Is this fair?

Contributed by R Williams

Inflation keeps rising … 5 to 6%
Savings rate depressed … 1 to 2%.

Your fixed deposit has just matured, or you have some hard-earned life savings to put to work.

Like any prudent saver, you look for reasonable return, reasonable risk. You were not prepared to gamble with these savings.

You were attracted by promotional literature and bank employees touting " 5% Return ! , … Solid Foundations !, … Low Risks !, … Defensive !, …".

You signed the dotted line, "comforted" by employees from trusted institutions.

SURPRISE ! SURPRISE ! : you have just lost/risked your entire savings, buying insurance you did not know about, and placing bets against the failure of any one of 6 company names prominently marketed to you, but not explained to you that the actual probability of failure is, in fact, multiplied 6-fold, and not decreased 1/6th , or that the risks were compounded to include the failure of 10 of 150 other companies/securities you were never told or heard of. Did you suddenly change your mind and decide to gamble away your entire savings ?

Did the advertisements or anyone from the banks and FIs tell you before you signed on the dotted line that you have actually :

1) bought insurance from, and
2) swapped bets with, Lehman/Merrill Lynch/Morgan Stanley/DBS, and
3) underwrote extremely high risks with 150 companies/securities that were never revealed to you, as an owner of these products, even till today ?

Did you know that when you stepped into the bank or FI, you actually wandered into a CASINO and you unwittingly placed BETS with Lehman/Merrill Lynch/Morgan Stanley or DBS ?

Did you realize that you were not told of the REAL ODDS, unlike in a REAL CASINO ?

Did you know that you were actually buying INSURANCE protecting Lehman and the other banks manufacturing these poisonous products ?

Did you know that you were actually TRADING RISKS with Lehman and these banks ?

Were you blissfully thinking that you were just putting your hard-earned savings to work for a paltry 5% return over 5 long years ?

Were you were expected to be conversant with, let alone learn, esoteric terms like : "counter-party risks", "first-to-default", "credit-default swaps" , "collaterised debt obligations" etc , financial concepts which require deep understanding of complex mathematical models ? You had to be a mathematician, a financial engineer and an actuary ( with a real interest in probability, statistics, risks analysis ) to appreciate even a bit of what was offered, and run through complicated mathematical models to discover the full risks, not just the vigorously promoted false pretense of the "low" risk of 1 of 6 known companies collapsing. Does this not amount to deception ?

If this is the case, and the products were sold through advertisements not highlighting the actual risks of the products, and sales employees not qualified with the above skills, how can loyal and trusting customers be now ridiculed with taunts of "buyers beware" and be told that you are "not vulnerable" ?

If these products require so much specialized knowledge and skills to even begin to understand them properly, how can they be sold like a "commodity" ?

Whose responsibility is it if the mass market is sold "commodity" products which turn out to be cleverly disguised and harmful to consumers ? Should we expect the consumers to suffer the pain and anguish and "move on" ?

"Banks not out to cheat" ?

The housing bubble started to burst in 2006, yet the products were engineered and sold in 2006. In other words, when the products were first sold, they were already "destined to fail right from the start". Furthermore, by selling the products in different Series ( to give the appearance of overwhelming "success", and thereby, sucking in more and more and more victims ) and, to even continue selling in 2007 and late into 2008, with full knowledge of the rotting "underlying securities" ( "liar loans" in US mortgages which made up the CDOs are loans with no chance of repayment as they were given without any proof of income nor collateral ), does this not show intent to defraud ?

Yet, no visible action is being taken to punish wrong-doers, especially the discredited "investment" banks, whereas in the United States, State Regulators and the Courts have been UNIMPRESSED with, and REJECTED the banks' defence of "buyers beware" and " caveat emptor" . Instead, banks there have been fined heavily and forced to completely return billions to individual customers, Municipalities ( Town Councils ), School Districts, etc.

Perversely, over here, lower-level bank employees are now becoming the second wave of victims.

The original victims and their loved ones are the people ridiculed and labelled "greedy" ( for 5% return on savings locked in for 5 long years ? ), "not vulnerable" ( for being under 62 and educated ? ), "they deserve it for trusting people" ( for believing in the banks and FIs ? ), "hard luck" ( for not keeping tape-recorded evidence of conversations, for not disputing what was hurriedly written about them, for not doing due diligence on 85-page prospectuses, for not knowing they were in a betting game of trading risks with counter-parties, etc).

For being simple-minded human beings, the 10,000 victims are the ones punished, trying to be prudent savers. Now, we have a second wave of victims.

Is this fair ?

R Williams