Dear Mr. Tan,
I lived for several years in a third world country. Every day, burglars ransacked the homes of the people. When the owners complained to the Police, there was no investigation.
They saw the Government leader who told them, "if you wish to live in this country, you have to take the risk and bear the loss. Let's move on".
Does this sound familiar with the minibond issue?
that is knowing the risk but what if you do not know?
ReplyDeleteThese people didn't know . They were not told. They were not told that earning 5% you would also lose 100%.
They were not told of this extremely high risk. This risk is even high than toto. At least people or punters know to wager $1 they can win
$1million but the odds against them is also one million.This is fair.
if the minibomb investors were told that they could earn 100% each year and they also could lose 100%. This is fair.For these people their investment the risk return is very low return very high risk. I am sure they would not have invested if they had information.
Informed Decision is important.
Dear Mr. Tan,
ReplyDeleteAs the former US Secretary od Defense once said:
Speech by Secretary of Defense, Donald Rumsfeld on Iraq
The Unknown
As we know,
There are known knowns,
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don’t know we don’t know.
I guess the minibond fell into the category of unknown unknown.
In the current crisis, I have lost more money that I have invested in the minibond but there are the know unknowns so I do not complaint! But with the minibond, these are the unlnown unknowns, sigh!
I think, the minibond is the "known unknowns" to the institutions and security commitee (government). it is not the unknown unkwown.
ReplyDeletethe prodocuts are known as derivative, the risks are known. But people deliberative hid the related true nature of the products (i.e. it's a swap aggreement that nobody undertstands) and related swap risk (listed in the end of the prospect but never properly disclosed / mentioned to investors).
Nobody know the 'unknown' (i.e lehman went under). But they know the known risk and deliberated hid the known risk. But the "known" risk means that the product should not be named as minbond, nor should be sold to retail investors.
I had no idea minibonds are risky minibombs until it exploded in news reports. I thought they are a diversified basket of traditional corporate bonds. I certainly did not choose the risk and to live with it.
ReplyDelete