Salone News

On Sierra Leone’s Prospective Stock Market

18 April 2007 at 21:12 | 1027 views

Commentary

By John Mannah, Maryland,USA.

I was filled with great excitement on the one hand and a dim sense of disappointment on the other, when I read in the Friday March 12th edition of the Awareness Times web site an article captioned “ Sierra Leone’s APC prove tough in Parliament”.

According to the article, the Hon. Joe Kallon, deputy Minister of finance deputizing for his boss had tabled a bill titled; Financial Services Amendment Act 2007, a portion of which should promulgate the Stock Market (Stock Exchange) in Sierra Leone. The article also stated that a lot of work had been invested in getting the bill to that stage by the ministry especially at a time when the Sierra Leone economy is at such a critical stage of continued economic growth and expansion of private sector activity in an economy dominated by the public sector. This move will definitely increase the tax base of the government and also create the necessary employment, especially of young people that the country so desperately needs.

It was therefore not a coincidence that such a bill will draw the enthusiasm and energy of members of parliament to debate its merits and demerits, with the aim of presenting the president with a cogent and fine bill to sign into law for the establishment of this much needed economic engine.

It is against this backdrop that I know honorable Alpha Kanu(photo) championed a critical appraisal of the bill in the interest of the Sierra Leonean people. This is a very good development, if Hon. Alpha Kanu of the APC party had not categorized or mischaracterized the prospective Stock Market that this bill is meant to establish as a “glorified Osusu” and thus urged the inclusion of Capital Insurance in the bill, as according to him, “it ensures guarantee to investors that upon investment in the stock exchange, they will suffer losses in the event of the liquidation of the stock exchange”.

He further explained that “it will give confidence to members of the private sector who have lost confidence in the banking system to now deposit their cash with the banks through the stock exchange, since they will now be deriving profit from their savings. Hon Kanu also advocated for tough regulations that would safeguard the interests of the people. The Hon, as I read is said to have moved a motion for the inclusion of a clause for capital insurance, a motion that was unanimously supported by the majority of Members of Parliament.

After going through the article, I was taken aback by the rationale of Hon Alpha Kanu’s motion for such a clause in such an important legislation, and also for his characterization of the stock market as a “glorified Osusu”. I therefore came to the conclusion that either Hon. Alpha Kanu’s motion for the inclusion of such a clause in this bill is motivated by political considerations, which as a politician is legitimate , especially an opposition member of parliament but I will argue is ill considered and misguided, or he is totally ignorant about the stock market and its operations.

The purpose of this essay therefore is to weigh in on this important topic so as to educate the public about the stock market, its operation in general, and its significance to the socio-economic development of Sierra Leone.

The stock market has a lot of moving parts, it should indeed be regulated by the government through the creation of an independent regulatory body to monitor its operation as the Hon Alpha Kanu rightly suggested in his analysis of the bill in parliament. This is because the stock market engages in an economic activity where members compete with each other in deals involving huge sums of money, and where a verbal agreement, sometimes even a gesture which can be seen when words cannot be distinguished in the uproar of trading is binding.

Members must know with whom they are dealing, and the rules and regulations binding the agreement must be honored. To characterize the stock market on the other hand as a “glorified osusu” is incorrect. An “osusu” which is the local way of calling an investment club, a cooperative or a financial club, is an organization whose members come together for the pursuit of achieving individual goals through contributing money. Such money is administered by one of the members for a commission or nominal fee. Members contract to contribute such money collectively and a member collect the total contribution on either a weekly, monthly, quarterly, semi-yearly or yearly basis. This process is rotated until all the members collect from the club, at which time they start the process all over again or dissolve it. The same procedure obtains with a cooperative or an investment club.

