Weathering The Storm

Hantu Laut

The US$700 billion bailout bill was passed by the US Congress with vote of 263 for and 176 against. Wall Street has successfully clobbered the US Government into submission into giving it huge sum of money to save it from total annihilation and save the nation from the brink of economic catastrophe say promoters of the bailout.

The passing of the bill was overwhelmingly supported by the Democrats.There were 172 Democrat votes and only 91 from the Republican.More Republicans(108) opposed the bill.They do not see it fits to support their Republican President.The passage of this bill was made possible by sweeteners given to some congressmen for their constituents, promises of tax breaks and other incentives. In Malaysia the oppositions would call it bribery and corruption.

America faced serious liquidity problem with huge NPL(non performing loans) in the mortgage markets that have affected other sectors of the economy.The tight liquidity had made bank borrowings difficult to secure.In simple term the banks don't have enough money to lend or those that have are reluctant to lend for fear of default.Without the bailout the economy could grind to a halt.A period of depression is not a far-fetched scenario.

In September 159,000 jobs were slashed bringing total unemployment figure to 800,000 for the year, sign of a sinking economy. With credit slowing down and in some cases dried up most businesses find it difficult to conduct their routine business.The credit crunch have adversely affected those seeking finance for their businesses and those seeking personal financing.It's the men in the street that suffered most rather than those on Wall Street.Those on Wall Street would have accumulated huge stacks of cash to ride the recession in comfort.

America is a big consumers society with very low saving rate.Majority of American live on credit from buying their houses,cars,furniture to their daily needs.

Cyclic recession is a normal phenomenon in the economy when the bubble had overinflated and needs to burst to readjust.It would bring contraction to the economy.

What you see now is not the normal circle but the folly, irresponsibility and greed of men.The desire to amass fortunes as fast as possible through highly speculative financial instruments. In the case of Freddie Mac and Maggie May most of their troubles started when they over-extended their credit facilities through indiscriminate lending and massive factoring of mortgages from other financial institutions with tacit support of the Bush administration.

The Federal Reserve and the Treasury as supervising and regulating bodies would have to shoulder much of the blame for allowing the situation to deteriorate to such unmanageable level where they could have intervened earlier to stop the rot in the financial system.Bernanke may not have the nose and ears of former Chairman Alan Greenspan.

Now that the bill has been passed by Congress it would be imperative for the US Government to find out what causes the meltdown and who were responsible for it.

Our Deputy Prime Minister Najib Tun Razak recently said that Malaysia would not be affected by any recession or financial meltdown in the US, I would urge the DPM to re-consider his conclusion that we are actually insulated against such economic disaster. Instead, as Finance Minister he has the responsibility to take precautionary measures to protect the economy.To simply say we are impregnable is reckless.Malaysia as an exporting nation is dependent on the global economy.A sick USA would make the whole world sick and Malaysia would suffer more because of its significant volume of trades in export.

Beware of so-called financial experts who intentionally give wrong advice to make sure you make mistakes and undermine your position.