While the subprime mortgage crisis that exploded last year continues to trouble markets, investment banking giant Lehman Brothers Holdings has gone into bankruptcy. Financial market tsunamis have hit the entire world for two consecutive years. The assets of many Taiwanese have shrunk in the crisis because the investors made decisions without sufficient information about risk.
This expensive financial lesson reminds us that the “free market” game is only meaningful if it follows a set of fair and healthy rules and regulations. Without thorough and independent supervisory control mechanisms and systems and rules to maintain a fair market order and promote business information transparency, the bad financial products that keep expanding under the modern capitalist system exist on the fringes of the legal system, waiting to swallow people’s savings.
Non-investors should not think that they will be able to remain aloof from the crisis. Once the crisis spins out of control, the government will inevitably seek to boost the market with taxpayers’ money. The US government’s proposed US$700 billion rescue plan serves as a prime example. In the end, we will all have to share the consequences; no one can escape.
The fact that the world’s leading capitalist country has problems extracting itself from the crisis makes one worry even more about Taiwan’s situation. How many “Lehman Brothers” are there in Taiwan?
In July 2004, the Cabinet set up the Financial Supervisory Commission to independently supervise and control the financial sector. Four years on, however, the government’s second financial reform is still a mess.
The commission was ahead of the curve when it came to the bankruptcies of several large banks. Insider trading in listed companies is frequently heard of. Dummy companies have been established to hollow out shareholder assets.
The Rebar scandal early last year — which ruined numerous families who are still seeking compensation — is still fresh in our memories. Other investors have lost everything after buying certain structured financial products recommended by glib and shameless financial agents.
The commission did not issue any advance warnings in a series of major financial scandals in recent years and there was no attempt at damage control in the aftermath. Although the commission is an independent supervisory body in name, it has a long way to go if it wants to supervise the financial sector effectively.
The US is mobilizing the world’s leading central banks in order to save the financial market, spending US$700 billion at a throw of the dice. Does Taiwan have this kind of capital?
Taiwan’s government has said it is moving toward a freer and more open market, but the performance of both the supervisory and judicial authorities has been very poor. They have failed to issued early warnings and have handled financial crises far from effectively.
When will we see the first Taiwanese-style Lehman bankruptcy? Where will the next landmine stock explode? Which bank will go into bankruptcy? What investment products are inferior products that should never be touched? I am afraid that all we can do is hold on tight to our wallets and pray.
Chiang Ya-chi is a doctoral student in the School of Law at the University of Leeds.
TRANSLATED BY EDDY CHANG
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