Wednesday, February 04, 2009

Relief loans to replace loss of earnings

First posted on 18 Nov 2008

PM Lee said that our finances are sound. The Government will implement measures to stimulate the ecoomy.

The recent methods to stimulate the economy are:
a) Spend on infrastructure works (i.e. Singapore and China approach)
b) Give money to the people to spend (i.e the US stimulus package)

These methods are good. I wish to suggest a third method:
c) Allow each person to apply for a relief loan for the loss or reduction of earnings

Here is how the relief loan works:
1. The borrower can apply for a relief loan to replace the loss or reduction of earnings.
2. This loan will carry interest at 2.5% p.a.
3. The total borrowing can be subject to a cap of say $50,000
4. The loan can be repaid at any time, when the borrower has excess earnings.
5. It will be a first charge on the sale or your property or CPF savings
6. The CPF savings cannot be withdrawn for investments, while there is an outstanding relief loan

The relief loan will help the affected person to pay the mortgage and carry on the daily life with dignity. This facility will provide the assurance for the employed people to carry out their daily life without cutting back on their expenditure drastically, although they are expected to be more careful and frugal. They will follow SM Goh's advice to continue to spend and keep the economy moving.

If mortgages continue to be paid, the property values will be somewhat protected. The fall will be modest. The lower price will encourage other people to buy properties.

How does the Government manage the task of assessing and approving these relief loans? I suggest that they outsource it to the banks and the financial adviser firms, who will carry out the assessment to the expected standard in return for an agreed fee. They have many representatives who can be retrained to process these relief loans. It will create useful jobs for these representatives.

This concept is especially relevant to Singapore, as we do not have any unemployment benefit. A relief loan can be a good alternative to help the affected people.

11 comments:

  1. These comments might sound contrary

    Think about it, this Nation has been trying all its means to avoid falling into the trap of the welfare state, so even before i would disagree, it might not have gone thru

    Critically speaking, theres no problem with the concept of the loan, except the repayment part

    What happens if the debtor declare bankrupt after much pursuance from the different entities, what if he simply vanish

    Who will go after him, whats the appropriate approach, for how long, at what costs

    What if he was injured or suffered illness in the cause of repayment, what happen to his creditor(s), who might or might not cause that injury directly or indirectly, what about his insurance

    What about his family

    Theres too many many grey areas.

    ReplyDelete
  2. i disagree with more spending to save the economy.. SM Goh talked abt the paradox of savings - ie on individual level, higher savings will increase wealth but on aggregate, higher savings will slump the economy..

    this is plain wrong.. higher savings on aggregate will always increase wealth.. the explanation given by f.a.hayek http://mises.org/story/2804

    i dont agree with loans to prop up property market at controlled interest rates.. whats wrong with lower property prices?.. perhaps property prices are way too high thanks to banks printing money out of thin air?

    also, property has been mistaken as an investment asset when it is actually a consumption asset - the public benefits from a cheaper plate of chicken rice, so why artificially prop up prices of chicken rice?..

    i also dont agree with public works just to keep employment high, all this does is build more white elephants and tie-up real resources at the expense of other industries..

    my views are largely unpopular.. but it may be the right thing to do to prevent a longer than necessary depression..

    despite all the price controls and gahmen spending, the great depression lasted > 10years.. perhaps it would have lasted 5 years without all the gahmen "help"?

    ReplyDelete
  3. Kin Lian,

    Your idea work for those with CPF ordinary account savings in excess of $50,000 and/or has a home.

    Since the loanee can pay anytime there would be potential social problems of trying to recover the loan and its interest.

    The Govt second approach is good enough.

    I suggest CPF must not be touched unnecessarily because that is a retirement nest. Hence the regime will not agree.

    ReplyDelete
  4. Siew Khim,
    For once you talked sense. Keep it up! You are not a bad person afterall.

    !

    ReplyDelete
  5. The proposal by Kin Lian is either Good or Bad.

