Assignment Review

2,200 long Commercial Banking & Finance assignment essay. That should shed some light into some major causing factors of the Global Financial Crisis that happend recently. Mortgage Securitisation (biggest issue) should be worth your time reading. Would be glad if someone would shoot some piercing comments on my work. Open criticism is widely accepted. It's 30% of my final paper. XD XD XD.

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Introduction
Commercial BankOne (CBO), a small Australian retail bank equipped with a credit rating of BBB+/A2 from Standard and Poor, has been planning to switch their model back to the conventional “originate and hold” model which requires balance sheet funding.

Banks objectives in terms of liability management
Liability management is broadly defined as a process to diversify bank liabilities in a balance sheet (Gup, Avram, Beal, Lambert & Kolari, 2007). The liability management function must be quickly harness to attract additional sources of funds (Wilson, 1988).

Banks have an objective to carefully select the right proportion of bank liabilities without jeopardising shareholder value. To achieve that, three criteria that are needed to be accounted for are risk, cost and impact on shareholder value of each financial instrument (Gup et al., 2007).

Sources of bank liabilities
Hunt and Terry (2008) defines deposits as funds placed in accounts with Authorised Deposit-taking institution (ADI) while Gup et al. (2007) defines non-deposit sources as funds related to money market liabilities used to satisfy short-term liquidity demand.

Deposit funding
Deposit funds are further categorised into core and purchased deposits. Core deposits consist of current deposits with or without interest and fixed-term deposits, while purchased deposit such as certificate of deposits are promissory notes issued by the banks to satisfy the need for liquid cash in large sum for a period of 14 to 270 days and are tradable instruments in the money market. Certificate of deposit holders are granted interest payment plus the face value at maturity date (Gup et al., 2007); Hunt & Terry, 2008).

Core deposits
Core deposits are considered stable because these funds are usually from household, corporation and government surplus units (Gup et al., 2007). Customers usually replenish money in their account through continuous inflow of income, thus they provide long-term funding (Hunt & Terry, 2008). Benefits of depositing funds in ADIs from the perspective of depositors are due to its capacity to accept small and large value of funds, liquidity to make payments as funds can be withdrawn anytime, payment of interest depending on the amount and types of account and its low risk status (Hunt & Terry, 2008), therefore banks should capitalise on these as means to attract more depositors.

Purchased deposits (Certificates of deposits)
Purchased deposits on the other hand are more risky because they are sought from the money market through attractive interest rates (Gup et al., 2007). Hence, any fluctuations of rates downwards might lose the favour of depositors, whom are willing to invest in other attractive banks, thus making the risk of banks losing out money in large sums.

In the past, bank’s liability section of the balance sheet hold majority of deposit funds as it was the only financial source easily available that were cheap and low risk (Gup et al., 2007). However, globalisation, deregulation and enhancement of new technology had intensified competition for funds as every bank wants a fair share of the market (Wilson, 1988). Increasing complexity of the financial market and financial services demand had generated the availability of other types of financial instruments that could be tap by CBO to diversify its source of funds (Gup et al., 2007).

Non-deposit funding
Major and established banks have greater exposure and opportunity in the financial markets due to their credit ratings and well-known profile (Hogan, Avram, Brown, Degabrielle, Ralston, Skully, Hempel, Simonson & Sathye, 2004). Non-deposit funds consist of bill acceptances, repurchase agreements, corporate bonds, notes and other long-term borrowings.

Bill acceptances
These are promises of a bank to repay a commercial bill to investors if the borrowers default on their payments. It is also known as bank accepted bills (BABs) because 90% of the bills are accepted by the banks. The role of the bank is to enhance the creditworthiness of these bills prior to it being traded in the financial market. The accepting bank will be paid an acceptance fee by the bill drawer. Thus the bank acts as intermediaries between the surplus and deficit units (Hunt & Terry, 2008). The bank and borrower will enter into a bill receivable agreement that will be secured through the borrower’s asset to ensure the payment of the bill upon maturity (Hunt & Terry, 2008). Hence bill acceptances appears on both sides of the banks’ balance sheet (Gup et al., 2007).

Bonds, notes and other long-term borrowings
These are securities with interest that matures normally more than a year These instruments are second in priority should the bank be liquidated (Gup et al., 2007).

Statistical data
All graphs are based on banking statistics for three years starting from 2006 to 2008.

The graph above presents the trend of percentage of core deposits against the total resident liabilities spread over 3 years. It shows a descending trend for both major and other domestic banks.

The graph above presents the trend of percentage of purchased deposits (certificate of deposits) against the total resident liabilities spread over 3 years. It shows an ascending trend for both major and other domestic banks.

The graph above presents the trend of percentage of bill acceptances against the total resident liabilities spread over 3 years. The major banks experience a bigger jump during the year 2007 compared to other domestic banks.

The graph above presents the trend of percentage of repurchase agreements against the total resident liabilities spread over 3 years. It shows a descending trend for both major and other domestic banks. Major banks suffered a decrease in the year 2008 due to the reduction in money market rates announce by RBA to stavilise the Australian economy during the global financial crisis.

The graph above presents the trend of percentage of bonds, notes & long-term borrowings against the total resident liabilities spread over 3 years. It shows a descending trend for both major and other domestic banks.

The graph above presents the trend of percentage of intra-group deposits against the total resident liabilities spread over 3 years. Major banks experience a reduction while other domestic banks a rise.

The graph above presents the trend of percentage of other borrowings against the total resident liabilities spread over 3 years. Major banks experienced a rise while other domestic banks a reduction.

The graph above presents the trend of percentage of other borrowings against the total resident liabilities spread over 3 years. Both banks experienced a rise during the year 2007, but other domestic banks begins to experience a reduction during 2008.

