Friday, September 19, 2008

Its Payback Time

It was about a year ago when I still wondering why the Finance Sector needs so many people and so many people still earns so much money. I have a few friends working in some investment banks and I was quite envious seeing them earning over $10k/month with 6-8 months bonus. They always meet in lavish locations for dinner and broke my wallet. I decided to avoid them because frankly, I don't have money to enjoy life like them and I felt inferior because I was then an Insurance adviser earning a fraction of their. I just couldn't figure out where the money comes from?

With the type of Crisis that we see in the Financial Sector, I got my answers. Its the creativity of the Financial Institutions and greed of the people by packaging new financial products and sell around the world. Each time each financial package was sold, there are huge commissions and brokerage earned. So much money was poured all over these fund managers and bankers and now its finally payback time. No matter what happens, they had already earned the all the money they need.


Anyway, just like to add more into my previous posts,

I wrote something about it in March and I didn't expect things to turn out this way at that time.

The Americans buy houses like nobody business. The banks for fear of losing market share, reduces their requirements to get businesses and don't care whether these people can pay or not. They package these loans into CDO(Collateral Debt Obligations) and resell to other financial institutions. As CDOs are backed by Mortgages, these institutions just buy over without knowing that these banks take in almost anyone for the loan and default risk actually is so high. Holder of CDOs further reduce their risk by transacting Credit Default Swap (CDS)

CDS is a private contract between two parties in which the buyer of protection agrees to pay premiums to a seller of protection over a set period of time. In return, the seller of protection agrees to pay the buyer an amount of loss created by a "credit event" related to an underlying credit asset (loan or bond) - the most common events are bankruptcy, restructuring or default.

If AIG start to default on all these CDS, there will be another round of bloodshed.

The Federal Reserve have a tough job reassuring investors to prevent a disaster. Its like a fire in a cinema, when everyone tries to run for the exit, a disaster will bound to happens. Just imagine that every investor tries to cash out from their investment now.

What a mess and everyone is wondering when the bottom will be.


Anonymous said...

Fire in a Cinema. Sounds interesting.

Anonymous said...

You know, there is a term we gamers use when it comes to situations like this..


Good Game..

Anonymous said...

payback time for insurance agents is around the corner and they will pay back heavily and in their own coins too..

Apong said...

The more you write... the more you sound like a green eye monster with a serious character flaw.

You envy those who earn more than you..and you gloat when they run into problem and sound like it's their just deserve?

They being bankers and earning huge sum is the compensation norm for financial system. We can disagree with the compensation system. However, your friend was not the one who came up with the compensation system. He is an employee who got paid because the compensation system was such.

Adrain.. i'm sorry but I can safely say you will never be a millionaire. Your outlook in life has generally been negative or blaming circumstances or events.

Khiat Han Hwee Adrian said...

Hi Ah Pong,

Thanks for your comment about my character flaw. I'll look into myself to understand why you say this to me.

Seriously, I didn't say anything to indicate that I'm jealous of my friends and people who are successful like achieving MDRTs, etc.

In this posting, I'm only trying to express my thoughts about why the finance sector is so much in demand and is earning so much money for the past few years. I did not put down anyone.

But something you said is partly true about being a millionaire. If I stay in this line, I'll have little chance of being a millionaire. Because I'm not able to sell something which I feel is not of good value to my clients and I don't have the ability to convince a person when I don't believe in it.

Anonymous said...

花无百日红。These people can earn a lot but what really matters is whether they can hang onto their earnings. Life is full of ups and downs. Live life simply and stay by your values.