Meltdown !

Many people wonder why the troubles of Fannie Mae and Freddie Mac in far away America are creating havoc with their mortgages here in Australia. They are even more alarmed to hear of the downfall of prestigious pillars of commerce - Lehman Brothers, Merrill Lynch and IAG - and the effect that is having on their superannuation returns.

This financial meltdown can be traced back to trends that developed in recent decades. It started with the practice of paying CEO's absolutely obscene amounts of money that was not in any way connected to the performance of the companies they managed. In many instances they were awarded multi-million dollar bonuses and a golden parachute out of firms that were reporting abysmal losses.

Another factor was the amount of time CEO's were at the helm. Five years was considered a long stewardship. In that time they were expected to make their mark and most chose the course of expansion. It was a time of big takeovers involving huge amounts of money - and to get bigger these firms found themselves saddled with massive debts.

That adage from the film " Wall Street " ruled. " Greed is good " prevailed in the minds of both CEO's and the people trusting them with their money - and it worked just so long as the supply of new money to service that debt continued.

And that is where this present meltdown started. The quest for expansion saw money lent to people who couldn't service their loans - and the consequent increase in mortgage defaults sent house prices spinning in a downward spiral.

A glance into that awful abyss frightened the banks and the money supply tightened - with the result that those institutions that relied on a constant injection of fresh money imploded.

Where we go from here is anyone's guess ! There will certainly be more casualties amongst big name corporations and a lot of " little people " will be hurt financially - but it is unlikely that lessons will be learned in the long term.

When the dust finally settles the green eyed monster called greed will again be on the rampage - and human memory will hit the " delete " button on what caused this period of intense grief !