Tan Kin Lian's Blog: Can investors understand CDO?

Monday, October 27, 2008

Can investors understand CDO?

Dear Mr. Tan,

Financial Times interviewd Dr. Tony Tan in Feb 2008. Dr. Tan said,

"We believe that one of the reasons why we have, for example, weathered these CDO difficulties well is because we have always put risk management as a very high priority. We studied CDOs on many occasions in the past several years. We could not understand who was bearing the risk there. We looked at this many times and we decided several years ago, as a policy, that we will not invest in CDOs, so we have no direct exposure to CDOs at all. Of course, we also invest in funds and they invest in CDOs, so indirectly we do have some exposure, but as far as direct exposure is concerned I think our risk management framework works quite well."

If GIC admits it does not understand CDO risks, how can MAS MD said, "There will also be a group he described as 'knowledgeable and experienced. This group should have understood the risks of investing in these products and take responsibility for their actions."

18 comments:

Anonymous said...: You must understand the HARVARD graduate was just a mouthpiece for somebody.He is a lame duck. What does he know about CDOs or CDSs or is he pretending he knows. A team of GIC analysts couldn't understand but he understands. He should be seconded to GICs. Lucky they didn't otherwise the ppeople's money would gone down the drain.; October 27, 2008 11:36 PM
Anonymous said...: Now the truth is surfacing. We are beginning to see the different views from different people. The MAS has one view, GIC has one and now PM thinks that there are too many game rules. I hope they can sort it out and put things in better perspectives.
We want to hear from the investment arm GIC coming out to tell MAS that these strutcured products are complicated stuff and if they couldn't understand how could the man in the street do.
Second, to tell this Harvard trained MD to be more independent and do what is right instead of waiting for orders from above.
Thirdly, MAS must realise that there are too many rules and each player has its own rules of internal governance . The insurance agents have few sets of rules , the product selling rule, the product pushing rule, the lying rule, the product packaging rule, any rule so long the products are sold.
The RMs have their own set of rules, ethical ones another rule.
But there is only one FAA. Where do all the rules come? MAS....MAS lets the FIs have different rules to suit themselves because MAS said that FIs are at different stage of maturity and development therefore they need the flexibility
to see them get prosperous or profitable? The FIs take advantage and play their own house rules with the blessing from MAS. MAS bochap as long no complaint from public. The problem is public has no idea how to complain. It is evident from current debacle that without MR. Tan's leadership the investors would have been scattered
and would have been taken advantage by FIs. MAS's hand off aggravated the situation and uncertainty.The investors are lost.
So do not think there are no complaint against the FIs and the insurance agents and the RMs.It is the investors who have no idea how to complain and some are scared.
PM has said it correctly that there are too many rules. There should be only one set for all and for the RMs, the consultants and insurance agents it is the section 27 of the FAA that governs their behaviour with consumers. Breaching it is punishable and MAS must proactively enforce and not wait for complaints, it will be too late.
If MAS is serious about it start auditing all insurance agents who qualify for mdrt, cot or tot. MAS should not be shocked if they find everyone breached section 27, mis-selling and misrepresentation
otherwise consumers may accuse them of sleeping or condoning to these malpractices..
One rule for all players and no kelong referee.