Markets of all dimensions, be it the stock market, the commodities market, the farmers markets, enables buyers and sellers to come to together, interact and exchange goods and services. A market may be a place where buyers put their money down and carry away whatever it is they may have bought i.e. groceries for a supermarket, for example. It however does not have to be a place. It can be something more abstract. We can speak of “the real-estate market”, but it is not possible to go and look at the real-estate market; instead, the real-estate market is a complicated set of arrangements involving real-estate sales offices, property listings in newspaper ads and web pages, for sale signs on front lawns, even information exchanged by neighbors talking over back fences, or word of mouth advertisements. All these arrangements, in other words, create the real-estate market.

It is the same with stock markets. Some stock markets such as the New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX) do have a physical location that people can see and visit. So we will be able to see the Sierra Leone Stock Exchange when it is established. Other Stock markets such as the NASDAQ Stock Market use computer to bring buyers and sellers together. These markets like the real-estate market depend on all sorts of advertisements, newspaper and computer listings, and personal relationships that enable buyers and sellers to get together.

Markets of this sort accomplish something very important. They allocate scarce resources. The allocation occurs as a result of buyers making offers and sellers deciding whether to accept the offers. When each one thinks that the proposed deal look like a good deal, the sale is made; the home or the stock share in question are allocated among all the people who might possibly want them.

This allocation mechanism, could have been handled in another way, for example, it could be handled by a central governing authority. A government could declare that it owned all the resources in question and that it would distribute the resources for people to use according to some system of priorities determined by a government agency. An allocation system of this sort is called a command economy.

Market economies differ from command economies in several important ways. First market economies depend upon private ownership of property. In market transactions, people sell things that are their property until ownership is transferred when someone else buys them. Second, market economies allow people to pursue their own self-interest. Parties engage in market transactions voluntarily; each one believing that he or she will benefit. This is why Adam Smith the god father of classical economics coined the term “invincible hand” meaning, that the hand of the market is like an invincible hand guiding people to act in the public interest by following their own self interest. Smith posited that “one does not get one’s dinner by appealing to the brother-love of the butcher or the altruism of the farmer or baker, rather one appeal to their self interest and pays them for their labor. Third, market economies foster competition. Buyers won’t buy unless the seller offers a deal that looks acceptable, so sellers must make an effort to provide good prices and quality. Fourth, market economies depend upon a rule of law provided by government. The government protects private ownership of property, provides for legal enforcement of contracts, and protects people against fraud and coercion, thus enabling them to participate freely in market activity. Fifth, market economies work efficiently and peacefully, provided that the rule of law in which they exist really is adequate to protect people from illegal practices. People making their own decisions in an open market get only what they bargain for, and sellers in an open market have no reason to produce things that buyers don’t want to buy.

The Stock Market- Primary and Secondary Market

The financial market is a market where financial assets like stock, bonks, commodities are sold, and the stock market is a component of the financial market. There are two different markets for stocks. The first is the new-issues market or the primary market. In this market, new or growing businesses sell stocks to raise money. These stocks are called new issues because they are brand-new stocks that a company is selling for the first time. When a new or expanding company decided to offer new shares of stock to raise capital, the company normally will solicit the services of investment bankers, who, after determining that the stock is worthwhile, will buy a large block of stock and offer it for sale to the public. The new-issues market is very important. It allows corporations to raise money to get started or to grow. These businesses can then create jobs and provide us with more goods and services. This economic growth is good for our economy. Buyers of new shares of stock can later sell them in the stock market also known as the secondary market. The Sierra Leone Stock Market is therefore a secondary market.

In the stock market, people or groups use brokers (An individual or business that specializes in bringing together buyers and sellers of stocks) to trade stocks they already own, just as automobiles can be traded in the used-car market. This reduces the cost of trade i.e. the time and money buyers and sellers would need to spend to find one another to arrange trades.

