16-1-09:                                                   Point of View We are fortunate having gained permission to re-publish the following article written by Lynne Wilkinson from AUSBUY. It clearly demonstrates that most governments have not considered the need to place control upon financial institutions and lenders. The current economic crisis felt by all nations is an example of the dire consequences of uncontrolled exposures heaped upon us by an unregulated financial system. Hopefully, we will learn from our mistakes and prevent a future repeat.                             Death by a Thousand Cuts The incompetence shown, in recent times, by our captains of industry has been in inverse proportion to the salaries they paid themselves. Companies which have been driven to the edge of bankruptcy had seen their senior executives walk away with multi-million-dollar payoffs as a reward for their record of poor judgment and lack of performance. The auditors have signed balance sheets which produce as many questions as answers, the rating agencies have given positive reports on companies before they went bankrupt and the legal profession thrived on the resultant chaos. Even this litany of disaster pales into insignificance when you look at the record of hedge funds and merchant banks that have grown fat on the above. The houses of straw are now collapsing and governments around the world have had to rush to the rescue. However, they have not been blameless in an era of loose regulation and poor supervision. Unfortunately it is the taxpayer who is left holding the parcel. The major problem is that we don't know when it is all going to end, or how many companies are going to collapse before the cleanup is complete. In the meantime people will lose their jobs and their retirement savings. We can only hope that, as happened after the Great Depression, governments around the world will legislate to clean up the financial system. Much of the tinkering around the edges of the financial systems in recent times has served to reduce accountability. At the same time governments have reduced the resources allocated to supervisory bodies out of a naive belief in self regulation. The investors no longer trust the audited balance sheets of companies and who can blame them. The audit certificate no longer states the balance sheet is a "true and fair view" of the company affairs but says it "conforms to accounting standards". These accounting standards leave a lot to be desired. If that wasn't bad enough, the audit is put out to tender and the lowest bidder often wins. Companies talk about "off-balance sheet items" and enter into massive contingent liabilities which are not revealed to the investing public. Confidence is vital to a functioning economy yet every time it starts to return to the market a fresh disaster is reported. Each one seems to come as a great surprise. What is worse is the revealed parties don't even know how much they have at risk. This would suggest the systems are breaking down and the financial market is run by a bunch of reckless people who have either forgotten or ignore financial principles and only worried about their annual bonus. This is demonstrated by the Madoff Fraud ($US 50 billion). Some of the world's major banks deposited vast sums of money with him without any checks. If the banks have been so stupid it demonstrates just how far standards had slipped. Is it any wonder that the investing public have lost confidence? Government must start the work of cleaning up the system and ignore the self-serving media campaign which will be launched by vested interests. Most hedging and short selling is not risk minimisation, as claimed. It is instead an unlicensed form of gambling, where vast sums of money change hands and the markets are distorted without any government oversight. It will not be easy to reform the markets in this era of globalisation, but I believe that the pain being felt internationally is so great that governments will ignore the lobby groups and act. Australia needs a firm regulatory system which will prevent some people getting rich on failure while average Australians lose their savings. Copyright © - This document cannot be used without our express permission. Interviews can be arranged. Prepared by M Gallagher for AUSBUY. Lynne Wilkinson CEO Ausbuy --------------------------------------------------------------------------------------------------------------------------------------------------------- Back to: HOME           Back to: Point of View