Dear Mr Tan,
Thank you for your effort in seeking justifications for innocent investors.
While investigations do help, much could have been done to prevent this crisis from happening which started in the United States last year. At the onset, many financial institutions had been trying to cover up their losses for their exposure in the sub-prime credits and loans. The Japanese used to cover up their losses by sweeping them under the carpet. However, the Westerners cover up (or pass on) their losses (and risks) by "auditing" their books, and/or repackaged their risks and exposures into "High Yield Notes" or "Funds" to be sold to retail investors globally via local financial institutions.
Incidentally, the very people who packaged such products, so-called "investment bankers" or "funds managers" knew the risks of such products are extremely high, and also that defaults in payment by those very Sub-Prime borrowers were also high, are the same group of people who are not only "highly" educated - academically, but also people who think they are smarter than the man-in-the-street.
Long before this financial crisis erupted, as a financial trader, I had been advising people from taking risks which they are unfamiliar with. Relationship managers in banks - just how much do they know about those financial products which they had been selling to their customers? Even portfolio managers and fund managers do not know precisely how such funds are packaged! While insurance may be quite an outright product, investment-linked products and other financial investment products can never be thoroughly understood by the average fund manager or relationship manager, let alone the average investor. Such products are normally sold by relationship managers basing on their on quota(s) (not forgetting their monetary rewards) and fine tuned (in sales presentation) to suit the need of their customers.
Hence, I feel that MAS should also be fully responsible for its failure to ensure that these investment products were thoroughly "safe" enough to be marketed by financial institutions here, let alone sold by inexperience relationship managers. In addition, bankers should also be held accountable.
This is not going to be an easy crisis, but it will be one that is going to force all central bankers to clear up the whole financial system, globally. And it is going to take at least the next 5 to 10 years for it to be over. Lowering interest rates is not going to help at all since most of the financial institutions had been trying to cover up their exposures since the eruption of the Sub-Prime Crisis last August.
MT
Good analysis and sound logical.
ReplyDeleteHope the experts can comment.
If what you say is true, then it is very unfair to us retail investors.
I have doubts if MAS will get its hands dirty to admit that it failed to protect investors. Then again, was it MAS' role to protect investors given its primary aim is to fight inflation and provide for an orderly financial market where buyers (retail investors) transact with sellers (banks and financial institutions)?
ReplyDeleteMAS will say "caveat emptor" along with the banks who will try to wash their hands on this mess.
Was it negligent misrepresentation on the part of banks? Anecdotal evidence appears to be so based on comments by those investors affected by Lehman Minibonds and High Notes. The question is can they prove this during arbitration or in court assuming they have the means to take the banks to task for civil torts?
As much as I feel the pain of aggrieved investors. This is Singapore where the State can send 18 year olds to their deaths in the name of national defence. Would the authorities cry over monies?
Caveat emptor.