The large percentage increase in the amount of mortgage securitisation in major banks and other domestic banks were due to the rise in favour of securitisation within the banking industry. Securitisation activities increased significantly by major banks because of their benefit of having a develop status in the financial markets.

The amount of bill acceptances, core deposits, intra-group deposits, provisions, bonds, notes and long-term borrowings had been decreased throughout the 3 years for major banks. While bill acceptances, core deposits, other borrowings, provisions, bonds, notes and long-term borrowings had been decreasing in amount for other domestic banks. Only the amount for loan capital and hybrid securities for major banks sees an increase, while funds due to financial institutions, intra-group deposits and certificates of deposits for other domestic banks experienced an increase.

An obvious reason is due to the financial crisis in the year 2008. However the catalyst for the crisis was the United States of America’s subprime mortgage crisis which had started in the year 2007. The drop in major banks in terms of core deposits is slightly less severe than other domestic banks due to their creditworthiness as the major banks of Australia. Moreover the Australian government had issued a nationwide guaranteed on all retail deposit held within AIDs provided certain requirements are met (Swan, 2008). The fall in core deposits is compensated by the rise in purchased deposits. Banks need funding to make funding available for others; hence it was time to tap on the money market for quick cash liquidity considering interest rates were falling thus cheaper funds are available, however other money market instruments seems not to be in high demand. It might be due to the overwhelming volatile market condition since the strike of the global financial crisis. With the crisis predicted to be coming to an end, the proportion of money market instruments in the bank balance sheet might see a rise again in the foreseeable future.

Mortgage securitisation
Securitisation is a process of transforming a pool of illiquid individual mortgage loans into tradeable securities which may be guaranteed, overcollateralised to increase its marketability, underwritten or organised by a bank or loan originator and then sells it to investors as asset-backed securities (Gup et al., 2007; Bailey, Davies & Smith, 2009; Lucia, 2003; Rosen, 2007). The process begins with the loan originators offering mortgage loans to homeowners. Instead of keeping the mortgages in the balance sheet as assets, they sell it to third parties or securitisation purpose vehicle (SPV) which consist of government agency (e.g. Ginnie Mae), government sponsored entities (e.g. Freddie Mac) and other private sector financial institution (e.g. Wells Fargo). These SPVs finance their purchases of loans through issuing securities (e.g. mortgage-backed securities- MBS). The return to securities holders are matched by the principal and interest collection from mortgage borrowers with the principal and interest payment respectively. The MBS are prearranged so that collection from mortgage repayment is adequate to pay interest and principal to bondholders (Gup et al., 2007; Bailey, Davies & Smith, 2009; Lucia, 2003; Rosen, 2007). Although the loan had been sold, loan originator retained their rights of administrating the collection of loan repayments, issuing statements and monitoring each account (Lucia, 2003). The securitisation process could end up in multiple folds when pools of MBS are collected and further securitised, thus calling them collateralised debt obligation (CDO) (Rosen, 2007).

Securitisation has become banks ultimate tool in liquidity management in recent years (Lucia, 2003). Securitisation provides banks with the capability to provide funds to deficit units at the same time allows it to reinforce its liquidity management by freeing up tied-up cash (Lucia, 2003; Hunt & Terry, 2008) that could be used prolifically on other investments which could earn a higher return or diversification of funding sources while maintaining a positive affiliation with the borrowers (Bailey et al., 2009).

The sale of mortgage loans to a trust is considered a “true sales”, whereby the asset cannot be returned to the bank’s balance sheet. This eliminates the credit risk associated when mortgagees defaults the loans. However the lost will materialise if the bank guarantees the repayment to the trust vehicle. (Bailey et al., 2009)

The problem with securitisation is due to the quality of loans being made. Loan originators just originate loans without weighing the financial backgrounds of borrowers because they would be sold anyway. Subprime borrowers on the other hand are not literate in the aspect of the loans and consequences of foreclosures and defaults. The code of conduct for securitisation was not adhered by the financial institutions. Mortgage-backed securities were having high ratios of subprime mortgages and not the supposed balance ratio of prime, subprime and Alt-A mortgages, therefore causing large investors loosing the value because they were not aware of the ratios. Thus ‘predatory lending’ was in action (Jaffee et al., 2009, pp 141-142).

To counter the problem, MBS should be standardised as it would be easier to value them thus promotes liquidity and reduction of predatory lending. Secondly, banks should educate mortgage borrowers about the mortgage offered. Allow ‘renegotiation and reorganisation’ with mortgage borrowers in the event of foreclosures or defaults (Jaffee et al., 2009, pp 141-142).

If these steps are undertaken, Commercial BankOne would still need more information and action from the market to justify participation in the securitisation market. The comparison between securitisation funding or retail deposit funding must be look upon since the new steps being undertaken might change the perspective that securitisation is still a cheaper source of funds.

Deposit and wholesale funding guarantee
The Australian government had taken steps to guarantee qualified deposits held within Australian owned banks, foreign subsidiary banks branches of foreign banks (some limitations), credit unions and building societies and wholesale debt securities issued on 12th October 2008 in response to the escalating global financial crisis (Swan, 2008; Hunt & Terry, 2008; Goodman, 2009). Only ADIs are provided with such benefits because they are regulated by Australian Prudential Regulation Authority (APRA) (Goodman, 2009) with the objective to preserve stability within the financial system in Australia by building trust in ADIs capacity to access funding (deposits) and to ensure they are competing on the same level with their foreign competitors. There are two groups that will receive the guarantees, firstly, deposits of AUD$ 1 million and below will automatically be guaranteed by the government for free under the Financial System Legislation Amendment Act 2008, Banking Act 1959 and Banking Amendment Regulation 2008. The second group consist of deposits of more than AUD$ 1 million and selected wholesale funding liabilities which would be guaranteed upon approval of the application by RBA and payment of the required fee (Swan, 2008).

