Saturday, October 11, 2008
What are they up to?
The American congress responded with a $700 billion rescue package that will prevent the total collapse of their financial system. This is definitely the beginning of the end of capitalism. It is becoming more evident that the forces of demand and supply are not enough in optimal allocation of resources amongst people in a confined space. Collective action, embodied as a government must participate or else....
I see a new world order is emerging.
Somewhere on the other side of the Atlantic Ocean, just above the equator in a land referred to as Nigeria, though its the Security and Exchange Commission is not in full support of the move because they believe the market has strong fundamental, Nigerian banks are hustling to join in the =N=600 billion stock market bail out plan. The NSE backs this move to create market makers as it could help draw back foreign investors and boost liquidity in the stock market.
I will not claim to be a financial expert but I don't necessarily see what they are driving at with the bail out plan. It might just be end up creating power brokers and enable a few dictate prices and earn off the market at will.
There is little emphasis on how that money would be injected and the implication (one has to be careful of this altruistic act with bankers; they always have the small print).
Yes America needs it but, NO, I don't see what a bail out plan is needed for in the Nigerian stock market. The wiping out of over 30% from stock value resulted from excess liquidity over supply of stock (over valuation of share prices) and the market trying to regulate itself (who can justify the impact of a $85 billion market capitalisation on our real economy? Or am I asking the wrong questions?). The continual bearish nature reflects the drop in confidence, which could be restored by the floated companies ACTUALLY doing something significant that reflects the value of their share prices. In the American case, such action can be barely executed as there is limited flow of credit finance within their eco-system; thus the government must inject value if any steps are to be considered.
Market makers might just be successful in creating artificial boom that can attract investors but is not sustainable.
That is my opinion and I stand to be corrected.