September 18, 2008

Stay calm

IN case you guys are still shaking your heads, trying to figure out what all the fuss is about, yes we are now caught up in a global financial flummox because of the interconnectedness of the world today. No doubt, we here in da Pinas will be affected, but we can only cross our fingers that our banks are strong enough to withstand the shocks.

As a depositor, I am staying put. I am keeping my money in our banks and praying that they have not been "irrationally exuberant" in their credit transactions and investments. No sense in withdrawing our monies and stashing 'em in Switzerland (or worse, in your piggy banks at home) because it will just add pressure on the banks, and exacerbate the delicate situation they are in.

I have friends who are already feeling the hit because the value of their investments in mutual funds and UITFs (unit investment trust funds) have dropped dramatically. I have advised them to stay with those funds because right now, all their losses are on paper. Unless they decide to liquidate their investments, of course. Just breathe and hang on to the belief that those investments are gonna stabilize and move up as soon as the financial world settles down. (As I have been saying since last year, stick w/ the safer deposit instruments like time deposits and 5-years tax-free accounts.)

I am pinning my hopes on the pronouncements of Bangko Sentral Gov. Amado Tetangco Jr. that the Philippine financial system is healthy.

And so read on:

Why AIG matters
or why the Fed decided not to let the insurance company fail like Lehman Brothers

WASHINGTON—After World War II, a far-flung insurance company in China run by an American businessman took a risky bet insuring that about 20 boats filled with Americans would make it back to the United States.

From those distant beginnings grew American International Group (AIG), which became one of the biggest insurance companies in the world, under the leadership of Maurice “Hank” Greenberg.

With more than $1 trillion in assets, AIG is bigger than Fannie Mae, Freddie Mac, Merrill Lynch, Lehman Brothers or the former Bear Stearns.

AIG’s subsidiaries sell life, auto, property, workers’ compensation, kidnapping and ransom and many other types of insurance. The company offers retirement plans such as annuities. Its financial markets subsidiary services include investment banks, pension funds, governments and other institutional investors, and AIG manages portfolios of stocks, bonds and real estate. The company is the nation’s largest leaser of aircraft.

Among the activities it ventured into: buying mortgage-related securities and offering other firms an exotic type of insurance to cover losses from investments tied to mortgages.

That proved to be a problem. (Click here for the rest.)

BTW, do you know AIG's corporate slogan? Tic, toc, tic, toc...sirit na? "The strength to be there." (araykow!)
* * * *

Also check out the editorial of BusinessMirror today: (As Michael Douglas' character Gordon Gekko in the 1987 film Wall Street said: "It's all about the bucks, kid. The rest is conversation." Indeed.)

Tale as old as time

BY this time, the breathtakingly simple way—“hubris and greed at work”—by which this week’s disaster on Wall Street has been dismissed is now a tune long worn.

And yet, as simple as it may seem, it forms the thread within each of the key lessons that may be derived, as some form of morbid consolation, from this crisis.

What is one to make of a spectacle where no less than the titans of New York’s financial empire are falling by the wayside, their pedigree notwithstanding: investment bank Lehman Brothers Holdings Inc., Merrill Lynch, and now, the insurance giant AIG or American International Group? The full stories behind their debacles won’t be told yet as details keep unfolding while the markets swoon. But from the broad sketches of what went on, it is clear that the crisis combines the timeless tale of human folly, the failures of regulators and a system that brought so much wealth to millions around the world but is now its own worst enemy. (Click here for the rest.)

And now I leave you with these thoughts from the master of greed himself, Gordon Gekko:

(Note: Photo of AIG building is from the cover of its 2007 annual report available on its web site .)

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