Friday, September 19, 2008

Wall Street Wobbles: Causes of the US Financial Crisis and Its Impact on the Philippines (A Public Forum)

The global financial system is in deep crisis. Three of Wall Street’s “Big Five” investment banks have collapsed, Bear Stearns in March, and Lehman Brothers and Merril Lynch over the past two weeks. Other disasters include the seizure of mortgage giants Fannie Mae and Freddie Mac by their regulator and, the shocking U.S. government takeover of a hopelessly illiquid American International Group (AIG). The remaining big investment banks, Morgan Stanley and Goldman Sachs, are also in trouble, with the former trying to sell itself to a Chinese bank. The contagion has spread worldwide with stock markets falling dizziyngly, prompting the central banks of the U.S., Canada, the European Union, England, Japan and Switzerland to pump $300 billion of short-term funds into the markets. The emerging markets of the BRICs countries (Brazil, Russia, India, and China) have “suffered their biggest sell-offs in years.” The Asian Development Bank warns that the turmoil in the West could affect economic growth in Asia. In the Philippines, the Central Bank announced that seven local banks have $386 million (P17.86 billion) investments in Lehman Brothers, whose bankruptcy is the biggest in U.S. history. These are Banco de Oro, Metrobank, RCBC, Standard Chartered (Phils), Bank of Commerce, and UCPB.

The Economist sees the causes of today’s financial panic in “the buying of property at inflated prices in the hope that some greater fool will take it off your hands” and that Wall Street had “too much capital devoted to products of questionable economic utility.” The Guardian opined that “the financial markets have been exposed as a vortex of artifice, a land of mirrors in which nothing was real and now everything is shattered.” The use of U.S. taxpayer money to bailout bankrupt private firms is described by economist Nouriel Roubini as “socialism for the rich, the well-connected and Wall Street – where profits are privatized and losses are socialized.” But the extraordinary government interventions are also seen as a critical stab at the heart of free market capitalism and its rhetoric about the dangers of state incursions in the economy.

Several questions desperately beg for answers. What are the real causes of the current financial turmoil? How long will it last? Are the foundations of global capitalism in danger? Given the volatility of the markets, the complexities of financial market transactions, and the lack of disclosure by corporate executives, is the situation actually worse than it appears? Is there a need for a new financial architecture? How does this crisis affect the Philippines? Are Philippine banks telling the truth about their exposure in the bankrupt firms? Are the ordinary Filipino’s bank savings safe?



Welcome Remarks
Dr. Aileen S.P. Baviera
UP Asian Center

Introduction of the Speakers


Dr. Cayetano W. Paderanga Jr
Professor, UP School of Economics
Former Director-General, National Economic and Development Authority
Former Member, Bangko Sentral Monetary Board
Former President, Philippine Stock Exchange

Dr. Sixto K. Roxas
Development Economist
Former Investment Banker (Bancom Group, PNB, BSP)
Former President, Asian Institute of Management

Dr. Edsel L. Beja Jr.
Assistant Professor, Economics Department, and
Deputy Director, Ateneo Center for Economic Research and Development
Ateneo de Manila University

Open forum

Last Comments from the Speakers


Dr. Eduardo T. Gonzalez
UP Asian Center

Download the transcripts from our multiply site:
Wall Street Wobbles: Causes of the US Financial Crisis and Its Impact on the Philippines (A Public Forum)