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English News Article

How the Economic Crisis started?

Done by: Shawn Lim

There are mainly two types of US banks, Investment banks and Depositary Banks. Usually, people would deposit money into their saving accounts when the economy is bad, and only invest in investments when the economy is good. But, In 1999 November 12th, the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act, was enacted. This act allowed commercial banks and investment banks to consolidate, which means that customers could save and invest in the same financial institution, which would do well in good or bad economic times. So thus, when the act was enacted, most banks approved of it.

And, this was where all the trouble started. The government's bid to get more people to buy houses made the banks lower the amount which customers need to pay for the collaterals. Thus, much more people borrowed money to buy houses. And this became known as the Boom.

Lots of people want to buy houses; however demand was higher than supply, which resulted in the shortage of housing estates. The value of the houses increased when demand was higher and this led to investors contemplating that investments in properties sector would yield high returns, thus more investors invested in housing. With the value of houses constantly increasing, the mortgage soon increased proportionately with it. This led to people unable to pay their mortgages and defaulting on installments. Without the money collected from mortgages from most of its customers, the bank had to use its reserves to keep up with payment. Eventually, the bank would not have any more money and it would announce bankruptcy.

The main culprit is hedge funds coupled with leverage. They use money collected by collaterals to 'hedge' their investments using different methods to earn money. Hedge funds were a high risk type investment due to a lack of transparency and regulation, and they are used by amateur investors who are out to gain quick and easy money. This caused hedge funds to have the liability to have structural flaws that could be undisclosed to the normal investor. Furthermore, it makes it impossible to make a rational investment decision as it is impossible to accurately calculate the inherent risks involved in a certain hedge fund.

The process leverage is to loan money from a bank and use the money to buy cheap items and sell them at a higher price in bulk. It could also be used in investing, in particular, hedge funds. Due to this, if they repay the loan, even with interest, they would still make a compounded gain in money. However, this comes with its risks too. If the sale fails, they also end up with compounded debt.

The sub-prime mortgage crisis started with hedge funds. A sizable amount of banks started lending money to high-risk groups whom started buying houses with the loans. They used a portion of the loans to start investing in hedge funds to try and quickly earn the money back and return the loans. However, the mortgage loans started defaulting mainly because of the problem that some hedge funds investments had failed and banks were starting to panic. Too many houses became their assets and the prices were going down, causing more people to default their loans as they thought why they were overpaying their houses. Eventually, the housing bubble within the US broke, and therefore hedge funds collapsed along with the stock market. Ironic, what was supposed to ‘hedge’ risk became their downfall. The backlash triggered by hedge funds caused some banks to fail. This started the chain reaction that we now call the economic crisis.

Case Study

Case Study- Toyota

Done by: Shawn Lim and Kendrick Loo

How is the giant car manufacturer company, Toyota, coping with the economic downturn?

Once a booming business for the giant car manufacturer company, Toyota has ended up being challenged by the economic crisis. Poor sales and slowing growth in emerging markets, combined with the ever incresing cost of raw materials and unstable oil prices had forced Toyota to rake a smaller income equivalent to one third of it's net income last year. The US credit crisis affected it a lot, dropping it's net income by sixty eight percent. They are also expecting a drop in number of sales of around seven hundred thousand vehicles.

Toyota is coping with the decreased sales by planning to increase development of hybrid cars and to adjust current pricing to suit the economic downturn. “We are aiming to increase our vehicle sales and profits by launching attractive products, stimulating market demand and revising pricing,” said Toyota’s Sendior Managing Director Takahiko Ijichi.

Though Toyota is not impervious to the economic squeeze, its still having healthy profits, compared to other car manufacturing giants such as Chrysler, who had filed for bankruptcy, Toyota is still doing quite a good job, for now.

Chinese Feature Article

新加坡受金融危机后的严重后果

莫佳吉

我是一名中二学生，就读在华侨中学。虽然自己只是个学生，但是对于这个话题，我想给予我的一些想法与建议。

首先，我认为新加坡受金融危机后最明显的后果就是经济受到影响。面对世界金融危机，各国就会减少输入品，而这将会对新加坡的进出口贸易有很大的影响。据调查显示，新加坡四分之一的进出口贸易因金融危机而受到影响。由于新加坡的主要收入是来自进出口贸易，因此这对我国的经济有负面的效应。新加坡的研究所也会因此花费更少的资金来做研究，因此放缓国家的进帐。

