Tan Kin Lian's Blog: George Washington and the cherry tree

Tuesday, November 18, 2008

George Washington and the cherry tree

A legend is told about George Washington as a boy. Young George had a new hatchet and with it he cut down a small cherry tree. When his father saw the tree, he was angry. "George," he said. "Did you do that?" George was afraid to admit that he did.

Nevertheless, the boy decided to tell the truth. "Yes, Father," he said, "I cut down the cherry tree with my hatchet. I cannot tell a lie." George Washington's father was proud of George for telling the truth.

Moral of this story
1. No investor would have bought the credit linked notes, if they were told that the real risk is 10 to 15 times of the risk of default of a single entity.

2. The financial institution would not have sold this type of product, if they know that it was toxic and very high risk.

3 The authority would have not "registered" the product for sale.

I hope that the moral of George Washington's story will encourage the parties to come forward and say, "I cannot tell a lie. I made a mistake to buy/ sell / register the product."

17 comments:

Anonymous said...: Dear Mr. Tan,
I think this sum up all the issues.; November 18, 2008 8:41 AM
Anonymous said...: I would like to hear financial advisors of banks selling toxic minibonds and structured productcs comment on this:

"Would these financial advisors waive all rights to an answer or legal recourse if they went for an operation and the surgeon did not tell them the whole risks or mis-represented the operation to them and the operation went wrong?"; November 18, 2008 8:54 AM
Anonymous said...: I read the author as trying to say that everyone; investors, FI and regulators should own up and admit their mistakes. All are responsible for the mistake made and should share the co-misery. Divide it equally, everyone should loose one third of the loss amount and it is fair for investor to get back two third of their investment. Comment.; November 18, 2008 9:13 AM
Anonymous said...: Mr. Tan,

You should also come forward and admit that the expensive whole life and endowment which you introduced when you were CEO of Income was a mistake. Income has a huge market share and the number of people who had bought WL and endowment during your time is almost countless.; November 18, 2008 9:30 AM
siewkhim said...: Kin Lian,

The difference bewteen Gorgei's story and the toxic products is that in the case of George telling the truth earned him praise fro daddy. In the case of toxic products, telling the truth would mean having to cough out S$100 millions to compensate the victims and place the FIs and RMs into potential litigations and total destruction of the trust in the banks. No FIs or insurers will admit their folly. Would you if you are CEO of an FI?; November 18, 2008 10:41 AM
Anonymous said...: Mr. Tan,

Well said. There is no shame in admitting one's honest mistakes, or negligence, or even ignorance. The key is to make good the wrong that was done to innocent investors.

Since the wolves stole little red riding hood's food meant for grandma, and one of the wolves died of a heart attack, there are still a couple of wolves out there dripping toxic saliva waiting to pounce, so investors, financial institutions and regulators, watch out and stay away from them.; November 18, 2008 10:42 AM
Anonymous said...: Yes, I think this sums up all the issues.

As an investor of minibond, I admit that I have been careless and too trusting on MAS (for 'registering' the product for public sales) and the FI for advising me that my money is only invested in the 6 'solid' reference entities only. I agreed to bear part of the loss for being so careless and trusting.

I am still waiting for MAS and the FLs to admit their failures.

Patrick; November 18, 2008 12:05 PM
Anonymous said...: I feel this story tho close is not entirely there yet, should be taken with pinch of salt

First the relationship betw the 'prosecution' and 'defendent' is blood. This case, its lucky if theres even any moisture in the crackling atmosphere.

Second, becos of the above underlying bases of difference, this case its almost like a zero sum game - whoever admit fault will almost certainly be whacked with 100% accountability

Worst, theres almost no refereeing, or even if there is, the refereeing itself is 'questionable' at best

In such ambience, its completely understandable NO ONE will want to step up and say its my fault, no matter big or small

Everyone is waiting, if not already accusing, the other party response.

Then like that Everyone can wait forever. Or can EVERYONE

On this premise alone, i think MANY would be able to tell from clear markers whos losing end, whos winning end; November 18, 2008 12:52 PM
Anonymous said...: To Ano 8.54am and Ano 9.13am.

Good observation.

Yes, MAS, distributors and investors all played a role in this fiasco. Hence they have to share the blame, and that means sharing the loss on an equal footing.; November 18, 2008 12:52 PM
adego said...: blood is thicker than water, afterall, George was smart enough to identify, a daddy's compassion.

in the case of these toxic products, there is 'conflict of interest'; November 18, 2008 3:43 PM
Anonymous said...: Hello,
I follow this blog religiously especially on the lehman stuffs. However, I still cannot find the answer to the following two questions, can somebody advise me,

1. Was there the customary 2 week free-look policy when these so-called toxic stuffs were purchased? I know that when i buy insurances, etc. there is a standard free-look time period, during which i can cancel the purchase (indeed, i have done so in one particular case with NTUC INCOME. No questions asked).
2. Is it true that CPF money can be used to buy Lehman Minibonds, OR Pinnacle Series stuffs?

I feel that the above are important questions which will lead to a fairer and objective judgement of this complicated situation.