ADI deposits up to AUD$ 1 million
The maximum of AUD$ 1 million applies to one depositor per institution (Goodman, 2009). Therefore, account holders of multiple banks receive guarantees up to AUD$ 1 million each. Deposits held in non-Australian banks are not automatically guaranteed but they could seek the benefit through an application to the RBA and by paying a fee. The requirement that must be fulfilled is that those funds are owned by Australians (Swan, 2008).

ADI deposits over AUD$ 1 million
These funds will be guaranteed upon approval by the RBA and after payment of the required flat rate fee depending on its credit ratings (Smith, 2008). Credit rating of AAA to AA- to be 70 basis points, A+ to A- at 100 basis points and BB+ and below ay 150 basis points. An Eligibility Certificate would be granted by the government if all requirements are met. (Swan, 2008; “Latest Pieces of Guarantee”, 2008).

Wholesale funding liabilities
The requirement of application and fee structure is similar to ADI deposits over AUD$ 1 million. Only short-term wholesale funding liabilities such as senior unsecured debt instruments that will mature within 15 months and falls under the definition of ‘not complex’, bank bills, certificates of deposits, transferable deposits, debentures and commercial papers can be guaranteed. Under non-Australian banks branches, maturities up to 31 December 2009 and further scrutinise by RBA only will be covered. On top of it, only bond, note and debentures of maturities between 15 to 60 months and ‘not complex’ are eligible for guarantee (Swan, 2008).

Conclusion
The exact proportion of funding sources is difficult to be defined since the global financial crisis is still looming around. However the upmost safest mix of funds in significant proportion would be core deposits, since it attributes the lowest risk among them all and a well mix of others as well.

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Cold Rock Ice-cream

Two (2) sachets of Lipton Black Tea, boosted up my senses. Collecting articles to begin with.
Unit: Commercial Banking & Finance
Topic: Deposits insurance in Australian Banks
Percentage complete: 0%



wakaka. not going for Boat Cruise.
Reasons:
(a) Too expensive ($AUD 60 per person)
(b) Too near assignment due date- no matter how early I start the assignment, I'll rush in the end. It always happens.
(c) Save money for the ultimate Howitt Hall Ball -i.e. Gaudy Night





Didn't do much lately. Just hang around the room and download movies and television series from DC++ (The programme that don't exist). Reason for such claim is because it's illegal to download using this way. Went to Pinewood with Kane Tan, Chieh Ai and Zax Teh to get some ice-cream from Cold Rock. The specialty of Cold Rock is that, there are unique steps to get a Cold Rock ice-cream:

(a) Select size of cup or cone
(b) Select flavour of ice-cream (2-3 choices depending on size of cup or cone)
(c) Select toppings (Mars, Sneakers, M&Ms, Skittles, etc)
(d) The worker will mix all of them on a flat cold rock. It's no ordinary mixing method.
(e) Mix ice-cream served.
.
.
.
(f) Pay money


DON'T forget need to pay money. It cost me $AUD 5.80 ($AUD 5 for the regular size cup and 80 cents for a 45g Sneakers bar)


The next time I go, I'll double up my toppings to include at least 2-3 toppings. "Just to see what I'll get" (Russel Peter, 2007). My flavours just now were Bubblegum, Ferrero Roche and Mudcake...something. The mixture didn't give me the tingling feeling. Maybe cause wrong combination of flavours. Pfftt bubblegum with two (2) chocolate flavours. What the heck! haha.

I'm cruel ain't I to show the ice-cream? Wakakakaka!!! Alright the pic was taken half way I was eating it.

Read something about Sovereign Wealth Funds (SWF) articles in Financial Times while searching for articles. Interesting it is-sounded like Yoda. Will write something about it when I'm free. Brief intro: SWF are funds obtain by issuing shares/ownership to international wealthy corporation or overseas government investment wings. (e.g. Government of Singapore Investment Corporation and China Investment Corporation).

Second Stimulus Plan + Cash rate cut = Saving the economy?

Australian Federal government executed their second stimulus package, so all working Australian earning below $AUD 80,000 per annum will receive a payment of $AUD 900 as part of the stimulus plan to reimburse tax payers as the Australian economy is riding through a recession period. The base for such a generous act is to put back the economy back to it's place by freeing cash for consumers to spent. As usual Federal Opposition leader, Malcom Turnbull hits back at the Rudd government for using the same method which doesn't spur any growth similar to the previous stimulus package. Mr. Turnbull stated 85% of the population whom had received the previous reimbursement from the first stimulus plan did not spent but rather save their money in the bank to earn interest. Conservatism and low confidence with the market performance, everyone is taking a defensive stand. "Cash is king" era, that's what it's called and it HAS to be spent and monitored under a very tight regime. Splurging unwisely comes with serious consequences which might force an individual running towards bankruptcy and a nation, fattening up their deficit.

7th April 2009

Reserve Bank of Australia (RBA) announce a 25 basis point cut from the benchmark cash rate, bringing it to 3% for loans. The four major banks, namely The Commonwealth Bank, ANZ Bank, Westpac Bank and The National Australian Bank (NAB) is thinking what are the further impacts to their lending rate, "Is it too low?". Retailers welcome the Federal government's move.

The announcement of rate cut was to reinforce the effect of the first stimulus package. Hopefully consumer confidence would rebuilt back.

7th April 2009, 5.15pm Australian time
NAB refuse to follow suit the 0.25% cut on the cash rate. So now what happens? Die or adapt?