    1. If it is a GOOD idea, the ruling government will not take it. Because it shames them that their superior brains think tanks didn't come up with it first, but rather have to rely on a Tan Kin Lian ex CEO to suggest it. PAP is a very proud system and will never swallow their pride to accept an idea from someone which is a torn in the flesh anyway (to them).

    2. If the idea is BAD there is nothing to discuss. Indeed some people on the forum didnt like the idea i think.

    So, for me the post has no meaning other than a form of amusement. We live in Singapore long enough to know that you can't tell Papa PAP to do things. They are highly sensitive party, follow-the-leader party, not particularly creative, in my opinion. Dare I say too, that they are THE Papa, just listen and shut up, we are destined to live this way.. in an authoritarian regime managed by leaders with a holier-than-thou mentality and never admitting their mistakes. Sudah lah!

    REX

    ReplyDelete
  6. Method B is NG. Already, the tax cuts from Bush in US were given to households, but most do not spend but save that money. So, the desired effect did not materialise. Similarly, most japanese polled said they do not want Taro Aso to give them money to spend. Taiwan is giving out coupons to purchase necessity items. For Sg, just cut the GST to 3% should be the logical way. Your method has good intentions, but there is also the "lender of last resort or TCC" as reported in the Straits Times that charges lower % than banks. If need be, CPF board can offer an option for both employer and employee. The option is instead of 14.5% contribution by employer, employee to choose to receive 12% cash instead. This should lower costs for companies, so that they can avoid or delay retrenchment. This should be done together with HDB such that those taken HDB loan can temporary stop monthly installment via CPF deduction. Of course, the longer they prolong the tenure, the more interest they would pay.

    Ch

    ReplyDelete
  7. Sir - I cannot remember our government will gladly accept ideas from the outside and acknowledges its merits, much less implement your ideas - mostly ideas not originating from the establishment are more often than not derided and viewed negatively, more so from independent minded people like you, Mr Tan who can offer alternative viable ideas, they probably view you as a threat to their authority and mandate to rule.

    So far you have proposed many ideas on transportation etc and even offer to let the official take credit for it, but have any official response positively to any of your suggestions?

    ReplyDelete
  8. Here is the stimulus package adopted by Taiwan. It is similar to USA. Give money to every citizen to go shopping.

    http://news.bbc.co.uk/2/hi/asia-pacific/7735027.stm

    I prefer the relief loan scheme for people who suffer a drop of earnings due to the recession.

    ReplyDelete
  9. To Ym; I agree with your point of view on property. Property prices are not just the product of excessive liquidity. S'pore is unique in this situation as property remains the top S'pore investment because thats where most plough their CPF savings into (there are little alternatives). This translates into an enormous amount of money propping up the prices. While some deem a property as an attractive long term investment, I do not like that it is not as liquid.

    On propping up white elephants, the right thing to do is allow the markets to function and allow the inefficient to fail. Case in point would be the US gov as they are now fighting in congress to save the cumbersome GM, laden with unrealistic healthcare liabilities and an inventory of energy inefficient cars.

    If a company was not doing well EVEN during the boom period 2004-2007, why would one be surprised that it is unable to carry on in this period of global slowdown and global deleveraging?

    Say for the sake of saving X no. of jobs, the US gov pumps in billions of taxpayer money to prop up the company, will this save the company and the economy? Or will it delay the fallout and eventually make the crisis more drawn out? The latter would be the most likely outcome.

    For the world to recover from this fall, resources must be put to better use.

    ReplyDelete
  10. Today news (19/11), credit cards loans went up by $840 million from one year ago (up 18 to 19% from a year ago).

    This amount out to around S$5 billion where interest is charged upto 24%. Many cardholders and their families are suffering by paying such exhorbitant interest rates.

    This area should be seriously reviewed.

    ReplyDelete
  11. understand e real economy & producer, the failure this round is GREED CAPTITALIST, & SE is greed to greet capitalist as instrument of economy, e end fall shall be hard with everyone (in e govt)herding in e belief of 'money' & nothing to generate e real simple basis of economy like our grandparents' time, what do SE have besides building, cars, paper money & people, of course now with casinos, greed abounds!

    ReplyDelete