where has all the money come from, and where did it went?

deathmaster SG

hi all,

been thinking about this issue, now that there's a financial crisis going on.

for the past several year, we have heard of a global growth, where every country is growing richer and richer, and so did the corporate world. in fact, there is extremely high growth.

every now and then, you hear that this and that company are reporting millions or billions of profit.

we all know that money can't simply come from nothing. it just keep circulating around, where some people will accumulate alot of money and get rich, while some people will lose money to make other people rich.

So where on earth does this "extra money" come from, to make so many people rich?

now in the face of the financial crisis, we are slowly starting to hear those big financial corporations. e.g. banks and investment corporations report astronomical losses, valued at over billions of dollars.

well, billion dollars can't simply vanish overnight. i think that the incurred losses are accumulated over a long period of time, and that many companies hide their losses to avoid having bad PR. That's the reason why we are hearing so many cases of bank crisis now, and that our beloved sovereign weath funds (GIC, Temasek) now have to bail them out.

Some qsns to you guys out there.

1) do you think that there are many more banks and companies out there who were secretly hiding their losses out there?

2) do you think that it is a wise decision to spend our country's money to bail out a company which has suddenly reported a loss of several billion dollars, and risk bankruptcy? how can we be certain that they will not repeat such mistakes again, and lose S'pore's money in the future?

airgrinder SG

hi all,

So where on earth does this "extra money" come from, to make so many people rich?

..............

Some qsns to you guys out there.

1) do you think that there are many more banks and companies out there who were secretly hiding their losses out there?

Erm, there's no so-called "extra money". It's value (real or perceive) derived from the economical system, going back all the way into barter trade. This one you might wanna read up more on economics.

Ya, billions dun vanish overnight. If you referring to the us subprime case, the money didn't vanish overnight, not in the sense you are talking abt. To put it very generally, the perceived value crashed, due to the realisation of the actual real value.

Erm.. dun think so. a) The motivation to hide the losses usually increases when the decisions of the company (that caused the losses) are unique from other companies. In this case, many large companies like UBS, Meryll Lynch had suffered losses, and they were considered the experts in that area of investing. So companies are more okay to repost losses too, their thinking could be "even the top banks, with the best brains suffered, who can blame us?"

b) Timing in reporting potential losses is extremely important. When UBS, etc first realised their potential losses they issued press statements immediately, way before their audited financial reports are due. This has the effect to "cushion" investors. Other CFOs who at that point may or may not realised the losses, will have done a check on their own explosure. Any realisation of losses will also be reported immediately, to take advantage of the "losses band wagon". So if one is a CEO in a bank, he knows that his bank had suffered losses, he knows that other banks are reporting it, he will have less motivation to hide it.

c) The emron case.

2) Guess there is no right wrong maybe answers. The banks, before this incident, had proved to be successful. I'm sure after a major incident like this, new controls will be implemented. That there is no perfect system in the world. Nobody in this world wants to lose. I'm sure the new controls inplaced are sufficient to deal with similar problems of this nature in future. However, problems of a completely different nature may hit.