“Where did all my money suddenly go to?” That was a question my friend asked, directed to no one in particular as he looked at the share prices of companies in the stock exchange market published in the day’s newspaper. He was downcast and loudly wondered how a financial asset could triple in value and suddenly crash at the next moment. His feelings were precipitated by the current global economic crisis as investors watch their financial portfolio depreciate, the common man inclusive, as he watches his house value drop and the money he saved in a bank fizzle out to nothing.
The recent scandal rocking the Madoff Investment Securities, a hedge fund company owned by Bernard Madoff who was until last Thursday a renowned financial guru courted by the rich and famous who competed to throw money into his company drew my mind back to the meeting with my friend.
Madoff’s company managed funds for investors yielding high returns, a plus in financial circles that has suddenly turned to an embarrassment. Two weeks ago, he stated that the investment returns were fake and all the while he has been paying old clients with money from new ones. The lure of such returns even prompted banks, celebrities, charity organizations and companies to invest in his company.
With victims such as bankers of HSBC, Royal Bank of Scotland majorly owned by British Government, Spanish bank Santander, which owns Abbey and a charity set up by Steven Spielberg, a foundation set up by Mort Zuckerman who is one of the richest media and property managers in the US among others; this financial scam may still portend more than meets the eye. Madoff even revealed that his business was “all one great big lie”.
What is most gripping about the situation especially as regards mortgages and stocks is that no one went to steal the money or misappropriate it in most cases. The money suddenly diminished in value. This calls for a closer examination of what the term money is all about and how it behaves.
Money means different things to different people. To some people it is physical cash; to others it is any opportunity that can be used to generate money. To some others it can be obtained after hard work, to others it can be made in the mind. Some people consider the love of money as evil while others consider the lack of it as evil.
Economists define money as anything that is generally accepted as a means of payment for goods and services and repayment of debts. The main uses of money are as a medium of exchange, a unit of account, and a store of value. The characteristics of money include; divisibility, transportability and portability, storability, recognisability, homogeneity, and storage of value. Money loses value overtime as a result of inflation.
The current global economic meltdown has a lot to do with the sudden reduction in the value of money used as a store of value which economists say can be reliably saved stored and retrieved. Examples are money stored in real estate, commodities, bonds and stocks which are not physical cash but its value can be readily estimated. Many seasoned investors posited that money as a store of value is the best form of investment as there is a sure hope for returns, thus when the credit crunch started it was not a thing of surprise that many people were affected. The ripple of the effect is so much that even those who do not employ such means of money were affected. A crisis emanating from United States of America has spread even to the remotest countries.
As money moves from one hand to the other or from one bank account to the other it is said to circulate. It flows from one source to the other. Interestingly, looking at the recent drop in value of stocks, mortgages and growing distress in banks, one wonders where the monies went to? Stocks, mutual funds and capital base of banks drop in value as the day goes by and no one seems to know where this money is disappearing to. It looks like placing an ice block outside, in hot summer!
Investors’ confidence is at one of its lowest ebb. People spend less money each day. Firms are downsizing because they cannot pay staff wages. Even the huge sums of money as economic bail outs sunk into various economies by Governments seem to be yielding no results. Although Madoff is a dupe, his shocker may even compound the woes. It is a money loosing bazaar, money that cannot be accounted for, money that is flowing into no one’s pocket.
I have deeply studied the situation and I have drawn my own conclusion. Money has wings!