Savings deserve more care and attention

THE global economic downnturn has left a large crack in nest eggs, writes David Campbell

Savings deserve more care and attention

MY BALANCED superannuation fund has fallen 6 per cent since the beginning of the year. That, according to industry reports, is about par for the course in these turbulent economic times.

When the end of the financial year rolls around, fund managers for the popular default option will all be reporting significant negative returns, the worst since the introduction of compulsory super.

Ah, say the experts, but you've got to take the long-term view. Occasional downturns like this are to be expected, and we've done very well out of the last few boom years.

True. But what is so infuriating about this latest hit on superannuation funds is the corporate stupidity and greed that caused it.

One thing leads to another in the global economy and, as the layers of each financial collapse are peeled back, we glimpse something of the wheels within wheels that link what is happening on the other side of the world to our tiny patch of territory. But these are connections that we, at the bottom of the financial food chain, are often unaware of until we read the headlines.

Much of the current crisis originated with subprime mortgages, which involve lending money at inflated rates to people who represent a high risk when it comes to making repayments. Now that would seem a stupid practice, but it was common in the US. Then, when the housing bubble inevitably burst, borrowers began defaulting on their loans, financial institutions suffered losses, and investment slumped as confidence fell and the sharemarket plummeted.

Other risk-takers who had borrowed heavily to invest in shares suddenly found themselves facing margin calls as brokers scrambled to recover money.

But what exposure do super funds have to the subprime debacle? In the complex machinery of the financial world, who can be sure?

In recent weeks we've seen the dramatic collapse of broker Opes Prime, and this followed hard on the heels of difficulties faced by another broker, Tricom, and the massive rescue missions that had to be mounted in the UK and US respectively for the banks Northern Rock and Bear Stearns.

This is very serious stuff and those with superannuation can only watch in dismay as nest eggs shrink at an alarming rate while financial vultures pick over the bones of the latest corporate carcass.

Investing money is all about trust, and right now there's not a lot of it around. Most of us slave away at jobs, salting away a certain amount each year so we can build up savings in superannuation funds and not be a burden on the government when we retire. But all too often our faith in the financial system is rocked by corporate idiocy that leaves us shaking our heads.

Is anyone in control? Who really knows what's happening?

Every time these financial disasters occur there is a lot of noise about what should or could have been done to prevent them, but in each case there are only two fundamental truths. Firstly, nobody at the highest levels will accept responsibility for what happened. And secondly, hindsight proves to be a wonderful teacher, with all manner of experts suddenly able to explain what went wrong and why.

On the one hand we read about the astronomical salaries being paid to elite CEOs, while on the other we're confronted with regular tales of avarice and economic incompetence at the highest levels. A few at the top are occasionally called to account, but that's far too late for the untold numbers of little people who have seen their hard-earned savings disappear.

The financial sector can only blame itself for any lack of confidence.

As we stumble through this latest crisis we're faced with the disturbing realisation that we may have seen only the tip of the iceberg.