Out from all the hypes of activity in the trading house, my very own floor has a very happy floor mate, named Romain Tanti. Reason for his joy is because his girlfriend is coming to visit him and she's arriving tonight, direct flight from France I think. So he's out at the airport waiting for her tonight. Haha happy dude. Cheers my friend and have a good time!

I bet he's going to drink like hell tonight, haha. French-ies past time, sipping wine, or beer. Whichever they can find first. ahah

Financial Crisis Generation. What is there left for us?

"I hope that I could still attend school, as my parents had just loss their jobs" ;

"I hope the government would pump more money into the economy to revive it" ;

"Would there still be a home for us?" ;

"Would there be food on the table for tomorrow?"



Words OF the children OF the world. (I didn't make this up, I really saw and heard it on television at Howitt Hall Level 10 kitchen)



People born between the year 1983-1993 will be the most affected group in this millennium, amid the global financial crisis (GFC). No doubt that the Financial Crisis Generation, as it is called will be the Generation Y people in the future. Which includes you and me, for most of those reading this; as I assume, falls under this category of categorisation. The adverse effect of such crisis knows no bound in the destruction of the future human capital resources. THE STAR newspaper reported a week ago, that there is a significant drop in the demand for medical services that had forced private doctors to compete with government doctors for overtime work. Even the human necessity to survive was no spared, as medical professions are well known to have a secured job. Who can survive without falling ill in their whole life?



The world financial system is crumbling. Centuries of building the financial structure begins to crack from it's very core. Securitisation market pressed an immediate halt since the sub-prime mortgage crisis that started in the year 2007. Money market was frozen during the mid of 2008. Mortgagees/Families lost their homes to banks. Banks retrieved near valueless homes from foreclosures. Banks are afraid to lend to other banks, as well to finance companies that needed those funds. Bankruptcy mushrooming everywhere. The financial cycle of boom and recession occur at least once in the period of ten (10) years (With the recent one for Malaysia is the 1997 Asian Financial Crisis), however don't you all think that this time the recession was more of an onslaught at the maximum degree. The Reserve Bank of Australia (RBA) had reported 2 days ago that Australia had finally succumbed to recession. Negative growth for two (2) consecutive quarter, unemployment would probably soared to 10% by end of the year. By the time it reaches 10%, riots would be everywhere, demanding for the government to settle it, which could probably cause a whole nation fall towards anarchy. I'm not exaggerating it. Imagine if there is no food, would you still sit quietly at home, if there is "home"?




I had personally seen the impact which is just in front of my eyes everyday. Whenever I ride the bus, most probably at a high percentage rate the person next to me is doing his master. In other words he/she is continuing his/her studies right after finishing their degree while waiting for the GFC to calm down. There is no point of finding jobs as it is extremely rare for an opportunity to present itself at such critical times. What are the odds of a company now which most probably would be fighting for survivability to hire more employees? It's no longer HIRE but FIRE! Be glad when your parents return home complaining about their jobs. At least there is still work at hand to do.



In the near foreseeable future, not a single soul can predict the movement of the crisis. As said initially, the medical profession had begun to follow suit other jobs in the world to bow to the crisis, so whats next? Would there be scrap left for us doing our degree(s) now?





What is there left for us?


The movement of protest has already begun within central London, to strike/attract major attention from the G20 summit (The London Summit 2009). President Obama (USA), Prime Minister Brown (UK), Prime Minister Aso (Japan), President Hu (China), Prime Minister Rudd (Australia), President Yudhoyono (Indonesia), President Lee (South Korea), Prime Minister Berlusconi (Italy); President Medvedev (Russian Federation) and the rest as well will be there to be watched by us, the general people of the world. Either they are there pretending just to get the chance of wearing smart tuxedo or their in for a rough ride trying to find the antidote.




(If you have any comment please do not hesitate to comment. It is a very much argumentative issue that is sprouting ferociously in the financial world currently)



Have a great day.







Pictures from new phone would be out later. Quality of it is extremely bad compare to N95.

Disgusting New York fat cats

AIG bonuses 'higher than thought'

US insurance giant AIG paid out a total of $218m (£150m) in bonuses after accepting bail-out cash, according to a senior US official.

Documents obtained by Connecticut's attorney general showed AIG's payout was $53m, or 32%, more than was previously estimated.

Papers obtained by subpoena showed 73 people got more than $1m each while five received more than $4m.

The US has rescued AIG with a $170bn bail-out package since September 2008.
But revelations about the size of bonus payments made by the organisation since the bail-out was agreed have sparked a furious reaction among US lawmakers and the general public.

'Distasteful'

For much of the week the total amount AIG paid out in bonuses was reported at $165m.
But documents obtained by Richard Blumenthal, attorney general of Connecticut, now appear to raise that figure by some 32%.

AIG: QUICK FACTS
Founded in 1919
30 million US policy holders
Operates in 130 countries
Provides insurance to 100,000 companies and other entities
US lawmakers vote for bonus tax
AIG chief asks for bonuses back

Connecticut was among 19 states demanding that AIG reveal details of bonuses paid to executives, in an effort to begin recovering the funds.

AIG has made no comment on Mr Blumenthal's findings.

But Mr Blumenthal said on Saturday that large bonuses were "showered like confetti" on AIG employees.

He said the newly-revealed number would "further fuel the justified anger and revulsion that people feel", and he planned to ask AIG bosses to explain the discrepancies in bonus figures, AP reported.

"Unless the number can be explained, it will undercut any lingering rationale the company may have for these unjustified payments," Mr Blumenthal said.

Earlier this week US President Barack Obama described the bonus payments as an "outrage", before state legal figures and congressmen also weighed in.

Even AIG boss Edward Liddy - who underwent questioning by a congressional committee on the issue - has described them as "distasteful".

