Fragility is a negative word; it denotes frailty, vulnerability, weakness, instability, and all the characteristics related to it. Unfortunately, it is the most suited word to describe the state of the world financial system today. We can recall that at one stage, the capitalistic system of the United States scorn at the central planning economy of the Soviet Union, China and other communists’ nations; and today, we see the whole western world is taking their economy back into government hands. Now, they are taking “shares” in their banks, their companies (the US auto makers is an example), insurance companies – because these companies are “too important” to fail. If they criticize China for having so many of its companies to be “government owned”, then today, China may have a point to argue back.
We have seen over the last few months, companies that are in the top 50 of Fortune 500 list, suddenly gone into oblivion. China, as the manufacturing giant of the world, being brought to its knees in a sudden twist of fate; has to announce a RMB4 trillion fiscal stimulus almost without much waiting – since it realizes that without such measure, the country can go into quick economic tailspin – with massive layoffs and unemployment in the ten of millions. The magnitude of financial problems for most of the developed countries is pretty much well known by now – except that we may not know yet how deep will they be in recession and how long it will be.
Commodity prices is also taking a rough and tumble downward spin: palm oil down to US450 from a high of US1500 per metric ton; steel down to US450 from a high of US1,200 per ton; crude oil, down to US60 from a high of US140 per barrel; and so on. All of these happened just over a period of less than six months! Similarly, stock markets and exchanges – the whole world are down by more than 50% in about the same period. Suddenly, the whole direction shift from inflationary pressures into a quick and deep depreciation of everything.
All of the above, plus many other events never before happened in the modern history of mankind. As I have said in the beginning: the best word to describe and to explain what’s going on as we see it is: fragility. The whole world financial system is extremely fragile; the banking system is fragile; and now the trade system (due to the crisis) is also is in fragile mood; even normal business people, who used to trade and deal with each other, probably based on some elements of trusts – are no longer trusting each other and may not deal with each other as freely as before; lack of confidence is extremely high; people’s confidence in their own governments is quite shaky. That is the state of the affair today, and it is a very scary scenario. In short: the whole human beings are in an extremely fragile state right now.
Why we are in the current state of affairs today is rather a very hard and extremely tough question to answer. Some are quick to blame the capitalistic system, while others blame it on lack of regulations, and some on weak governments, internet, explosion of communications, etc. Probably we can blame them all and probably it is true that each has its own contribution to the problems. However, I don’t think anyone can really make any definitive conclusions; and probably no one ever will. However can we learn anything from it? Can we do anything about it? Is there something that I should do or shouldn’t do for my own good? These are the subjects that I would like to share my bit here.
What can we learn? The market imbalance is simply too large: the difference of standard of living between developed world and developing or under developed world is really too large and unsustainable. The financial system poured in trillion of dollars into houses in developed countries, that was never meant to be; and yet we have hundred of millions if not over billion of people still lives in poverty and have no “proper homes”. The developed countries “easy credits” made everyone lives in luxury on borrowed monies (in mortgages, car loans and credit cards), whereas many people are still struggling for basic food, water, medicine and just how to make the day’s end met. The list can go on and on.
The “money” is growing too fast! We have easily more than hundred times more money in circulation than what we need and use. Money got to earn money, and therefore we have a situation whereby we have “too much money” chasing the same thing – and cause many things to spiral upwards uncontrollably. The world is just drowned in money. Here probably we can learn a bit from the Islamic banking system, whereby prohibition of exchange between money and money is the central tenet; exchange is allowed only when there is an added value that has been created. Even then I do not proclaim that Islamic banking is safe from all of these, except that it helps to slow things down a bit.
Regulations: neither more nor less of it is required. Regulations were there; risk management system was there; Basel II was implemented; exchange and sharing of information among central bankers was there; market surveillance was present; and so on. So, do we need extra piece of legislation and more of it? The answer is: No! We probably have enough of them; if any, only streamlining of regulations is probably needed, but not more of it because almost all facets of issues are covered in the laws. In fact we have too many laws written, without only one thing to be forbidden: greed, which is the real source of many financial evils. What happened was, we have regulations favoring “size”: big banks and financial institutions are given leeway, while small and medium enterprises are being shut out totally from participating. The old days of personal bond, character and reputation is no longer applicable; what matters is what “brand name” does you as a financial manager carry? If your brand is “big”, you can command respect; otherwise, you are among minnows. The institutions are so big, and doing massive scale trades; and when they fail, they also fail big and bring along everyone else with it. My argument is: we probably would have survived with the same sets of regulations (or probably a bit less of it), but allow entrepreneurships back into the system; allow small players to play games of their sizes. Probably, this is the best chance for them to pick up the pieces and build the trust back into the system. However, this proposition just remains a probable suggestion – because it also requires a whole set of change in the value system – which until now is still governed by greed.
Basic human lives and conditions are extremely important: if we can focus on what human needs for their daily lives, then we are doing a lot of good. If we can save more in order to help the less fortunate; if we can increase more trade in order for us to share the prosperity through our mutual exchanges; if we can reduce our excesses (such as the US is consuming almost 1/6 of world oil production for its automobiles) it will help to reduce volatility (in this case oil price – which has hurt so many poor people and countries); if we can do more business, products, solutions that are centered around this motives; if we can channel financial resources to build nations, infrastructures, resources that provide enabling tools for other people; and so many other that you can imagine of. The only caveat that I have is that of all above can only remain as an “if”; if you do not take your initiatives.
What has happened is more of “human crisis” than any other thing. Human being, living in a common world under the same sky breathing the same air, has to act together to save its own destiny. Economic and financial system is a “human creation”. It is what we human being “produced”. It is a test from God that whether can we human being in the whole world, collectively put our act together? In the human history, this type of events has happened before; probably in a more miniature scale and in an isolated environment, the nature of the test is the same, even though not in similar form. In the past human being did survive the test, and I am sure we will survive the current one.
Trials and tribulations produced leaders; whether it is by way of pure coincident or God’s plan, I can’t tell. But it did happen, and will be repeated again. For the United States, they may have Obama to lead; for others, it is yet to be seen. For Malaysia, the so called UMNO election already gave its verdict for Najib to lead. Whether he can stand to it or not is yet to be seen. What is clear to me, the outlook for the year 2009 is extremely bleak and will put a lot of nerve to tests everywhere. Whether the year 2009 is the beginning of the end, or it will be beginning of the new future, is rather hard to guess. It will depend on how parties and economic agents going to behave and react to each other. At this time, I can only pray that 2009 will be the dawn of the new future. I am saying so, because that is what I hoped for; even though I am fully aware that the dark side is very much a highly probable scenario. I ask God for His Forgiveness and Mercy.
If any, the following verse from The Koran may help to enlighten: “Verily we created the human being to be restless; whenever he suffers hardships, he will frowned; and whenever goodness begets him, he will forget; Except those who performs his prayers”.