Tuesday, December 16, 2008

More Financial Problems from America

As if the global credit crisis isn’t bad enough, the world economy is now left reeling through one of the greatest financial fraud in the history of mankind. Wall Street heavyweight Bernard Madoff is accused of running a pyramid scam that cost his investors US$50 billion.

US$50 billion! Not only is that a lot of money but the list of victims are some of the biggest, most respected banks in the world. Europe's biggest bank, HSBC, lost around US$1 billion; Santander, the second-largest in Europe after HSBC, has an exposure of more than three billion dollars; Fortis Bank Netherlands stood to lose up to a billion euros. Even banks in Asia are affected; Japan’s Nomura loss is at 303 million dollars and various South Korean financial institutions has a total exposure of 95 million dollars. Singapore’s Great Eastern is also affected, but as is usually the case in Singapore, no word yet on how much they are going to lose.

Funny thing is that almost no one is blaming these banks for losing the money to Bernard Madoff. Bernard Madoff is a trusted name, so trusted that he was once the chairman of the Nasdaq. A former chairman of a stock exchange who running a pyramid scam undetected for decades? If there were still any doubts that the US regulators were sleeping on the job, they are all gone now.

Which bring me to an earlier post on this blog. I suggested that America need to fix the structural fault in their economy; now it seems I was underestimating the problem. America not only needs to fix the fundamentals of their economy; they will also need to fix their financial regulatory system as well. More work for everyone!


The Hermit said...

I am guessing that a certain minister from Singapore would had told them that they "went in with their eyes open".

Maybe all these banks will be better off putting their money with CPF, so that they will feel rich looking at their statements every month.

Anonymous said...

This episode only goes to prove one thing: not everyone who runs the financial institution, or is highly regarded by people as an expert or advisor, may necessarily possess sound common sense, especially when it comes to high risk investment.

The adage - when something sounds too good to be true, it probably is - is a good common sense guide. How could intelligent people buy into the annual high investment returns promised by Bernard Madoff when he could not even clearly outlined what kind of strategy he adopted to yield such outstanding profits?

The only reason these people and organisations could possibly fall victim to Madoff's scam is greed. Greed is the only thing that can numb the otherwise sound judgment of a person; and Madoff's credentials as former Nasdaq chairman served to tranquilise any lingering, albeit weak suspicion.

The main question now is: where has all the money gone? Your guess is as good as mine, but we can more or less surmise.

Ghost said...

You're right that this episode show that not everyone who run financial institutions have common sense. Bernard Madoff is/was a very respected name in world finance and it was a total shock that a man like him will run a scam. More surprising was how long he ran the thing! Just imagined; if there's no global crisis, he would still be runnimg the thing