Are we really safe?

BIZLINKS By Rey Gamboa
Monday, October 13, 2008

Even as US President George W. Bush signed two weeks ago an economic bailout package worth $700 billion, world markets continued their downward slide as panicked investors rushed to move out their money from banks and financial markets.

Estimates as to how much money has been pumped into the world’s financial system to stave off a meltdown already runs to $5 trillion. And it seems that more funds will be needed in the next weeks.

In fact, American Insurance Group, which received $85 billion from the US central bank in September to stave off its collapse due to liquidity problems, has just recently asked for more, bringing government exposure to the world’s biggest insurance company to $122.5 billion.

People are already asking how much more will AIG need. The insurance firm’s rush to sell its assets, including shares in Philippine American Life and General Insurance Co. or Philamlife, has so far been overtaken by even more mayhem in global markets.

The $700-billion mother of all bailouts seems to be ineffective, judging from the succeeding effort of central banks across continents to release more money, and even to reduce interest rates. Even the show of force of the Group of Seven major industrialized nations seems to fall on deaf ears.

Investors continue to panic, and are trying to make sure that they wouldn’t get caught in this escalating financial storm. Perhaps the market’s reaction is just knee-jerk reflex that should correct itself within the next few weeks or months. But what if it doesn’t?

Reassurances, or lack of it

So, is the Philippine banking system insulated from all that is happening in the world? Is your and my money safe?

We would like to think that Gov. Amando Tetangco and his team at the Bangko Sentral ng Pilipinas know what they are saying when they guarantee us that we can all sleep tight without fear, and that we can wake up tomorrow assured that our savings or investment in Philippine banks are safe and sound.

But these are extraordinary times and even the collective understanding and knowledge of the world’s biggest central bank leaders led by US Federal Reserve chairman Ben Bernanke is not soothing the swelling panic that is rippling throughout Europe, and now even Asia.

Japan and Singapore, the two strongest economies on our side of the world, are dizzy trying to decipher what hit them. Despite all the billions of dollars that the Japanese central bank has been releasing to the market, Japan is now on the verge of a recession. Singapore has just recently admitted its economy is.

Disturbing lapses

We have been hearing almost daily reassurances from GMA and her government finance officials and those from the private sector that the Philippine banking system is rock-solid, having adhered to prudent banking practices and generally compliant with the BSP’s conservative policies. And that sufficient controls and monitoring systems are in place to protect the general public.

And yet, there have been lapses – perhaps small in scale if compared to what is happening in the US Nevertheless, these are still lapses that cost its victims their lifelong earnings.

We have had in the last 12 months seen the bailout of a couple of banks. Bankwise, Inc. went bankrupt and was put under the receivership of the Philippine Deposit Insurance Corp. The same happened to a rural bank in Camarines Sur.

Financial scams, i.e., pyramiding and investment schemes that promise extraordinary returns, continue to victimize our countrymen. The total amount involved, according to one diligent blogger that I came across, has already reached hundreds of billions of pesos.

Remembering the pre-need nightmares

And with Philamlife in the limelight these days, we are again haunted by the painful experience of millions of housewives who had diligently set aside monthly amortizations for the future education of their children in pre-need plans, now just worthless pieces of paper.

Philamlife, of course, is not one of those that belonged to this rogue circle of companies which peddled dreams that turned into nightmares. But the nervousness that quite a number of Philamlife plan holders feel is real. It really did not help when Philamlife president and chief executive Jose Cuisia, perhaps forced to hold a press conference to assuage its clients’ fears, had nothing much to say except that 10 companies want to buy it and the Yuchengco group is one of them. How reassuring!!

On the other hand, if one looks at it objectively, no one, not even Bush nor the heads of Group 7 will ever be able to give adequate assurances as this global storm brews and seemingly continues to gather strength. The global financial crisis continues to unfold and more seems to be hidden in the plot than what we have seen so far.