One of the unintended casualties of the free fall being suffered by banks and the finance sector in general is the increasing lack of good places one can expect to park cash and hard-earned funds. Many banks, especially in the US and Europe, remain in business only because of extreme measures taken by their host governments by way of direct cash infusions (in tens of billions of dollars and euros) and guarantees. As a result, many people are probably contemplating putting extra cash under the proverbial mattress in anticipation of worse days to come. The folding up of the Legacy group of banks locally calls to mind a similar spate of bank closures that arose from essentially bad management practices and the tendency of many bankers to treat deposits as a private piggy bank into which they can dip their grubby hands. Banking is a business built on trust, faith that the money deposited there will be used wisely by way of loans to productive enterprises or investments in high-grade bonds or other financial instruments. Now, depositors have to think twice before committing funds that may never get back to them. That is why it pains one when failed banks--that were closed for obvious mismanagement or the use of bank deposits to fund owners’ and management’s personal ventures, adventures, or peccadillios--are allowed by government or the legal system to get away with their crime and even file cases against regulators. In a legal system that is fraught with illicit transactions that favor those who are willing to pay the price, it is highly possible for a failed bank to reopen for business, to the future distress of new and unsuspecting depositors. I sincerely hope that our local banking system remains fairly solid, and able to withstand the buffeting that they will get because of the malaise that is affecting their counterparts abroad. On the other hand, depositors should be prepared to ask tough questions of their bankers: Their policies on investments and lending, their exposure to bad debts, whether any garbage is hidden away in the contingent accounts, actual exposure in potential land mines like (the bad kind of) derivatives, and so forth. This should set bank managements to thinking too, and keep them on their toes, as both the depositing public and the regulators act to keep the banks and bankers honest.
January 2009 Archives
SOMEONE sent me an article written obviously from the point of view of a member of the Jewish community, lamenting the rip-off pulled by Bernard Madoff against many of the rich and famous denizens of both Wall Street and residents of the rarefied gated communities like Palm Beach in Florida. But what seems to incense the author of the article is that this fellow Madoff scammed even Jewish organizations and charities. On the other hand, others are simply incensed that this fellow managed to create an aura of investment invincibility around him, to the point wherein people would join exclusive clubs like the Palm Beach Country Club just to have a chance to “invest” in Madoff’s fund…which, of course, turned out to be nothing but another glorified Ponzi scheme. One has to ask how otherwise astute and hard-nosed individuals could be suckered into placing their hard earned monies into a fund with very little transparency about it. It was a closed shop that made use of its own brokerage agency, got itself audited by a no-name firm of three members, and had family members manning sensitive positions in the firm. When I was once tasked with running a European based fund intended for investing in the Philippine market, we had to undergo all kinds of scrutiny and were subject to the usual checks and balances before we undertook any investments or placements. This guy managed to fool the richest of the rich, and even made it seem like a cachet to have had done business with him. But Madoff is just another sign of the growing malaise that seems to have taken over much of the world’s financial systems. All of a sudden, companies that were once looked up to as paragons of financial propriety have been exposed for having fallen prey to one shenanigan or the other. All in the name of expanded sales and increasing the bottom line--to the detriment of shareholders, depositors, investors, and the general public. Imagine the spectre of one of the world’s largest financial institutions being propped up by tens of billions of dollars in direct investments plus several HUNDREDS of Billions of dollars in guarantees! And here we see ourselves back in our lonely investment backwater – generally below the radar of investors – plodding along, but without committing the great blunders of the big companies in the world’s great economies. Our country knows what it is like to undergo the scrutiny of a World Bank--IMF program wherein all sorts of strictures in the name of better fiscal and monetary management. Having exited from the most recent program -- and benefiting from the (still) huge dollar inflows coming from our overseas workers -- our country seems to be really plodding along despite the lack of significant growth in industry and productive resources. On the other hand, I have seen figures indicating a possible deficit for the USA of about $1.2 Trillion in 2009. But the bills are still coming in as more and more sectors demand bailouts or financial guarantees. Even the crazy porn industry is looking for a bailout of about $5 Billion...to help them weather the decline in purchases or usage of their products. Hmmmmm!! It is not far-fetched to imagine that more and more scam artists will try their luck in beguiling suckers out of their hard-earned money. In fact, in an actual case involving a person known to me, our friend fell victim to a plea from a person met over the internet for financial assistance for various ailments in their family. Our good hearted Samaritan obliged, and only woke up after realizing that he was funding someone with cash for the stupidest of reasons. The Internet can be a dangerous place for the unwary, and identity theft occurs so often that one should be immediately suspicious of pleas for help even supposedly coming from good friends. A common ploy is for an innocent query supposedly from one’s freemail Internet provider asking for the restatement of one’s email address and password. That allows the thief to send emails to everyone in the address book, most of the time claiming to be stranded in some faraway capital after having lost one’s passport and funds. Aha! Then, the unwary people in the mailing list are instructed to send the funds to a Western Union or similar account, etc. An acquaintance who has had to do work with institutions in various parts of Africa actually met some of those famous Nigerian scammers pretending to be relatives of fallen royalty, etc., and who then ask for anything between a few thousand to hundred thousand dollars for help in freeing the frozen accounts of their relatives. Aha!! According to my friend, these scammers were almost all teenagers working out of Internet cafes in the Nigerian capital, all happily sending out hundreds of letters each day to, hopefully, snare at least one or two unwary victims. There must be some truth to that saying that “A sucker is born every day!”