Financial Meltdown1 Oct 2008

Over the last two weeks, I have witnessed what can be considered the worst financial crisis in my lifetime. Two previous crises, one in Oct 1987 called ‘Black Monday’ and another in 1997 called the ‘Asian Financial Crisis’ when Soros and other speculators sold down the Asian currencies and stock market, paled in comparison with what we experienced this time around. It has the world in tears with massive write-offs from credit defaults and losses ran into tens of trillions; pensioners are left wondering whether there are any funds left in their retirement funds. Everyone was stumped.

Malaysia’s decline has been rather muted thanks in part to the relatively small exposure of our investment in the international market as well as the largely sold down position prior to the meltdown by international houses (led in part by political uncertainties); even so a massive RM57 billion was wiped our from the local bourse this week. Many reasons were given for the collapse of the investment banks in US and Europe that were the worst hit followed by insurance companies and fund houses. Governments round the world rushed in to bail out some of the institutions for fear that the domino effect of their failures will lead to further erosion of confidence and their economies at large. Even with these measures we saw the stock market heading southwards and major currencies of the world falling like never before. Within days trillion of $ were wiped off from double digit % decline in stock values. Interest rates cut did not stem the decline and credits remain tight. Commodity prices too declined substantially contributed by anticipated decline in demand. It was just a couple of months ago that oil prices were above USD140 per barrel and CPO at RM4500 per ton. Now it is about USD78 per barrel and RM1750 per ton respectively. What happened? Was it a 10-year cycle that was overdue? Was it human greed that drove prices to unexpected levels? Was it speculation that caused the upheavals? Was it the mistake of regulators who ignored the signs and plea for caution? Could it have been averted when the sub-prime crisis hit last year (tell-tale sign of the beginning of another correction 10 years on)? One never knows, perhaps it was a combination of all these.

What it means for many today is that the future will be filled with uncertainties. Rising food prices and unemployment mean that many will have to struggle to make ends meet. We are beginning to read once again of suicides caused by individual’s imprudent financial management and inability to accept the resulting fate. As the world adjust to this new awakening, residual fallouts from the failures of major financial institutions and economy from now till the dust settles may translate into many years of hardship not just for the rich but also for the poor. Charity organizations will see more people seeking aid but find that funds from benevolence will decline.
What can we do but just wait patiently and to manage the best we can under the circumstances. Keep our jobs, spend wisely, and pray for God’s comfort and protection. Like all difficulties and tribulations, this too will come to pass. Hopefully a new world order will emerge brought about by wisdom, prudence and better regulation; or is this wishful thinking?