Reports from the US say that AIG executives are now living in fear of a violent public backlash.

Protest bus
Many are reported to have received death threats and have been advised to take extra security precautions even in areas around their homes.

A group of about 40 protesters have hired a coach to tour executives' homes in Connecticut - home to AIG's main offices.

There they delivered letters highlighting the plight of ordinary families during the current recession.

The bonus money may not seem like a great deal to AIG or its top executives, the letter said, "but for Connecticut families struggling to make ends meet, for those of us who are losing our homes, losing our healthcare, losing our jobs, or our life savings, that much money could do tremendous good".

(Extracted from BBC homepage/business, http://news.bbc.co.uk/2/hi/business/7956903.stm)


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This is utterly disgusting. People are suffering and they are getting bonuses utilising bail-out payment by the US government which are collected from ordinary working people tax money.

Mark-to-market Disclosure Ensuring Confidence Rebuilding In Accounting Stewardship

Mark-to-market accounting standard which is nearly the same [in a generalised way] as impairment of assets is one of the few factors that had contributed directly to the credit crunch [apart from overexposure to the derivative market], especially in the financial sector. Mark-to-market is utilised to reevaluate the value of holding assets, inclusive of tangible and intangible, while impairment of assets, according to the Australian Accounting Standard Board (AASB) allows only the devaluation of value and not upward valuation which is utterly bias (Technically speaking, the value of assets fluctuates throughout the accounting period, positively through asset appreciation-e.g. property price and negatively through asset depreciation- e.g. machinery due to wear and tear usage). Generally, mark-to-market is currently the moving trend in accounting measurement on the Statement of Financial Position and Statement of Financial Performance, critically adopted in the asset and liability region. It was implemented during the turn of the 20th to the 21st century, further spearheaded during the ENRON accounting scandal. ENRON implemented the use of special purpose vehicle (SPV) to shift most of it's heavy losses and constant betting in the financial markets to get rid of it from their books in order to look financially strong, when in fact the behemoth company had been over exposed to multiple heavy losses which was detrimental to the well being of it's shareholders [If they know it]. Therefore after the incident, accounting boards across the globe cohesively announce a joint motion to establish a global rule to encourage and even make it a mandatory [by necessary means] for certain companies to adopt it.

The advantage of having to adopt this rule by the view of the shareholders is that a more precise outlook would be given by the company's report. Assets, equities and liabilities are the most essential information to the shareholders. In the prudence concept, assets and revenue SHOULD be understated while liabilities and expenses SHOULD be overstated. This is to ensure a precise decision making process could be conducted based on those information. Decisions dictates the mobility and adaptability of an organisation. Therefore information should not be doctored in anyway that could jeopardised the genuine outlook that the information should had provided to the shareholders. To say, "provide undoctored information would ensure the sustainability of the organisation" is fairly easy, but how to ensure the demarcation of influence between the information collector and information provider. Could the accountant ensure that the information [Statements of accounts] are reported based on the information collected. Therefore a third party would had to interfere and that would be the accounting boards that would need to announce the new implementation of accounting rules. When every company adopts the mark-to-market rule in their reports, then every company would be playing at the same level because the value of assets are based on natural demand. But how many organisation would want to play clean? And that's where the flaws comes in. Objectively looking, the theory sounded feasible but humans are still humans that will always be flooded by greed at the look of power. The practical utility of it is still primitive.

The negative impact of implementing this rule at the turn of the century causes many large corporate company to felt loss at the drop of their market capitalisation. If a leading company was incorporated in the early 90's and at the turn of the century, was force to submit to the ruling, their market capitalisation would had fallen despite their excellent management sustainability throughout the years. That would be unfair to their shareholders. Smaller companies would had mounted an advantage with the ruling but what about previous huge corporation. Valuing a company based solely on their financial report that are affected by the mark-to-market rule as the yard-stick would be bias as the company can offer other advantages to the economy such as excellent HR management. The capitalisation of one methodology of assessing the fundamentals of an organisation would be unjustified for the entire global company network. On top of that, how would mark-to-market intangible assets work when the conventional method is yet to be proven relevant. We are talking about brand, goodwill and etc. How to solidly value a brand's value? Conventional method provides only an estimation and through the mark-to-market rule, we are implementing it on an insecurely valued asset item. A useless method valuation implemented on a useless junk, what would there be in the end? A useless valuated junk!

On the other side of the argument, by implementing the mark-to-market rule to every company regardless of their previous corporate governance methodology, we could weed out those companies that aren't genuinely having the stated market capitalisation. In other words, we can eliminate fraudulent companies. The greatest example of it is ENRON. The next of keen to that position is Lehman Brothers. Commercial papers were mark-to-market causing substantial losses in Lehman's derivatives exposures, which ultimately causes the fall of the 150 years financial institution. It also tells off the corrupted governance of previous financial giants, such as Barclays of United Kingdom and Bear Sterns of America.

The year 2008 has been carved in the history books as the most troubled years since the Great Depression of 1930. Pummeled not only by natural disasters and terrorist attacks [India's financial hub, Mumbai] but also the mammoth unpredicted size, credit crunch.

The picture above is from an email I received. The entire email show the wonderful picture of mother nature taken from various countries. This particular struck my mind because it was the only picture that I had ever taken that gave me more inspiration to start taking scenic pictures. The place stated in the email was 'scenery of Europe' but to be precise its Salzburg, Austria. I went there before and the view is exactly the same. If you closely at the bridge there was where I stood to take a shot of the long river with both banks filled with medieval age buildings. I was surprised czuse all the while I thought pictures forwarded through mails are usually photoshop products, but this one blew of my mind. It was real and if given the chance, I'll head back there for a second time. I'll ty to find the picture I took back then to compare with this picture. It's 99.99% the same view, especially the blue sky. Wonders of the world. Wow!

