“[A]uditors have got to get used to the idea that nothing is as it used to be”

The statement was from Will Rainey, a partner at Ernst & Young UK, as quoted in an article in this week's The Economist.

Liberty, Democracy and Ecomomic Development

In their recent visits to Hong Kong and amidst the financial turmoils, Mr Goh Chok Tong and Mr Chris Patten, expressed their opinions on the relationship between political system and economic development. Their views are vastly different:

(Source: hkej.com)



(Source:hkej.com)

IHT reported on the South-East Asian economies amidst the global economic slowdown. The article acknowleged that while the contagion that radiates from the West is affecting the region's financial markets and real economies, news of the financial turmoil is greeted "like news of a plague several valleys away."

I will take the analogy further: the patients several valleys away are the major consumers of the regional produces, from commodities, such as paim oil and rubber, to manufactured goods, such as IT products and sports shoes, to the service industries, such as tourism and banking. Who are to support these industries when the patients are being administered heavy dosage of austerity? The situation are especially acute when the plague is spreading across Grand Canyon, Alps and Fuji faster than Ebola virus.

Hopefully, the villagers from Yangtze ang Ganges could acquire the taste of consumerism in double quick fashion, but I won't be holding my breath.

Rediscovering CFOs' Role

The Economist's article on the role of CFOs in this difficult environment.

Origin of Crisis (Part 3)

Act I

In 1998, Long-Term Capital Management failed. Its failure, well documented in Roger Lowenstein's 2000 book- "When Genius Failed", led to a potentially messy unwinding of trades and put stress to the financial system. True to form as a financial Maestro, Mr Alan Greenspan and his Federal Reserve team coordinated a LTCM bailout plan backed by several major investment banks. Though the plan involved only private capital, it is clear indication that the Fed subscribes to the "too big to fail" notion.


Act II

In 1999, after years of lobbying from the banking industry, the Glass-Steagall Act's provisions that prevented the formation of universal banks was repealed. The specific provison of the Act, enacted by U.S. Congress in 1933 with the intention to arrest the numerous bank-runs during the Great Depression, prohibited commercial banks that take in public deposits from owning and operating non-banking financial institutions such as insurers and investment banks. The idea behind was to ensure commercial banks stay focus in their main line of business and fire-wall them from any non-banking activities and related business risks.

Not long after President Bill Clinton has signed-off the Congress' bill to abolish the provision, consolidation began in the financial sector as universal banks are touted as cost-efficient providers of financial services at greater convenience. Banking groups that encompassed intermediary activities with various other financial services, e.g. insurance, brokerage, investment, are being formed through mergers and acquisitions. Some of these behemouths that exist today are: Citigroup (merger of Citicorp and Travelers Group), JP Morgan Chase (merger of JP Morgan & Co. and Chase Manhattan Corp). In order to compete, other international banking groups, such as UBS and HSBC, traditionally private and commercial banks, are setting up departments to provide investment and other banking services.