When stock holders trade stocks in the stock market, the companies that first issued those stocks don’t receive any additional money. But the stock market is very important to these companies because it allows people to sell their stocks quickly and easily. If stockholders could not sell their stocks whenever they want to, many of them would not buy the companies’ stock in the first place. Corporations then would have trouble selling new issues of stock when they want to start up or expand. This is the situation we have in Sierra Leone without a secondary market, a void the establishment of the Sierra Leone Stock Market will adequately fill. Sometimes the stockholders of a company sell their stock to the public. This is called a secondary offering. In this case, the stockholders, not the company, receive the money.

Within the stock market, we have the stock exchanges. Examples of stock exchanges are in America, The New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the Nasdaq Market, and the Over the Counter Markets OTC markets. A stock exchange is therefore a marketplace where brokers called “floor brokers” buy and sell stocks for their customers and for other brokers. On NASDAQ, market-makers working from securities firms all over the country buy and sell stocks for their customers and other brokers via computers all linked together. Thus, a stock exchange is simply a marketplace where listed stocks, those that have been approved by the exchange for transaction, can be bought and sold. Through the exchanges, representatives of buyers and sellers can meet to trade on behalf of their customers. These exchanges function as auction markets. Prices are determined by an open auction market in which the buyer’s bid a price i.e. what buyers are willing to pay for a particular stock at a particular time, and the seller’s ask (or offer) price, i.e. what sellers are willing to accept for a particular stock at a given time, must come together. When these representatives, members of a particular exchange such as NYSE or AMEX, agree on a price, a transaction is made.

There are nine stock exchanges in the United States. The biggest is the New York Stock Exchange, located in New York City. Brokers buy and sell stock in about 2,570 different companies at the NYSE. In order for a company to have its stock traded at the NYSE, it must make over $2.5 million a year and have sold over 1.1 million stocks. The companies pay anywhere from $11,000 to $60,000 a year to have their stock traded on the NYSE. The American Stock Exchange (AMEX) is located just a few blocks away from the NYSE. Here floor brokers buy and sell stocks in over 840 companies. In order for a company to have its stock traded on the AMEX, it must have made over $750, 000 each year and pay a yearly fee of $3,000 to $12,000.

One can also buy stocks in over 30,000 other companies that are not traded on the NYSE or AMEX. This is done through regional stock exchanges located in cities such as Philadelphia, Boston, and Chicago. Another way is on The NASDAQ Stock Market based in Washington, DC, and America’s second largest market. More than 5,400 companies are listed on the NASDAQ. To list on the NASDAQ, a company must have at least four million dollars in assets, and have half a million shares of stocks in public hands. To list on the electronic market companies, a company must pay a yearly fee of $5,000 to $20,000.

Another way stocks are traded is over-the-counter, or OTC. OTC stocks are any stock that does not list on an exchange or market. They are often small companies without lots of shareholders. Many large international companies trade their stock over-the-counter in the United States because being unlisted saves them a tremendous amount of paper work. Any company can trade over the counter if it finds a market-maker at a securities firm willing to buy and sell its stock. The market maker will advertise his or her prices in the “pink sheets” or on a computerized system called the “Over-the-Counter Bulletin Board,” or OTCBB. These prices are an indication of what the market-maker will buy and sell the stock for, and they are often negotiable, particularly if someone is buying a larger amount of stock. (Just as at the supermarket, you often get a better price when you buy a larger size). These market markers, or dealers, trade among themselves and the public, both for their own accounts and for their customers.

Investment in the stock market is a form of savings, but not the type of savings Hon Alpha Kanu referred to, it is not an osusu, the risk of savings in an osusu is almost zero, except the risk of the manager embezzling or manipulating the members. Because the osusu does not have any financial risk, it also does not have any financial reward. There is no return to the member other than collecting a large sum of money with the hope of paying it without paying interest on it. Many people also equate purchasing stocks with gambling in a lottery or taking a chance in a dice or card game. While these activities certainly share some characteristics, such as risk and playing the odds, there are important differences. First, gambling involves random chance, and it usually is a zero-some game. For every winner there is a loser; for every dollar won, a dollar is lost. Buying stocks is less random, and success in the stock markets can be shared by many without other people losing wealth. Second, the probabilities of success are far greater in buying stocks than in gambling. People who buy stocks can improve their odds of success and reduce their risk of loss.