Trying times, are they versatile right to the core?

Ticket is settled, AirAsia one-way flight to Melbourne International Airport on the 13th February 2009. Now left the accommodation (still waiting for offer letter) and acceptance (yet to accept). Then *Boom* time flies and I'll be there in Monash University, Caulfield. Can't wait. Much ado I've anticipated the surrounding of the University. No doubt people whom I mix would be by the highest possible rate to be Asians. The Australians would less likely mix with the Asians. Admit it, the issue of racism is not a Malaysian issue but a world pandemic. That's one of the main cause Mr. Obama mounted an astounding victory in the US 2008 Election. Voted for his skin and not for his policies. Many might disagree with me but the facts are clear. There are still no any stimulation plan that is sufficient to counter the growing destruction of the financial crisis. All the while Mr. Obama had just stated "he will" ; "try to" and etc. that doesn't gives us a very clear picture of his major plans to curb the growing concern of a financial meltdown looming anytime during early 2009. What's more when the current situation is proving the date of "judgement day" to arrive as predicted. As I've told Kar Kien while we were in the LRT during our way back from Petaling Street on the 19th November 2008, that what ever companies that we see today, the weak once will be perished during the year 2009, and what ever left in the beginning of 2010 are the really though companies. At first I expected automakers such as General Motors (GM) and Ford might withstand the financial crisis invasion, but looking recently with reports after reports of them begging the US congress to allocate funds from the 700 billion stimulus package for their survival had changed my perception immediately. Moreover GM was never in a very healthy look since the early 2000's. Standard & Poor's, as I've read had degraded GM to BBB+ during the early 2000's which means they're bonds are of near junk bond level. And by the mid of 2005 or so, GM had been degraded to total junk bonds. Recollecting the entire episode since the sub prime mortgage loan crisis or low-doc crisis that had spurred a spiral or domino effect to the entire financial markets landscape, I with no doubt that one day we might hear the collapse of a once mighty automaker player, GM. Unemployment rate in the US had been slowly meeting all time high. Couple of months back, Australian, Rudd government had just announced the lack of workforce and declared that Australia is willing to receive unskilled workers to feed their growing economy appetite, and just a day ago, 20th November 2008, Australia was reported to be on the brink of a might-come recession. So far the third largest economy, European Union, had declared an overall fallout to recession. Previously Singapore was the first to fall into recession with double quarters of contracting economy size. The general method to indicate a recession is when a country reported two (2) consecutive quarters of economy contracting. Downsize in Gross Domestic Product (GDP). The whole world is submitting to the treat of the financial crisis. Malaysia as they say might not be affected as bad as the Westerners however, we are still stabilise for the moment only and not long as we are equally dependent to the US economy. China, one of the growing giants of Asia was also reported to be cutting out jobs. If China, a country that had reported double digits of growth since 2000, after liberalising its economy under the premiership of Deng Xiao Ping, and now in the year 2008 reporting a cutting of employment due to its single digit growth would utterly means the whole world is coming to a World War Three in the form of economical crisis. Crude oil had fallen to $USD 55 from a skyrocketed all time high $USD 147 in the month of July. The Malaysia government had initiated their 5th time of petrol ceiling price reduction to RM2 after an all time increase of 40% to RM2.70 in the month of July to combat the overstating crude oil price ($USD 147). Our minister overlooking the petrol prices are had recently declared that our federal government coffers is earning a profit form the overall price reduction. This means we are paying a higher premium for petrol. Consider this example: When crude oil price was $USD 70 per barrel, our petrol pump price was at RM1.92. Since now the crude oil price had fallen to $USD 55 per barrel, wouldn't it be logical for us to pay a petrol pump price that is lower then RM1.92 instead of RM2. The government is taking a very prudence stand to slowly reduce the petrol price not significantly but by intervals to show that the incumbent government is working extremely hard to reduce the rakyat's burden. However I believe the crude oil price per barrel will continue to fall to an all time low because people are more conservative in their spending. The American market for petrol had seen a significant immediate drop. However since demand was dropping, report stated that Oil & Gas players are still continuing investing much of their cash to locate new areas with oil utilising the equipment provided by the oil & gas exploration industry players. With the demand from America drops, GM will need to re-engineer it's products to be more petrol efficient as people/consumer are now more prudence in their spending. Nevertheless, I believe the real testing time for all these companies is during the year 2009. Their resilience to financial meltdown will be tested to its core during 2009. Honda had slashed their estimated profit for 2009. I wish them all the best.

Recession came knocking at the door.

Based on my last post, so the USD$700 billion injection bill was passed after observing a near total collapse of the global financial system, but there was a catch there; the remedy did not HALT THE MOMENTUM of the crisis! Great so the "man made disaster" was so terrible that stocks and indices across the globe felt to their knees at the lowest benchmark they could be in over a decade or so. Eight (8) national central banks made a coordinated rate cut (50bps = 0.5%) that was spurred by the Reserve Bank of Australia (RBA). An unprecedented move I would say in this context. However the market did not felt comfortable with the move and it went on a free fall continuously. Spurring the first Japanese insurance company to go bust, Yamato Life Insurance Co. This is so serious. As of the time of writing, the market seems to be reacting positively now with Dow Jones scoring up a couple of hundred points (*Figure unsure*), hopefully it will sooner or later subside the invasion of one of the worst financial crisis since The Great Depression of 1929.

