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.