– Economists and stock markets around the world are closely watching the financial turmoil in the United States. They're trying to determine the underlying causes of the problems that have shaken some of the most highly regarded financial institutions in the country.
One of those observers is David Shapiro, acting CEO of Sasfin Securities in Johannesburg. In an interview with VOA English to Africa reporter Joe De Capua, he reacted to the latest round of bad news in the US economy.
"For us, it's pretty disturbing because even though we are a little market (Johannesburg Stock Exchange) at the bottom end of Africa, we're still vastly influenced by what happens in global markets. In fact, if you look at the JSE, a considerable amount of our market cap is made up of shares that trade internationally, whether they be commodity shares or industrial shares. So of course when Wall Street goes into a wobble it has some kind of effect on the South African market…. We're up to the minute with what's happening. And the panic that's happening there at the moment has turned into panic here," he says.
Asked whether the financial problems have caused him to lose confidence in the US economy, Shapiro says, "What's worrying us is that very few people understand why this has happened. The puzzling thing is how firms of this nature were allowed to collapse. And I'm not blaming the US Treasury. I'm not blaming the Federal Reserve, but really looking at regulatory issues and the companies themselves. You know, the managing directors or CEOs of considerable firms…were unaware of what's happening or alternatively took the kind of gamble that they did. So, I think from an outside point of view, from a South African point of view…we've always looked up to America, but this time we have to question where they're going."
But are the problems caused more of a lack or regulations or by poor judgment? Shapiro says, "I think it's more judgment. I think most businesses have to learn to regulate themselves. We've got all the kinds of systems that we need today, risk management systems. And I think that at the end of the day…if you pin it down to one word, just greed. The desire to make as much money as fast as possible without really considering the consequences."
He says people such as Warren Buffet, the famous investor, would never have made the decisions or investments that the heads of the troubled institutions have made. Shapiro also says it reflects a shift from long-term investing to short-term profit making. "There's absolutely no doubt about it. A lot of the problems arose because of the excess liquidity that came into the United States from the oil-producing countries or alternatively from the exporting countries like China or India and Russia, etc. But we would have thought that the money would have been used less recklessly. It appears that the money came in and was lent into a housing market that in most cases any sensible person would not have supported," he says.He says the blunders have taken down financial institutions that were highly respected. "From an outside point of view, these were huge institutions that you had great regard for, whether it was Merrill's (Merrill Lynch), whether it was Lehman Brothers, Bear Stearns, etc. We used to model ourselves on that. We always hoped we could have those kinds of institutions here. Well, I'm not so sure anymore."