Tan Kin Lian's Blog: Reply to Today Paper - "Structured Products ....."

Thursday, October 30, 2008

Reply to Today Paper - "Structured Products ....."

Editor
Today paper

Dear Sir,

I refer to the article by Christie Loh entitled "Structured Products: Let's not forget about personal responsibility" in today's TODAY.

The writer appeared to be supporting the banks in shifting the blame to the investor much as the rich and powerful people like Prof. Lan Luh Luh of the NUS in that regardless of situation, product or organisation, consumers must be at the receiving end of caveat emptor.

I can agree if the consumer is an experienced investor, but certainly not with the average man in the street who have been assured by these bank relationship managers that Lehman Brothers, et al, are infallible, and with Singapore's biggest and most trusted bank, DBS, selling the products nothing can go wrong.

It is the element of TRUST that even the fairly experienced investor would be persuaded to trade in for the caveat and when things go wrong, the bank, and sadly, the influential academics and the politicians are singing a different tune: it is still caveat emptor, serve you right!

The manner in which these structured deposits and minibonds are sold have mislead most consumers to believe, and were actually told by the relationship managers, to be another form of time deposits with a fixed interest rate and a maturity period. Unless one is a CPA or trained financial analyst, one would not have associated such instruments as a form of investment with the accompanying risks.

Given this scenario, even fixed deposits and current account balances are no longer safe although the government has temporarily given its warranty during the current financial crisis. Does this mean that once the warranty expires, depositors would have to revert to the caveat emptor principle and keep less than $20,000 with any one bank?

If that is the case, then we should all shop for a safe and keep the excess cash at home once the warranty period expires: better safe than sorry.

James Tan

16 comments:

Everlearning said...: Evidently, there are two schools of thought. One, is that the banks or financial institutions need not compensate the investors.
Another, is that they have to bear certain responsiblity, thus make some kind of compensation to the investors.

It doesn't matter which school of thought you belong. It does matter what is the right thing to do right now.

Obviously, the answer is very clear-cut, but when someone or something is on denial mode, nothing can be achieved.; October 30, 2008 2:28 PM
Anonymous said...: Bravo, James. Only you have not taken the PM and MAS to task for he was the one who mooted the idea of Caveat Emptor to stimulate the financial indsutry, to create the financial hub to challenge HK, resulting in throwing caution, ethics, the FAA and the SFC laws into the Singaopore sewage canals.
The ignorant professor has echoed like a sheep blaring the official tune in the hope of a getting credibilty and promotion. Such cheap exploit.The Harvard graduate is a spent, dumb , numb MD now, the event is too much for him.; October 30, 2008 3:28 PM
Anonymous said...: Long before the Lehman debacle, there has already been complaints of mis-selling. I have many newspaper cuttings of these from ST forum dated from 2003 to 2007.

One writer even lamented why nothing was done by the authorities despite the issue being raised for many years.

Will the authorities do "something" this time?

But even if the authorities do nothing, one thing good that come out of this saga is that such "rubbish" products will not be on sale anymore or will there be so many RMs. Market forces and loss of trust, not the authorities, is the deciding factor. So the 10000 or so victims will be remembered as "sacrificial lambs" for this outcome.; October 30, 2008 3:30 PM
Anonymous said...: Those bookworms living in the ivory towers can never understand the plight of the ordinary people.; October 30, 2008 3:57 PM
Anonymous said...: Hi Prof Lan we didn't invest things that we dont understand just that we r too trusting n naive to listen to our RM and its not high yield with double digit returns we r stupid to be coned n cheated by the FI n we r not begging for free lunch, we r just too naive when RM told us that its AAA+ rated "low risk' as safe as the Fixed Deposit when I went for renewal. So dont just jump into conclusion in the comfort of your off. I didnt 'invest' i just place FD, the yield is just 1% more than my FD. Pls do some study before u speak dont hurt us anymore. I'll not trust the bank or anybody from this painful lesson. All fellow victims dont every buy any "BOMB" or "PRODUCT" from bank. Once bitten twice shy.; October 30, 2008 4:22 PM
Anonymous said...: Did he read about his fellow professor being conned into buying Lehman porduct?

Did he read newspaper? I would advise to read these articles published on ST:

*Credit Swaps play vital role too - By Oliver Chen and Duan Jin-Chuan (28 Oct Page A17)

*A new check-and-balance order - By Lim Chin and Sam Ouliaris (29 Oct Page A22)

*Which credit products are suited to the masses? - By Oliver Chen and Anand Srinivasan (29 Oct Page A22)

Flashpoint Leadership on Rallying and motovating the masses - By Kai-Alexander Schlevogt (30 Oct Page A23)

The Behavioural Revolution - By David Brooks (30 Oct Page A23)

*Sigh* So disappointed!!!Talk & thot like a man on the street.; October 30, 2008 4:44 PM
Anonymous said...: i know of CPA who bought minibonds too...; October 30, 2008 5:57 PM
Anonymous said...: In conclusion, not only farms and factories in other country sell toxic products, our local and foreign FIs here also sell toxic products! What a cheating, unethitical and dangerous world!

cheated; October 30, 2008 6:48 PM
Anonymous said...: Has Singapore reached a stage where no one can be trusted?