其他国家也会宁愿到一些生产成本较低的国家去投资，比如中国、越南等，因此也会影响到我国的经济发展。更何况，如果新加坡的经济不稳定，那么跨国公司以及国际组织绝对不会选择在我国投资。而且，新加坡在东南亚是经济最繁荣的国家，邻国都主要依靠着新加坡的贸易业；那么如果我国经济不稳定，这将会影响到邻国以及东南亚国家的经济发展。

除了经济受影响，社会也会受到影响。在这个竞争激烈的社会里，再加上面对于经济危机，人格与品德方面都会变差，会造成人失去理性，家庭也可能因此破碎。市场范围缩小、失业率降低，人就会不择手段地去追求成功因为只有强者能生存，弱者则会被淘汰。

我就有看过这样一个例子。我的邻居因金融危机而失业，无法承担生活的开销，也找不到新的工作。因为这样，他想在最短的时间内赚取很多钱，而便开始去买马票、赌博等。最后，他不但没有赚取任何钱，而且还欠了一屁股债。最后，他无路可走，便把年长的母亲放进老人院，然后遗弃整个家庭。这就已显示经济危机会造成怎么样的社会问题。

最后，经济危机也可能造成政治问题。由于经济危机会导致政治上的不稳定，因此这可能造成社区的不满。每个人都有自己的想法与意见，所以如果两个人不同意对方的意见，再加上金融危机所带来的苦恼，这就很容易造成一些冲突；更何况新加坡是个多元种族的国家，因此这将会对新加坡有很大的影响，后果不堪设想。

领导者是一个国家的领袖，在领导国家中扮演着一个很重要的角色。在面对金融危机时，他应当做出明智的选择来克服危机。只要领导者犯一个错误，那将会造成群众的不满，并且会导致更多不利的影响。

虽然面对种种问题，但是新加坡已在经济上慢慢地恢复。新加坡人也能从中学习到在面对经济危机时该如何适应与克服问题。更何况，新加坡有很多有远见的领导者来带领国人一起度过危机，并照顾到国人的未来经济状况。我觉得国人应该继续消费来促进经济市场。我们也应当保持乐观，并团结一致，一起度过这个难关。

Chinese News Article

金融危机对其他国家的影响

徐增蘅

金融危机不只对新加坡造成不利的影响，其他国家也不例外。那么它们又受到怎么样的影响呢？

美国金融危机正影响着中东以及世界其他地区，对石油的需求下降，并已受到石油收入的石油价格下降的不利影响。

印度近年来一直在不断快速增长，并且一直对世界的经济增长有很大的贡献。但是事实上，经过这次的经济危机后，印度目前在短期内的前景并不理想。

此外，金融危机造成全球经济放缓，受影响的东南亚国家就包括泰国、马来西亚，印尼、菲律宾以及新加坡。由于这些国家经受过1997-1998年的亚洲金融危机，因此面对这次的世界金融危机，它们有更充分的准备与经验来克服危机。但是，它们仍然受到不利的影响，比如经济或社会上的问题。

至于在近年来经济迅速发展的中国，由于拥有庞大的财政与金钱资助，因此中国将估计在短期内不会有任何太严重的经济问题。反而，应该多关注的地区则是非洲。据专家调查显示，这场危机对非洲不利的影响可能会比中国多出三倍。非洲主要有三个问题；首先，国家的资本放缓，并会影响到国家在基础设施上的投资。第二，出口商品价格的下跌可能会影响出口商。第三，估计每年送到非洲的十五亿美元汇款将会明显地下降。

English Feature Article

Singapore's plan for the future: Diversify or Stay Put?

Done by: Samuel Mak

As Singapore starts to climb out of the recession, what is the best plan for Singapore’s economic future? Would it be to stay put and continue to follow current practices, or to diversify our economy and adapt to the changing times? The simple answer is that Singapore must continue to reform its economic policies, just as it did in past downturns, so as to survive.

Singapore’s economic growth is greatly influenced by the world’s economy in general. The obvious drawback to this link is that when the world economy sinks into a recession, spending from major powerhouses decreases and exports are affected. Singapore, which is heavily reliant on exports, suffered the most in the current recession, with its total trade down by 24.8% in July 2009.