All decisions in life involve risk. Knowing which decisions are less risky than others can help improve investor’s opportunity to benefit from their decisions. Decisions that are dependent on random chance are much riskier than decisions to place savings in the stock market. In stock purchase decisions, individuals can help determine the outcome by planning, education, hard work, and good judgment. These efforts reduce the influence of random chance.

People all over the world invest their financial resources in different forms, some deposit their monies in the bank, and others use their savings to buy financial assets like stocks, bonds, mutual funds, and insurance. These different ways of savings offers a wide range of risk and returns. For example, common stocks provided an average yearly return of about 10 percent from 1925 to 1992. Corporate bonds had an average annual return of a little over 5 percent over that time. Short-term government securities, called Treasury bill s, had an average yearly return of fewer than 4 percent. Of course there is no guarantee that these types of saving will have similar returns in the future. Still, these past averages show some of the different returns (and risk) available to savers who want a chance to compound their money.

The beauty about investing in the stock market is the theory of compound interest as against simple interest paid by investing in a savings account in a bank. When an individual invests or saves his or her money in the stock market by buying the stocks of a company, the return or dividend that the company pays out every quarter is compounded. This means that if you continue holding the stock, each interest payment on that stock is reinvested to earn more interest in subsequent periods. In contrast, the opportunity to earn interest on interest is not provided by an investment that pays only simple interest.

Life in general is about choices, and the choice that people make is not made in vacuum. Investment in the financial markets has their handsome rewards as well as the price for that reward which is the risk that the investors take. There are thus alternatives and different investment vehicles for different people with different level of tolerance for risk. If your tolerance for risk is zero, you invest in safe investment vehicles like money market accounts or savings accounts, where your risk level is low and therefore your reward is also small. You can up the ante if your tolerant level is average by investing in government securities like Treasury bills and government bonds with zero or very small risk level, as aside from inflation factors, we call such securities risk-free securities. Investors can also invest in corporate bonds, which are debts that companies incur from the public and are obligated to pay on such bonds first in the case of trouble in the company, especially in the case of bankruptcy or liquidation. Investment in stocks is for the grown-ups, and in as much as the reward is high, so is the risk. Every citizen therefore that decides to invest in this type of investment vehicle should be thoroughly educated about the company he or she is investing in, know its management structure and culture and with faith in that company decide to buy their stock with the knowledge that he or she will be getting some reward for his or her investment, and you are also buying into ownership of the company. You should also be aware of the risk that come with this decision, and be ready to squarely face the risk.

The revolutionary idea of finance is about risk, about when and how to avoid it, but also about when to embrace it. For individuals, it tells how to get the most out of whatever risk tolerance you may have, by distinguishing risk that have a commensurate expected payoff from those that do not. The Capital Asset Pricing Model (CAPM) tells how you can improve expected return on your portfolio of risky stocks without increasing your exposure to risk, simply by holding a well diversified market of portfolio and then using leverage, rather than stock selection, to adjust your overall risk exposure. This works because the risk in the market portfolio comes with a commensurate expected payoff, whereas the risk in the individual stocks may not. The reason for this is market equilibrium. In a world where people get to chose whether to take risk or not i.e. playing it safe, they will take the risk if there is sufficient expected return. The return associated with a given risk is the price of that risk, the price that needs to be paid in order to induce people to take it. It does not make sense to take risk unless you get rewarded for doing so. But also does not make sense to avoid risks that do pay, since it is the cost of reward.

Today, most stock exchanges especially the NYSE and the AMEX are rigorously controlled markets for listing securities. The stocks and bonds listed for sale and purchase must meet strict standards before they are admitted either to the Big Board of the New York Stock exchange or to the little Board of the American Exchange. A broker must be a man of irreproachable character and financial responsibility before he can be considered for membership in any stock exchange and admitted to the privileges of the trading floor.

