Money… lead us not to temptation

Source: Mr George Mangion ¸ PKF Malta

As published on Media Today¸ Wednesday 17th April 2013 

It was three years ago when the film “Wall Street –Money never sleeps “created quite a stir in financial circles. It was a sequel to Wall Street filmed in 1987 which centred around the main character Gordon Gekko (Michael Douglas) the ruthless corporate raider in 1987 who in the sequel he see him changed into a penitent man in the “Money never sleeps”. The first film recreated the infamous economic tragedy resulting from the onslaught of the dotcom boom. Many argued the crash of the dot-com boom was partly due to the irresponsible actions of credit rating agencies. We shall see later on in this article how greed and related misdeed called “ insider trading” are crimes which tempt many traders and even during a recession such offences haven’t been stamped out — it is only that regulators have become better at detecting them. One realises how difficult it was for the director Oliver Stone to avoid libel or slander suits while filming the sequel not to step on the toes of directors of failed banks such Bear Sterns or Lehman Bros -both prominently featured as collapsed financial giants during the tumultuous year in 2008.

This is not to mention the $50 billion Ponzi scheme run by the ex Chairman of Nazdaq namely Bernard Madoff who run a successful hedge fund that suddenly went bust in 2009. Back to the film which depicts succinctly how poor investors were robbed blind by Wall Street barons who would after raiding the store successfully plead with the US Treasury for a generous bailout to resist the contagion spreading and keep the entire US system from collapsing. It goes without saying that the infamous slogan ‘Greed is good’ epitomises the opprobrium consumers felt when they heard tales of investment bankers in Wall Street selling short and who dabbled in worthless paper such as credit default swaps (cds) culminating to the sub-prime bubble.Just as a financial market can become overwhelmed by greed the same can happen with fear. When markets suffer large losses for a sustained period of time¸ the overall investor can become fearful of making further losses. But being too fearful can be just as costly as being too greedy – in some cases investors become paralysed by their fear and tend to move out of their investments at the bottom of the market into more secure¸ low risk¸ low return investments such as gold. The mass exodus out of stock market shows a complete disregard for a long-term investment plan based on fundamentals. Investors throw their plans out of the window because they were scared¸ overrun by a fear of sustaining further losses.Yes it is strange but true that fear and greed will always drive the stock market into chaos and will have an influence on the way that people react to market volatility. In the local scene we can never forget the saga of the collapsed property fund administered by La Valette Multi Property Fund managers and having as its major shareholder and custodian the Bank of Valletta Plc. One of the funds which collapsed included the so named Belgravia property fund that collapsed suddenly and left a huge hole in the fund ‘s Balance Sheet. The Sicav’s managers avoided blame for this misfortune saying inter alia that property values had been hit by the global financial crisis while be-crying that during this unfortunate period new financing dried up. It came as no surprise that months later MFSA- the financial regulator concluded in