Fair Play; October 28, 2008 12:18 AM
Anonymous said...: Well, the MD of MAS once said that, "losing to Hong Kong is not option." So we compete in launching Minibonds and Commodity Warrants. Now things get ugly. HKMA is doing something for the investors, but MAS is not competing with Hong Kong in this aspect.; October 28, 2008 1:05 AM
Anonymous said...: I suspect from the way the MD presented to the media, the script is likely to be written for him from a scholar of MAS. He may not know what he is talking about.; October 28, 2008 1:42 AM
Anonymous said...: I totally agree, giving the benefit of adult a scholar must be humble and be prepared to learn from mistakes and apologise. A respect need to be earned. NO wonder Singapore need to have Gracious Awareness. Not one who insist on being right, listen to the FIs and FAs who protect their own interest and ignore the investors. Since the regulatory is a very important and to date it has tarnished its own reputation, I hope our PM will step in to do a revamp, hopefully for the better. He has done a great job as Finance Minister in revamping the Financial Industry in 2000, maybe he is needed to do another revamp. Let there be level playing field in the FIs and FAs industry and all govern under one rule. If they fault, fined them heavily or suspend them, let public know and shame them. There should be independant advisers rather than people who own business, afterall they protect own interest which is current practise. I hope the media will take Mr Tan's Blog seriously and do a review and segment to highlight the merits.; October 28, 2008 6:02 AM
Anonymous said...: This article is quite clear.
I remembered reading somethings like this in newspaper, but not so detailed and I could not find the article.
Well done Mr Tan. This is a good piece of information.; October 28, 2008 7:01 AM
Anonymous said...: An investor can be experienced in investing stock and shares but not structured products. You can only call a person knowledgeable and experience in Minibond and similar structured products if this person has been a trader in Capital and/or Treasury markets or is an analyst from investment bank or broking houses. Ordinary investors may be considered experienced in stock markets but not in structured product market. It is only with hindsight that the "injured" investors learnt from their own mistakes of trusting the FI (RMs) and the regulator.; October 28, 2008 7:18 AM
Anonymous said...: Is it safe to say that we have some of the spore's "best Financial experts" in GIC?
If the best fin experts also decided years ago that such CLS should be out of touch, how can they be sold to retail investors?

Hv msa & FIs done any risk analysis, and decided that they are safe/suitable for the poor retail investors?; October 28, 2008 7:58 AM
Anonymous said...: You all have very good points, but can they be heard by MAS? Until now, do they know the whole picture?; October 28, 2008 8:07 AM
Anonymous said...: 11.36pm,
You dont have a valid arguement. GIC does not know and understand does not mean that MAS does not know and understand. It is the same arguement that TT does not know does not imply that GCT does not know either.

For all you know, may be MAS has a better team than in GIC.; October 28, 2008 8:43 AM
Anonymous said...: Anonymous said...

You all have very good points, but can they be heard by MAS? Until now, do they know the whole picture?

8:07 AM

think u missed a couple words

do they CARE TO know the whole picture?; October 28, 2008 8:54 AM
Anonymous said...: It should be:

DO they bother to know in the beginning?
Do they bother to know when the backyard is about to be on fire?
Do they bother to know when the backyard is on fire and about to be burnt down?

***Sigh***I give up!; October 28, 2008 10:07 AM
C H Yak said...: This group of "investors" ought to be leading MAS & GIC since they were so good.

It would be OK for them not to claim for mis-selling now and be assured of future posting at MAS & GIC.; October 28, 2008 1:25 PM
Anonymous said...: Well done, gyc, we are proud of you. It show that our money is in good hand.
Even the best fin experts in spore decided years ago that such product shd be totally avoided.
It is only fair that if investors can prove that they are risk adverse, they should be entitled to full refund because there is clearly a mis-selling!; October 28, 2008 9:37 PM
Anonymous said...: In the first place, all strucutured products should not be sold at all since they are against 'common' economic logic! Yup, the Authority should outlaw ALL these products, thus all victims should be fully compensated instantly without (education) discrimination!; October 29, 2008 3:01 AM
Anonymous said...: Luckily we still hv good fin experts like Mr Tan & those in GIC, who knows years ago that such CLS are bad, and should be avoided at all costs.
Even some experienced and knowledgeable people like professionals or teachers of finance can also fall into the trap and loss money.; October 29, 2008 7:27 AM
Anonymous said...: When will Singaporeans ever understand that the so called talents that they have sourced are actually not as talented. When can Singaporeans ever realise that the govt policies of importing foreign talent is backfiring when sharks and barracudas were also imported and treated like royalty and facilitated to prey on the local population. When will Singaporeans realise that we are not having leaders now but just plain mediocre managers?; October 30, 2008 2:01 AM
Anonymous said...: Dr Tony Tan says even MAS does not understand CDO's. Why then MAS approves these high risks products to be sold in the heartlands?; October 31, 2008 10:09 PM