Like all reputable brokers, the exchanges discourage speculation in stocks. In its publications directed to the investing public, the New York Stock Exchange warns continually of the risk of investment and urges the buyer or prospective buyer of securities not to invest money needed for current expenses or sum which should be held in reserve against unexpected expenses, such as that resulting from serious and costly illness. The Exchange advises consistently that anyone thinking of buying securities investigate before he invests. Look into the standing of the security and, if it is a corporation, into its management, record of earnings, and its growth prospects. The rule, as old as Rome and still advisable, was “Caveat emptor”. Let the buyer beware. The buyer of anything must beware, but the warning was particularly needed in the stock market of the 1860’s and 1870’s and for a long time afterward. Many people got trampled in business, industrial, and financial competition in those years. The world had changed tremendously today.

So the moral here is that the finance profession has built in security for the risks people take which is reward for that risk and exchanges take tremendous responsibility in educating people and also only encourage responsible and knowledgeable people to participate in their business. The risk can also be mitigated by using finance’s mechanisms or tools to guard against such risks particularly those that can be taken away by diversification. Matter of fact, there are two types of risks in finance that affects individual assets and portfolios of assets, systematic and unsystematic risk. The risk that can be diversified away as assets are added to a portfolio is the firm and industry-specific risk, or the “microeconomic” risk is the unsystematic risk. This is because information that has negative implications for one firm may contain good news for another firm. In a well diversified portfolio of firms from different industries, the effects of good news for one firm may effectively cancel bad news for another firm. The overall impact of such news on the portfolio’s returns should be zero. In this way, diversification can effectively eliminate unsystematic risk. A well diversified portfolio can therefore reduce the effects on portfolio returns on firm or industry-specific events, such as strikes, technological advances, and entry and exit of competitors to zero.

Diversification however, cannot eliminate risk that is inherent in the macroeconomy. This risk is called systematic risk, or market risk. General financial trends affect most companies in similar ways. Macroeconomic events such as changes in the gross domestic products (GDP), war, major political events, rising optimism or pessimism among investors, tax increases or cuts, or a stronger or weaker currency have broad effects on product and financial markets. Even a well diversified portfolio cannot escape these events or a security insurance policy as the one proposed by Hon Alpha Kanu that is in the current stock market bill in Sierra Leone.

A case in point is the recent down turn in stock markets around the world, because of a 9 percent slide in the Chinese stock market. China’s stock market plummeted from record highs as investors took profits when concerns arose that the Chinese government may try to tamper its ballooning economy by raising interest rates or reduce more of the money available for lending. This bad news created jitters in the world stock markets, setting the tone for United States trading on Tuesday February 27th 2007. As a result of this bad news, the Dow Jones Industrial Average began the day falling throughout the course of the session before stocks took a huge plunge in late that afternoon as computer driven sell programs kicked in. The situation was not helped by the occurrence of a computer glitch that caused a delay in the recording of a large number of trades. The Dow Jones went down by 546.20 points to 12,066.06 before recovering some grounds in the last hours of trading at 416.02 or 3.29 percent. It was the Dows worst points decline since the September 11, 2001 terrorist attack. The drop hit every sector across the market and a total of $632 billion was lost in total U.S. Dollars according to Standard & Poor’s. The repercussions continued Wednesday in morning trading in Asia, Shares in Tokyo, Hong Kong, Australia, New Zealand, the Philippines, and Indonesia, all tumbling by more than 3 percent. The regions biggest bourse, the Tokyo Stock Exchange, saw its NIKKE 225 stock index fall 644.66 points or 3.56 percent to 17, 475.07 points.

No government, even the United States and Japanese governments with the leading economies of the world can insure against such macroeconomic events not to talk about the Sierra Leone government taking a capital insure against such forces.

