The Financial Market Meltdown And What It Means To People Like Us

The global financial market meltdown triggered by the US subprime crisis has snowballed to a magnitude too big for anyone to tackle.

The financial crisis that has taken the world by storm over the past one year, has not seemed to slack off despite efforts by the US government to keep dishing out rescue plans and joint actions with other central banks to inject massive sums of money into the markets.

No one seems to be able to tell when the crisis will actually retreat, but one thing is sure: it has displayed the trend of further propagation, as evidenced by the spread of its fallout to financial institutions in Europe calling for similar rescue packages.

The intensity of this crisis easily dwarfs the 1997/98 financial crisis in Asia.

When the Asian financial crisis broke out a decade ago, the vulnerability of Asia's financial system quickly came under the harsh criticisms of the West. Nevertheless, the latest crisis has sparked off from the world's most powerful economy, and Western critics, which mercilessly thrashed Asian economies back then, appear to be less critical of the root cause of the debacle this time.

The root cause, to some extent, reflects the laxity with which the United States has been regulating the disbursement of subprime mortgage loans as well as the derivatives evolved from them.

The financial institutions of many countries, in particular developed and emerging economies, have been lured by such derivatives, which explains the far and wide reach of the latest crisis.

Even Malaysian banks, long known for their conservative approach in handling their investments, have been implicated in the debacle. Maybank, for instance, has suffered approximately US$10 million from the Lehman Brothers bonds it is holding.

Which, is a direct impact the crisis has on the country's financial system. As for the indirect impact, the intensity could be way larger than what we have imagined.

Given credit tightening, it is anticipated that global economy will be adversely affected. The United States is now a full-blown victim with its economy heading towards a possible recession and consumerism taking a sharp dive.

Like Malaysia, most countries in the world are export-driven economies. The US imports US$2 trillion worth of products each year, exporting only US$1 trillion (or a trade deficit of US$1 trillion). Many countries, especially Asian countries, have viewed the US as a very important consumer market for their products.

With Uncle Sam sneezing now, the whole world is poised to catch the cold soon.

Although the crisis has erupted in the US, it could bear down on ordinary people like you and me.

From a peak of more than 1,500 points, the KLCI has retreated to around 1,000 points today, with the face values of many stocks suffering drastic contraction. On top of the political uncertainties in the country, the external financial turmoil and subprime crisis have also contributed to the recent falls in the local bourse.

The shares we are still holding on hand have devalued remarkably; even the values of trust units have been squeezed.

In view of the existing uncertainties, coupled with the sluggish global economy, it remains largely unknown when Bursa Malaysia will see its sunny days once again.

Although some petty investors with a little cash to spare may want to do some bargain hunting at this moment, many will still adhere to the "cash is king" belief.

More importantly, having gone through the recent falls, investors have picked up some wisdom now, and they will try to avoid absorbing stocks they are unfamiliar with, let alone commodities which they seldom hear of.

This financial crisis is bound to lash some horrendous impacts on global economy, and Malaysia is not going to be spared. The first victims could have been electronic manufacturers which export a sizeable portion of their products (currently at 16% of total export) to the States. If you are in an electronic business, or are working for one such company, you may want to get yourself mentally prepared for possible layoff.

But this might as well be an opportune time for self-improvement so that you could still land on a new job in case you are retrenched.

Moreover, consumers are generally more prudent when times are bad, or they may have to encounter problem servicing their house and car loans if they lose their jobs.

More importantly, we must refrain from swiping our cards unnecessarily during this period of economic uncertainties.

Let's keep our fingers crossed that we could safely sail past the assault of this gigantic storm bearing down upon us in a big way now. (By LIANG FENGYING, Business Desk/Translated by DOMINIC LOH/Sin Chew Daily)