The first step would be to improve and review current business practices and develop innovative ways to combat future recessions. One area where the government will be looking into to stimulate the economy would be to boost infrastructure spending and increase the amount of public aid. However, this method can only be implemented to a certain extent as Singapore’s land size is limited. Dr Tony Tan, deputy chairman of the Government of Singapore Investment Corporation says that Singapore must “improve its current export model” to suit all times. In addition the government will make an effort to attract star players such as multinational companies to kick start the economy and make Singapore the best place for high quality investments, which will in turn spawn a cluster of local companies. For example, Rolls-Royce recently moved their marine division global headquarters to Singapore this year, creating the need for engine parts.

In a bid to prepare the workforce for future recessions, the government has introduced Skills Programme for Upgrading and Resilience (SPUR) as part of the Resilience Package to help retrain workers to allow them to learn new skills and adapt to changing times. Singapore should replace old manufacturing jobs with new ones that focus more on hi-tech products and services. PM Lee Hsien Loong cited the example of Seagate in his National Day Rally saying that although Seagate had shut its factory of 2000 workers, it still had six thousand workers working in the hi-tech manufacturing. “So instead of making the disk drive - the box, you are making the media, the material on which the recording is made, the high-tech part of the box.”

However, the most important plan for the future would be for Singapore to expand its markets, products and services. The government will have to discover new and emerging markets such as China, India, Russia and Africa that goods can be exported to and marketed successfully. These markets are likely to be the most stable markets in the future and have a lot of potential and should be explored. There is also the need to create new products and services and provide more complex financial and medical services to attract investments. Finally, we will have to boost investment in the IT industry and technology to create resource efficient products and services, for instance making more sophisticated oil rigs and the promotion of interactive and digital media.

In conclusion, Singapore had to adapt and refine its economic strategies to stay afloat in the downturn. Singaporeans have to stay resilient and continue to upgrade their skills while businesses have to reform their business models for the future. Finally, Singapore has to look into new markets and create new products and services to ensure that we can fare better in future downturns.

Financial Report

Financial Report- The Skeletons are out of the closet

Done by: Kendrick Loo

Lehman brothers, Freddie Mac, Fannie Mae, Goldman Sachs, Bear Stearns, Chrysler and the list of busted companies go on. The liquidity crisis is now the name for the current fiscal economy. Not having enough money to return the people whom they owe results in insolvency. Such things when brought into the public spotlight, sparks widespread panic, thus leading to people withdrawing more money. Rinse, wash and repeat and more skeletons come out of the closet. Dishonest dealings and shifty misdeeds are revealed. Bernard Madoff with the largest Ponzi scheme in human history, Saytam Computer Services with accounting scandals, Norman Hsu with pyramid scams, Joseph Fort with yet another ponzi scheme and Marc Stuart Drier’s money laundering are all proven frauds and scammers. They are definitely not going to be the last one to be caught red handed.

The effects of these scandals are deep and wide-reaching. For example, Bernard Madoff’s Ponzi scheme had about US$13.2 billion in losses to investors since accounts have opened in 1996. The total size of the fraud however, takes about US$64.8 billion The amount is so great that it has destroyed charities and institutions, and the fortunes of many individuals, including some of high profile figures such as Steven Spielberg, John Maklovich, Larry King and Holocaust survivor Elie Wiesel. Majority of the victims were Jewish.

Scandals do not help the economy at all. Such scandals can cause currency rises, sovereign defaults, banking panics, stock market crashes and widespread recessions. In fact, such scandals that cause these to happen are also possible signs that the economy is in dire straits. Also, such scandals also dictate which industries are the worst hit. The current economic crisis caused by the housing bubble that was exploited by the finance sector, thus hits the finance sector the worst. Over 75 banks have been closed since the start of the current economic crisis, and majority of the layoffs in the world have been within the finance sector (13%) and the manufacturing sectors (32%).

The government is now the ones who have to step in to solve the crisis. Growth rates in virtually all industries are in the red. Unemployment rates have been soaring. The next step for the world in general is to now weed out the corrupt and adapt to the new changes. It is almost certain that the finance sector will never be the same as it was. The golden age is over. Governments around the globe are now stepping in and implementing changes and solutions. For example, the Singaporean government has implemented its “Resilience Package” drawing from its nest egg about 2.5 billion dollars. Trying to cushion the impact of the fall out, the package aims to safeguard workers and train them in alternative areas of work. Also, those that have been misled by banks into buying shares or bonds such as the DBS High Notes 5, Lehman Minibond programme notes and Merrill Lynch Jubilee Series 3 LinkEarner notes that were high-risk could appeal to the government to help them refund a portion of the money or all of it.

As we can see, the numbers tell it all. The downturn had many repercussions and real world impact, in turn affecting the expenditure of various strata of the society.