I personally classify this invasion into three (3) waves of attack. The first wave was the fallout of the sub-prime mortgage crisis. The greed of banks to stimulate quick revenue had overlooked the potential disastrous risk looming around the corner since early of 2000s. Alan Greenspan, former president of the Federal Reserve like it or not, did contribute to this disaster. His continuous ambitious plan of cutting rates to stimulate growth, and by hedging those risk by derivatives is uplifting the whole disaster into the reality region. George Soros and Warren Buffet had once stated the destructive nature of derivatives to the financial market long before but this was strongly opposed by Greenspan even till today. The cooperation between banks, mortgage institution and rating agency (Standard & Poor's and Moody's) contributed to the overall downfall.

Second wave, hit the financial institutions across the European continent and starting to infest into the Asian markets with the first casualty of the Japanese Yamato Life Insurance Co. At the current moment although central banks and governments had injected billions of USD$ into the money market to reliquidify it after weeks of being frozen up due to the loss of confidence, the scenario remains the same (free fall). Therefore I would have to agree with other commentators that this is not a financial crisis because even though funds are injected, the financial landscape remain motionless to the injection and it can be conclude it is a confidence crisis. Whereby investors, depositors, policyholder, and et cetera are all loosing confidence to the financial system. They've been fooled once and not wanting twice. The continuous distrust would halt the entire economy form correcting itself. That's what the fearful scenario is happening.

The third wave is when it starts to hit the non-financial institution, such as the manufacturing, agriculture, servicing , etc industries. Giant corporation such as GM, GE, Toyota, Honda and etc are already expecting the deep cut in their yearly revenue. Which would ultimately slash the employment rate, creating unrest, social problems and the lists goes on and on.

Malaysia is still pretty much safe as a result of de-coupling from the US's economy, well maybe at the moment but definitely not for long. Singapore, our very own neighbour had fallen to a recession mid of last week. Should we strike the panic button? I really think we should.

WHAT? NO US$700 billion bail out plan?

ITS like WOOOW!! their faith is about to be sealed for the coming US election. And when I mean 'their' faith, i mean it includes us as well. No bail out plan, more victims of the financial crisis coming up next. So where do we head now? US Congress is playing politics with the world economy. How do we save these so called New York fatcats from utterly destroying the US financial systems? I'll just parrot out whatever they had stated regarding the crisis because in my capacity as a first year business student (Accounting & finance), I'm still lack of the experience necessary to give out comments.

The main reason for the failure to pass out that specific bill was because many lawmakers were unsure of the consequences of the bill's results. Its a major scenario whereby giving one man (Henry Paulson-US Treasury Secretary) wielding too much power to command the distribution of $700 billion tax payer monies. Yea this maybe a plan to save WallStreet from crumbling through buying out toxic assets from troubled financial institution but who is saving and protecting the tax payers monies. What happens if the whole bail out plan turns to out to be a failure? We're talking about $700 billion , no small amount. There was lack of discussion between the congressman with the US Treasury-Henry Paulson and Federal Reserve-Ban Bernanke. Too much information are remaining ambiguous. The bill stated that it would:

"Give power to the US Treasury Secretary- Henry Paulson the authority to
buy out toxic assets at a price he deems fit in the market price".

"He deems fit" is too ambiguous for these bill to be accepted by many lawmakers.

Secondly, many lawmakers hold a stand in their principle of a freemarket, whereby government intervention is unnecessary because hoping the market to stabilise itself as times goes by. But that would also leave room for more financial institution to fail. Every second is money, on Monday morning when Asian markets reopened, we could see waves after waves of drooping share prices, serious bearish outlook where thousand of sellouts occurring at once even though at that time the bill was still on discussion (no rejected yet). However though the Western countries are at the brink of recession, we here in the Asia are being supported by the continuous growth of China and India. Therefore the upcoming potential would not be a spillover effect in Asia although there will be slight turbulence form time to time. What the Deputy Prime Minister also the new Finance Minister said that "our fundamentals are strong" was a complete crap statement because its not because of our fundamentals but because of the ongoing growth rate of China and India that plays a supporting role in stabilising us. Our reliability to the US to buy our products especially crude palm oil is still strong, therefore the recession impact would definitely have a knock-on effect on us but perhaps only a lighter dose.

Overall outlook is still not good, near horrible if nothing is still done tomorrow by the US lawmakers. So from onwards after these crisis, the credibility financial institution of US banks would be a legacy to them, no longer able to rise again after so much of scandal revealed. Some layman may say the economy is bad, but why is bad? Its because the banks across the globe, including our central bank (Bank Negara) are too greedy with their slow but steady income and sought more income by commiting unethical business dealings. Our central bank governor may had retained our interest rate to promote growth, but who knows whats happening in the administration of Bank Negara. Some screw up matter could be happening in there.

This is already a world issue sophisticatedly brought to unprecendented level of fear in a new form of World War coming in the form of survival for the fittest. I do hope I'll still be able to find a job after I've graduated. GULPSSS!!! If there is SOMEONE out there who could mobilise the recapitalisation of important financial institution. PLS DO APPEAR QUICK!!

