The shocking news about the collapse of Lehman Brothers sent the entire financial market into a panic. It is said that when America sneezes, everyone catches a cold, and this has become really obvious with share prices collapsing all over the world from Hong Kong to Japan, Taiwan, Australia, London and Canada. This latest development exacerbated concerns about global economic volatility, and as GMA admitted yesterday at the Philippine Economic Briefing, the global upheaval has had a “painful impact on every Filipino” through spiraling prices of food and other basic commodities. Fortunately, strong fundamentals will enable our economy to withstand the onslaught, except of course that GDP growth will go down for obvious reasons. The MOPC was supposed to host the economic briefing but for some reason, we ended up taking the backseat to the Bangko Sentral. I was told GMA was rushing to Mindanao, but Press Secretary Jess Dureza promised us that within the next couple of weeks GMA will have a roundtable discussion with the MOPC and a few invited business and media personalities.
No doubt the bankruptcy of Lehman Brothers draws a very grim financial picture, one which has been described as “the most serious financial meltdown in 70 years.” Many are even comparing it to the Great Depression in the US which lasted until the 1940s, causing rapid declines in production with 15 million Americans losing their jobs. No one certainly expected a global financial crisis like this to happen during our lifetime. Nobody could have ever imagined that Lehman Brothers – one of America’s biggest global investment firms – would file the biggest corporate bankruptcy in history. The giant firm has been around for 158 years, starting out as a dry goods store in 1844 by a 23-year-old German immigrant named Henry Lehman. It evolved into a commodities trading business and expanded into brokerage operations and underwriting later on, even helping finance the reconstruction of Alabama after the American Civil War and the construction of the Pennsylvania Road.
Adding to the global investor panic is the fall of Lehman’s rival Merrill Lynch which was acquired by the Bank of America for a $50 billion all-stock deal. Merrill Lynch had been suffering from huge losses for four straight quarters, with billions of its assets tied to real estate mortgages gone bad. Likewise, the American International Group is also trying to keep itself above water, scrambling for an additional $40 billion loan to avoid a credit rating downgrade. Fortunately for AIG, the US Federal Reserve is lending $85 billion to bail it out.
Our friend Gene de los Reyes gave me a book, The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash written by Charles R. Morris, a lawyer and former banker, who explains why the sub-prime mortgage crisis triggered the collapse of America’s credit system. Morris says the surge in credit made bankers more insatiable for profit as they discovered new ways to make more money by packaging loans. Traditionally, lending institutions would be prudent, making sure the principal amount is recovered and sufficient interest is generated to cover potential losses. However, this was not the case with sub-prime as lenders indiscriminately gave loans without assessing the credit worthiness of the borrower. They were obviously focused on lending fees and higher interest earnings. It was, by all intents and purposes, a predatory and reckless approach to lending, with crafty banks even creating debt securities without an actual borrower.
Firms took on sneaky schemes similar to a Ponzi, continuously borrowing to pay off previous interest payments, pretty much like a credit card holder who gets a cash advance from one credit card to pay off his loan from another. Morris also points to “phony triple-A ratings, inflated balance sheets and the hidden liabilities marbled through financial balance sheets” that painted a rosy financial picture for shareholders. Wall Street executives gave themselves fat bonuses – at the expense of the working class. In 2005, the Lehman Brothers chairman reportedly received a $13.75 million bonus, which increased to $35 million by 2007. Warren Buffet, the world’s richest man, once said that the secret to getting rich on Wall Street is “you try to be greedy when others are fearful, and you try to be fearful when others are greedy.”
A philanthropist, Buffet has remained frugal all his life, whose annual salary in 2006 was reportedly $100,000 – very little compared to other executives in firms that are much smaller than Berkshire Hathaway where he is chairman and CEO.
US presidential candidates have also found a “talking point” in the Wall Street crisis, with McCain blaming the culture of “self-interest, greed, irresponsibility and corruption” in Wall Street causing the crisis in the US financial system. On the other hand, Democrats point the finger at Republican policies that have virtually allowed Wall Street to do what it wanted at the expense of middle class Americans. Indeed, the miserable tale of Lehman Brothers is one painful lesson on the consequences of immoderate greed, where a titan in the financial world finds itself choking with $60 billion worth of real estate mortgages gone sour.
No doubt greed and corruption are all over, from politics to business to media and other sectors. But what is really worse is when the appetite for power and profit become insatiable. “Immoderate greed” is causing well-entrenched corporations to collapse, and this same unbridled greed can cause the collapse of a country like America. Even Bill Gates has chosen to give away his billions to a foundation, leaving just enough for his children because he knows fully well that you can only have so much in your lifetime. When all is said and done, a man can only have so much money, and most definitely can’t take it with him to the grave. What is important is for one to be generous and share his riches with others – which might just buy him a ticket to eternal happiness and wealth.
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Email: babe_tcb@yahoo.com