The other mechanism that the finance profession has to tamper or militate against such forces in price movement in the market is the structure of the financial market itself. Financial markets to operate effectively should be structured efficiently. This is because prices of securities change over the course of time. As I have just explained, sometimes identifiable news can cause assets prices to change. For example, unexpected good news may cause investors to view an asset as less risky or to expect increases in future cash flows. Either reaction leads to an increase in an asset’s price. Unexpected bad news can cause an opposite reaction. The asset may be viewed as more risky or its future cash flows may be expected to fall. Either reaction results in a falling asset price.

If a market adjust quickly after arrival of important news surprises, it is said to be an “efficient market” If the market for Sierra Leone Brewery stock for example is efficient, we should see a quick price change shortly after any announcement of an unexpected event that affects sales, earning, or new products, or after an unexpected announcement by a major competitor. A quick movement in the price of a stock such as SL Brewery should take no longer than several minutes. After this price adjustment, future price changes should appear at random. That is, the initial price reaction to the news should fully reflect the effects of the news.

In an efficient market, only unexpected news or surprises should cause prices to move markedly up or down. Expected events should have no impact on asset prices, since investors’ expectations would already be reflected in their trading patterns and the asset’s price. Every time SL Brewery’s stock changes in reaction to new information, it should show no continuing tendency to rise or fall after the price adjustment. After new information hits the market, the price adjusts; no steady trend in either direction should persist.

Any consistent trend in the same direction as the price change would be evidence of an inefficient market that does not quickly and correctly process new information to properly determine asset prices. Likewise, evidence of price corrections or reversals after the immediate reaction to news implies an inefficient market that overeats to news. In an efficient market, it is difficult to consistently find stocks whose prices do not fairly reflect the present values of future expected cash flows. Prices will change when arrival of new information indicate that an upward or downward revision in this present value is appropriate.

This means that in an efficient market, investors cannot consistently earn above-average profits (after controlling for risk differences among assets) from trades made after new information arrives at the market. The price adjustment occurs so rapidly that no buy or sell order placed after the announcement can, in the long run, result in risk-adjusted returns above the market’s average return. An order to buy after the arrival of good news may result in large profits, but such a gain will occur only by chance, as will comparable losses. Stock price trends always return to their random ways after initially adjusting to the new information.

This is primarily why the government of Sierra Leone instead of establishing a capital insurance for the stock market should establish a strong independent regulatory body with very strong laws along the lines of the Securities Exchange Commission in the United States that will write laws with very strong teeth to guide the stock market against the use of insider information, so that people or rogue business people do not use undue insider information about companies to destabilize the market and make above average profits that will destroy the good will and confidence of investors.

The Prospective SL Stock and the National Economy

Economists and established agencies as the National Bureau of Economic Research considers stock prices to be the best “leading indicator” of changes in economic activity. The stock market usually leads the economy by about four-and-a-half month to predict where an economic recession is in the offing or an expansion by an increase or decrease in their prices. Stock prices will also lead the way in showing that a recession is coming to an end by showing marked increase in prices. To paraphrase Paul Samuelson, a leading economist in the 19th century, “the stock market has predicted ten of the last seven recessions”. Thus there is a striking positive correlation between the stock market and the economy. This is because when stock prices are high, those who own stock feel richer. They tend to spend more and live in a manner befitting their new wealth. When stock prices are low, households retrench, increasing their savings and trying to rebuild their wealth.

The stock market also influences investment spending. When there is a high market value on houses, restaurants, or factories, entrepreneurs will be inclined to build more of them. On the other hand, market slump will reduce investment, which will reduce consumer spending, which will cause a rise in unemployment.

The economy also influences the stock market. This is because the primary determinant of stock prices is anticipated dividends. When the economy thrives, profits rise and dividends follow close behind.

