issue coming into the fore. Fixing the banking sector is just only the first step.

And many people are having misgivings about the bulk of the bailout funds going to the banks instead of more into capital projects. The US Government is basically giving most help to the very people who created this mess. How ironic!

The US has over the decades moved most of its manufacturing facilities overseas and rely on overseas manufacturers for most of its requirements, so they are more or less just depending on financial services at home to create all the lucarative jobs. Now that is practically gone. And if they do not spend more money on manufacturing facilities, the jobless situation will deteriorate further and the recession will be very severe and could last for years.

redbean said...

when the bankers go bonkers, they think the world owes them a living. and they simply helped themselves to it. actually bankers are moneylenders. that's all to it.

then they get smarter by creating derivatives. yes, derivatives is very deadly. a single product can be multiplied 10 or 100 times, into many derivatives. so when it fails, the multiplier effect is tremendous.

the bankers and financial industry better take it slowly with their madness in derivatives. it is like discarding real gold for fiat currency which one can keep on printing and printing.

we will have banana currency soon. the greenbacks are turning into bananas.

Matilah_Singapura said...

> How is mark-to-market accounting dupery? <

I'll leave you to research all the minute details yourself.

Basically mark to market accounting doesn't reflect the 'true' value/price of an asset/security. Nothing wrong with that, however the whole chain of reasoning is derived from those figures.