Daily Lessons from Life 11 May 2010 - Singapore must never end up with soverign debt: SM Goh

"Singapore must never end up with sovereign debt: SM Goh - Tue, May 11, 2010 my paper

STRONG corporate governance is as critical as good political leadership in keeping Singapore from falling into a sovereign-debt crisis like that afflicting Greece, Senior Minister Goh Chok Tong said yesterday.

He warned: 'Singapore must never end up with any sovereign debt. There will be no European Union to bail us out...and long before we call in the International Monetary Fund, investors would have taken fright and capital taken flight.'"

I believed that any person, country or company just need to observe 2 inviolable universal rules of finance to keep out of troubles.

The first one is: do not spend more than what you ACTUALLY earn.

The 2nd one is: save at least 30% of what you earned for a rainy day.

The lessons for me are:

1. if these 2 rules are ignored for short term convenience or to satisfy instant gratification, it is almost certain that one will get into a long term trouble. Though the culprits may not be around to suffer with the majority who did observed these 2 rules!;

2. there are smart people who will devise ways to defy these 2 universal rules backed by complex and deeply thought out algorithm and 'science'. They will tout the benefits of risk/rewards so that a very small minority who dabbled in it will get hugely rewarded or burned and crashed. These are all well and good, if the impact is only limited to these small group of participants. Unfortunately, the bets are so huge and the capital to back them out are so inadequate that credit facilities thousand or million times over the capital is needed to 'square off these deals'. The result is that eminent and intelligent central bankers and governments print more money to support the system while the taxpayers foot the bill!;

3. the question is: do the people, some people, have the will to 'set up a new game plan'? Can we stop and eliminate many of the financially engineered business transactions that produce NO physical goods, that impact only a small group of traders/bankers, to zero? Will the world suffer if these type of transactions are NO LONGER with us? Maybe some highly intelligent professors and people can put some of their energy into this area?

May all of us come to a realization that the status quo is no longer viable. Something drastic has to change to prevent us from revisiting this 'crisis after crisis' phenomenon.