Act of stupidity

Raja Petra Kamarudin being detained under ISA. I can understand due to his outspoken attitude. But to detain an innocent journalist who is just doing her job is totally absurd to the highest order. How can you expect others to do their job properly if they are constantly harass by the draconian law; moreover this revolves around the exertion of freedom of press that was constantly highlighted by the Prime Minister and Information Minister prior the the 12th General Election. The thing that boggles my mind or even everyones' mind is that having known the popularity level of the Barisan regime is at all time low, why are they continuing to poke the hornets nest. They are directly accelerating the coming of the 16th September take-over by Anwar Ibrahim. What are they thinking? Has all resources been outsource to regain the popularity of the rakyat or they are just plain stupid. A reasonable person or in this case; a reasonable government would certainly take precaution steps to not increase the hatred flame of the rakyat. I've read the MalaysiaToday's website and one particular sentence in one article stole my attention. RPK stated that "...ask the Malays in the opposition to come out in defence of their non-Malay brothers and sisters and warn the Umno Malays, in no uncertain terms, that they take to the streets at the risk of facing fellow Malays from the opposition who will defend their non-Malay brethren to the last drop of their blood. I, for one, am ready to stand by my Chinese and Indian comrades. So let Umno be warned" (Hari Reformasi, The Day Of A New Dawn, MalaysiaToday). I respect him for that. At first, after the 12th General Election result, I was sceptical whether Anwar Ibrahim have the capacity to take-over the government by 16th September 2008 as he had constantly claimed even to the internation reporting medias. Since the arrest of Ms. Teresa Kok, MP of Seputeh for been alleged to have commented on the azan prayers around Seputeh and the abrupt arrest of Ms. Tan Hoon Cheng, the journalist who covered the story of Ahmad's racial slurs during the Permatang Pauh by-election ceramah, I am now convince certainly that Anwar Ibrahim would have to mount a take-over action at all cost necessary. Its no longer the government of the people, the tipping point had been reached. Whether Prime Minister Badawi was aware of such action being taken out without proper documentation from the Home Ministry, the issue had been made into an issue. Another thing which I've read from MalaysiaToday website not long ago, that UMNO doesn't really have the three (3) million supporters it claimed to have, which ultimately prove to be an expected situation looking at the current political landscape. Let me be honest here, at times when I watch the news regarding an UMNO member being accused of something (i.e. Ahmad) and it was reported that supporters of his are requesting the issue to be closed, it immediately strike my mind that "those supporters must have been his cronies or not who the hell would support such obvious issue". To me, its not the matter of being a decedent of immigrants or receiving equal rights, but it is the method he portrayed his belief in such demonising manner, especially those coming out from a politician. If he wants to belief in such thoughts, then be my guess but provided he is not a politician because being a politician requires some certain protocol being practiced and he had definitely violated it. Taking for example former premier, Mahathir who loudly from time to time criticises the Malays for loosing out to the other races; well I don't mind if that is his thought because he is just a normal rakyat of Malaysia just like you and me. There are no protocols for him to follow. Having said that, in my opinion and perhaps the opinion of my fellow Malaysians; Ahmad should have been sacked and not merely suspended for three (3) years and be shoved into the Kamunting detention centre under Section 73(1) of the ISA for being a real treat to the nation as a whole. I sympathises the Barisan National regime for constant failure to put out the flaming hatred of the rakyat. What ever had the Prime Minister tried to do; including eliminating corruption within the regime and awarding independence to the Anti-Corruption Agency (ACA) from the intervention of the Prime Minister himself all the way to suggesting judiciary reforms are now what I believe to be invalid due to some irresponsible and stupid politicians causing uproar here and there. What a pity.

Though I am supporting the coming of a new age in Malaysian politics but nevertheless I am not fully supporting Anwar; due to his current stand of championing reforms that is of my type that I'm lending my support to his cause and not to him. My loyalty is to my country, and the loyalty of politicians are to me and the rakyat of Malaysia. Never shall we be swayed again by their smooth talking methodology as we had done it in the past before the coming of the new age. Politics remain something to be check from time to time. Lifting up our defenses would only cause the crumbling the new awaited age and revert ourselves back into the dark ages of Malaysian politics.

However as we are now awaiting the moment of truth in three (3) days times, the other side of the world is facing a tremendous financial crisis. The troubled financial institution of Lehman Brothers. Would it be a repeated scene of the Bears Stern last March where the United States Treasury and Federal Reserve would spend another couple of billions (tax payers monies) to bail this institution out just like it had done previously on Freddie Mac and Fannie May? Or would the Bank of America, Barclays-United Kingdoms bank or the Chinese bank would send the immediate help necessary to avoid Moody's and S&P rating agency to downgrade Lehman Brothers to a triple-B rating, limiting certain action allowed to be taken by the Lehman Brothers. Financial news at times are as interesting as Malaysian politics, full of speculation and guessing games of scandals and stuff.

Its rubbish, don't bother fixing your eye balls to it.

Budget, Budget, Budget... thats all we've been hearing for the last three (3) days and now its finally over with an unimpressive results for us the people. Never mind about that for I'm NOT!touching it cause then it'll be too dry for this post, not that this blog is not dry already but then again better not make it worse. Well what can I say; insufficient pictures just purely words, but I just don't have the time while fueling myself with freaking subjects to study for a freaking university to aim for another freaking university in a another freaking side of the freaking world with no freaking guidance from that freaking lady at the freaking marketing department for my freaking transfer progamme. Macam tak makan, buat kerja. Puasa also haven't come, somemore its a chinese somemore. Just purely unethical, either the fault of the university administration or her, which ever the case, Monash, sunway its just not as what I've taught of at the very first everlasting place. Whatever la, when all plans fail, credit transfer to University of Western Australia (UWA) or University of Adelaide. Yeas, I'm so bloody desperate to head to Australia by the early of year 2009, cause I need something different from my everyday lifeless life, scourging my body from day to day, night to night with such malicious cunning act that could devour me anytime, anywhere. What the hell is with my words? No idea, don't bother; just too bored with assignments, homeworks, worrisome problems and boredness. 95% boredness of repeating each day with the same vicious cycle of life. Really wanna use some freaking bad words but then would sound very unprofessional here. So be it, due to my over protectiveness with the professionalism incorporated into my professional blog, I shall resist temptation to tarnish my professsional well-build, well-design blog that suit my level of professionalism.

How crappy can a crappy person gets himself into?

Really crapped up!

ZZZzzz...