On Wednesday, October 22, on prime news in the ST, Chief Justice Chan Sek Keong said: "Lawyers collectively should have felt extremely embarrassed, if not ashamed, by the Straits Times report that six out of the top 10 fujitives for this kind of offence (running off with clients' money) were lawyers."

Now banks are just as untrustworthy. Together lawyers and bankers are the two pillars of society whom we trust and should trust. But both have betrayed us.

James Tan said it precisely that it is the trust that we are expected to place on the banks and the manner in which the structured deposits were sold: AS DEPOSITS WITH REGULAR INTEREST PAYMENTS.

Now that things turned sour, the 5-year time deposits suddenly become some sort of investments and the victims are chided for not reading the fine print (most either could not read English or couldn't understand the jargon) and did not exercise a strange term called "caveat emptor".

Sadly, even our political leadership is doing nothing but empty talk and putting the blame on ignorant, ill educated retirees.

Perhaps it is time that all Singapore citizens should exercise "caveat emptor" each time the politicians, the bankers and the lawyers speak.; October 30, 2008 8:09 PM
Anonymous said...: It is easy to say If you don't understand, dont buy.
On the surface, the product is so simple, it give you a fixed interest every half-yearly.
I asked the adviser if it is safe? The adviser said the big names must hv calculated carefully, and are/is very comfortably to pay the interest, plus the principal back if you can hold to maturity. Otherwise the reputation may be at stake.
It is so simple, and it is the trust that many buy into such products.
If is trust is loss, it will be very difficult to gain back the trust. People will remember it for a long long time.; October 30, 2008 8:42 PM
Anonymous said...: Anonymous Anonymous said...

Has Singapore reached a stage where no one can be trusted?

8:09 PM

i read this like a joke

YOU MEAN YOU DONT KNOW YET!??

No wonder.. oops sorry didnt mean that.; October 30, 2008 8:53 PM
symmetrix said...: In a recent newspaper article the PM said

" First of all, government should not be making decisions for indivduals; individuals should have the right to decide for themselves according to their circumstances, their preferences and, their needs".

PM further said that by over-regulating, the govt may appear to be paternalistic, and he doesn't want that. There are several examples when the govt is already paternalistic eg:-

1. Imposing a levy of $100 for Singaporeans to enter casino. Why? Do not want ppl to lose $$$ in gambling.

2. Not allowing ppl to take out ALL their CPF monies upon retirement, and forcing them to set aside Minimum Sum which is increasing yearly. Why? Do not want ppl to squander their $$$ away upon retirement.

3. Telling ppl who to marry and how many children to have.

If these are not examples of being paternalistic, I don't know what is.

Double standards at work?????

VSL; October 30, 2008 9:33 PM
Anonymous said...: If financial product are simple and to be sold on caveat emptor basis why not display on the supermarket shelves or virtual super mart. We buy if we can understand and we don't buy if we don't unmderstand . Don't you think that will be fairer/ We don't blame anyone or blame Fundsupermart or Dollarex if we lose. Yes it is buyer beware.
If the structured products were displayed that way or sold through a portal i believe no one is going to blame anyone.It is buyer beware. And becuase not many understand not many will be burned by the minibomb.
But if you add another element, the human, into this buying/selling process trouble will start. Because the human can influence your buying by inducing, mis-selling, misrepresenting, lying and use all sort of means to induce to buy. This is exactly what the FIs and the insurance companies want, to get the customers sold. Hardly any customers buy financial products that they don't understand unless influenced, pressured, arm twisted, cheated, hood winked and hypnotised, forced or at gun point. These are exactly the means available for use by the RMs, insurance agents, consultants and the FIs.That is why structured products are sold and not bought.
That is why life insurance products are sold and not bought.
Because in selling ,the RMs and agent can cheat the customers into buying rubbish products which benefit them and not the customers.

Jay; October 30, 2008 11:24 PM
Anonymous said...: It's so sad and worrying that we can no longer trust even established institutions, not just financial ones, to be ethical even if it's for profit.Where is Singapore heading? When business models are the norm of the day, it's 'survival of the fittest' -- the law of the jungle.; October 31, 2008 10:44 AM
Raymond T said...: I am going to look for a tin can to stuff my money in. =); October 31, 2008 6:41 PM
Falcon said...: I believe our govt can do more to turn the tide of events in the short term. They are also able to do more to change the money-faced culture in the longer term in the interests of Singapore.; November 01, 2008 1:48 AM