Government monetary policy also has a huge impact on the stock market. When the central bank through the bank of Sierra Leone prints money and purchase Treasury bills, asset prices will rise and the yields on most financial assets, including stocks, will drop. These ripples will also reach real assets, thereby causing the economy to move with the stock market.

The Sierra Leone economy needs to be jump started fast and in a hurry. The economy needs infrastructure, roads, bridges, schools, electricity, hospitals in all the towns and cities, factories of all kinds, housing for its citizens. All of these new ventures are going to need capital to have them in place. The enterprises could borrow from banks and private individuals but such borrowings are usually not enough to build the plants, buy and install the machinery, obtain the raw materials and the skills they need and need in a hurry. The only way that expanding business, like government, could obtain the large sums it need is through the sale of stocks and bonds. The Sierra Leone Stock market will provide a ready market for the sale of these securities. The newly revived district and town councils are going to look to the stock exchange, to the investment bankers and brokerages of the Sierra Leone stock exchange to produce the funds they will sought through bond issues to build roads, prisons, schools, government buildings, new street-lighting systems and numerous other civic innovations.

There will also be opportunities once the stock market is up and running in Sierra Leone for investment to come from other parts of the world particularly Europe, China and North America. Institutional investors are awash with cash from baby boomers to invest especially to diversify their portfolios with international and emerging market stocks and bonds. So a huge opportunity awaits Sierra Leone if this market is organized and managed well. The general feeling today especially in the international community is one of confidence in Sierra Leone, people are therefore ready to pour money into Sierra Leone to invest in the countries future, and by inference, in their own fortunes.

I am sure Hon Alpha Kanu made the suggestion of including the Security Insurance in this bill to avert the occurrence of the great avalanche that hit the stock market on Tuesday, October 29, 1929. Indeed the panic and chaos that hit the stock market and business in general in the United States and the world was unprecedented. On this Friday now called Black Friday, billions of dollars worth of profits disappeared within a few wild hours. Everything collapsed.

In terms of the volume of business done on that day, a record was set and is still standing: 16,410.030 shares were traded. No one cheered, because these were shares worth only a fraction of their value a few days or a few hours before. They were offered for sale, virtually discarded, by the same people who had rushed eagerly to buy them. For many of these people, it was the end. Some people killed themselves. Thousands of once- prosperous families throughout the United States were ruined. Amidst all this ruin, on this fateful day, no brokerage failed. The New York Stock Exchange continued to operate in orderly fashion through the worst financial crisis the United States has ever seen.

The market crash of 1929 was the dramatic announcement of the opening of the Great Depression from which the United States did not recover until the onset of the Second World War It was a period of bank failures, suicides and widespread misery and want.

The stock market did not cause the crash. The collapse was really not one of securities but one of businesses represented by the stocks and bonds. It was caused not even as much by a decline in business as by the bursting of the over-inflated balloon of public confidence. The stock exchange merely announced the appalling facts, and by the chaos on their traditional floors forecast the chaos to come.

The aftermath of this was bank runs which culminated in massive bank failures in the United States. The federal government therefore put in place the Federal Deposit Insurance Corporation whose initiative established an insurance guaranteeing current account deposits in the United States with up to $100,000 in case of bank failure. This insurance should not be confused and make it a yardstick to advocate for the same type of insurance in the stock market in Sierra Leone.

The Sierra Leonean people and parliamentarians should revisit this bill and pass it into law without an unnecessary insurance clause in it. I am surprised that the Hon deputy minister of Finance did not put up a tough defense in parliament against the inclusion of this insurance clause. Experts in financial economics and investments should be hired to present future bills of this magnitude and importance to the economy of Sierra Leone. Hon Alpha Kanu, meant well and could have carried the day in parliament as the Awareness Times put it if his analysis of the stock market was accurate. By delaying the enactment of an important bill such as the Financial Services Amendment Act 2007 that is intended to usher in the stock market was a disservice to the job of a parliamentarian and Sierra Leone at large. Politics should stay away from important issues like this.

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