Thank you sir.; November 18, 2008 5:56 PM
Anonymous said...: siewkhim,
always quoting your nonsense as it make sense to you.

If TKL has been the CEO of the FI, he will have prevented the product from been introduced in the first place and condemn such scamming product. Without such product, how can the scam cause restive unthinkable damages ?

But think of it, without this debacle, how can we know there are such crappy useless person such as siewkhim ?; November 18, 2008 7:21 PM
Anonymous said...: No look see period but its not a hard fast rule under certain circumstances

any one can STILL raise a query for clarification AFTER signing and in the worst case scenario of a geninue dispute, bring forward this case to FIDREC within that time frame and his/her case would have stood a MUCH better chance (of full resolution and settlement) than it is right now

the two problems here are they never ever feedback after they signed and walked off, worst yet, complained ONLY AFTER they found out they made losses

whats that different from adults crying over spilled milk; November 18, 2008 7:51 PM
Anonymous said...: The trees are all the trusting customers of the bank. Poor faithfull customers who succumb to the lure of the representatives of these banks who sold their toxic products shamelessly and so unfairly in terms of risks over returns. CPF 4% returns are virtually risk free while High Note 5 with 5.5% and a lock-in period of 5.5years was exposed to risks even much higher than stocks with regular dividens offers. The irony is most investors in the dark and could not understand the complicated terms like credit event and what its impact would be.
George Washington has good morals. I certainly hope that the banks will be like wise too. People are suffering because of this unfair traiding and the contracts are certainly not fair to all the vulnerable non institutional depositors. I wrote because my best friend who has invested in high note 5 lost a very substancial amount of her savings meant for her retirement and her 2 lovely daughters futures.

Tennyson.; November 18, 2008 10:19 PM
Anonymous said...: Dear Mr Tan,
I believe the majority of those who invested are not greedy but was not told the truth about the ultimate risks by the bank or their representatives. Any sound person would not place an investment to be locked in for 5.5 years and in return promised 5.5% return annually if they know for a fact that their money may vanish.
Compare it with 4% given by CPF for medisave or special account, and any Singaporean would agree that the principal should be risk free to be fair. 5.5% return for this duration is not glamorous at all. Illegal money lenders charge 20% per annum and the odds of having to loose all their lendings are bleaker?? Even a normal investor in common stocks who hope to have higher yields are better off seemingly as they have a ready exit platform to cash out.

Has the bank provided to these customers a platform to exit within the investment period since it is so volatile. If so, are the customers properly explained to?? It looks like the fate of these depositors once departing with their money completely depended on the banks they trusted so readily.

I fully agree that this product should not be sold to the widows, retirees, single mums, jobless at all as they will certainly not commit if they are adequately told of the risks involved for only 5.5%return and having to forego using these monies for a good 5.5 years. Surely we must not think that these "depositors are greedy" The deal for this duration is only fair to any logical person who expect that their capitals will be protected.

It is also not fair to think that a literate depositor enters the application for these products with sophiscated terms like credit events, 7 baskets, financial ratings etc with full knowledge. The key is the dealis notfair at all. Imagine most bought at the bank premises because they trusted the bank and obviously and instantly alligned their transactions to be liken to a long term deposits which promised a higher return. After all,forgoing the use of these monies for 5.5 years in return for a promised 5.5% is only fair for their capitals to be protected. It must not be assumed that just because their signatures are all over in the application forms, they have entered into the contract fairly. and that they are with full knowledge and and agreed with the ultimate risks. It is the culture for any customer in Singapore to sign on all documents upon opening an account with the bank. Do they have a chance to read??? Do they know that their capitals may vanish even before the expiiry date. It is certainly not a fair contract.

Ironically, the widows, single mums, jobless,retirees and the like who trusted the bank and its representatives and responded to the product possitively did not get a fair deal and will loose all their capitals meant for their own dependants and future just because they have signed on the forms. Very sad situation and surely a very dark history has been created with regards to the good faith on the banks part.

I write because I know of a dear friend who lost a substancial portion of her money meant for her own retirement and also for her two lovely daughters livelyhood and their future education. Just because she believe her deposits could give her a little more interests in exchange for a much longer lock-in duration of 5.5 years. Just because she is literate she is assumed to have been explained to and accepted the risks because she has ritualistically signed on the application papers.

Indeed George Washinton truthful spirit was not present and my dear friend's good faith has been exploited. Where is the conscience of the banks???????????????????? Profits must be achieved fairly.; November 18, 2008 10:19 PM
Anonymous said...: I used to read this forum alot. But not any more. Why you may ask. It's because TKL is biased in his choice of posts. Anything critical of him or his points, he choses to self censure. Only posts that support his thinking and values then he will post on his forum. A forum need to be balanced and not totally one sided.; November 18, 2008 11:09 PM
Anonymous said...: To 11:09pm,

This is a blog and not a forum. There is no need to read this blog if one is not keen.

However, I do worry that many uninform people read this blog like gospel truth. Mr. Tan is also creating liability to himself by advising on financial matters. Some of the advise given in this blog is so specific that he might be in violation of the Financial Advisers Act.; November 20, 2008 6:29 PM