Tan Kin Lian's Blog: Selling toxic CDO products

Friday, November 21, 2008

Selling toxic CDO products

Hi Mr Tan,

I should think that the FIs cannot be forgiven for miselling the toxic CDO products. Take for instance the pinnacles notes. Various series have been launched during the past two years. Upon the launching of series 1 , the FIs should have been aware of where the money have gone into and the details of the 100 over companies where the money are invested. Is it justifable that if 8 out of the 150 companies went bust then the investor will lose all the money? Is this a high risk or a definite gone case investment? I believe the FIs know the answer.

If it is a high risks investment then it must have a high return. Is it justifable that the town councils invest into these products to get a modest 5% return? In these product the amount receive at the maturity will be equivalent to our initial investment if nothing goes wrong and thus the return is only about 25 percent. Any mature person will definitely know that it is crazy to invest in this high risk product and getting such a low return. The worst thing is that it is not liquid at all and the investor has very little or no control of his investment.

To think that so many series have been launched and sold to general public as a safe bond like investment instrument of negligible risks is really a shame to these FIs.

In recent years, whenever the RM in the bank want to sell me any product he/she will always say ever since the Asian crisis, MAS has put stricker measures on the financial products and if they mis-represent they will get into trouble.The product they sold have to be MAS APPROVED. Many people like me have been led to believe that the MAS has stepped in to protect the people and we are not suspicious of the RMs' advice.

I really hope that the FIs will admit their mistakes and make compensations to all investors . This will definitely benefit them in long run as the customers will have more faith in investing with the FIs. In order for the FIs not to lose their liquidity I suggest that the money compensated to be put back into the FDs at prevailing interest rates and allowing the investors to withdraw a certain % a year.

Jen

REPLY
I suggest that you send your views to Mr Goh Chok Tong and to MAS.

http://www.sgdi.gov.sg/
GOH CHOK TONG
SENIOR MINISTER
DID : 62358577
Email: GOH_CHOK_TONG@PMO.GOV.SG

17 comments:

Anonymous said...: Hi Jen, please do not harp on the issue of risks anymore because that is not the crux. Everyone now is as smart as Einstein on the risk-to-return ratio and says it isn't fair to stand to lose all but only to gain a max. of 5%. Indeed, this sounds so logical now. But we are analysing on hindsight now that the financial world has crumbled.

It has never been fair. The odds always favour the bankers. If you play "dai-sai" or "big-small", we know that in order to have three dices all showing six is 1 in 216. But the payout on the tables is only 150 to 1. If you tell african-american in the 19th century, that a non-white would become a president of USA, they would think you are a lunatic. Some one in England placed a bet several years ago that Lewis Hamilton would be crowned champion. A 100 pound wager reaped few hundred thousands. Nobody expects a 150-yr bank to fail, even though it has happened before i.e. Nick Leeson the Rouge Trader. Thus, it is never impossible, just improbable.

I believe we have to ask ourselves some questions what kind of environment we were operating on back then.

1. Why didn't the Lehman-products affect some neighbouring countries as much as they did in Singapore/HK? Did our central bank do a proper job?

2. Did the senior management of FIs understand that the product may not be suitable for conserative FD depositors? Remember, OCBC top guy said they only sell via OCBC securities, not banking branches. Why did DBS create a similar product like High Notes?

3. Can we measure vulnerability using education and age as yardstick? If so, then Town Councils' fund-managers are fools?

4. Were the RMs adequately trained to advise? Do they fully understand the product and acted with a fiduciary duty to clients?

Lastly, I would say there are many good people out there who would want to participate and to give ideas in order to better the lives of the affected and progress as a society on the whole. I would like to urge our leaders to engage the people so that the society is more cohesive. Please do not think that in this era, we will just act according to directives given from the top like the past generations did.

Ch; November 21, 2008 11:55 PM
Anonymous said...: I still see many people crowding over UOB and OCBC to buy investment products..And they are middle-aged people who are still not aware of the risk hidden. ANyway, I got a suggestion:http://uk.youtube.com/watch?v=3S0mEJ-aajM&NR=1 Its a "complaints choir of spore"..We can create a choir and add meaningful lyrics abt the misrepresentation..then more people will be aware and not get cheated!; November 21, 2008 11:55 PM
Anonymous said...: 1. Did our central bank do a proper job?
NO! Our central bank should be the first to open their eyes when giving approval to sell toxic financial products in Singapore. MAS also know English but yet didn't protect SINGAPOREAN from the ANG-MO banks trying to cheat us!
2. Greedy and scrupulous FIs despite knowing about the risky nature of those highly complex notes continue to sell, with misled promotion and advertising tricks.
3. Town Councils' fund-managers definitely aren't old and uneducated fools, they are talents! That means they deserve to lose as they are greedy and never open their eyes! Betting Singaporeans' money on ridiculously high risk investment, clearly an investigation is necessary for better transparency.; November 22, 2008 1:11 AM
Anonymous said...: Not explaining the risk of the underlying 100-150 entities which are more risky than the 5-7 Reference Entities and the Swap Counterparty: Morgan Stanley which were highlighted on the front page of the brochure, is like explaining the risk of the US government when you purchase a General Motors Bonds. The prospectus should highlight the risk of the more risky assets - the 100-150 entities of the CDO more or first before the safer 5 to 7 Reference Entities otherwise one would see for the GM Bonds Prospectus case, a detailed write-up of the risk of US govt instead of the risk of General Motors. How absurb??; November 22, 2008 1:50 AM
Anonymous said...: Can Toxic CDO products affect our aspiring image to be Financial Centre? neighbouring countries were more careful and mindful of the protecting their own citizens to external forces!
Being MONEY faced RED DOT got us in this situation perhaps! ......maybe wanting to be everything to be FIRST or the saying "he who laughs best laugh last"; November 22, 2008 3:08 AM
Anonymous said...: My RM from Hong Leong Finance even told me that the minibonds were approved by the MAS! So they are trying to push the blame back to the central bank. Now MAS pushed it back to the FIs to handle all complaints with full investigations, playing a ball game here!

Does anyone knows whether Hong Leong Finance has started to compensate the investors ??; November 22, 2008 3:39 AM
Anonymous said...: This Purely a creative product designed to cheat.
A banking Lisense stipulates That it is an institution for people to keep money, or provide safety Box for keeping personal-'things'and to provide you loan with proportional assurance-deposit; but modern bankers had invented and package creative products to sell you..ie convert your FD to invest in these toxic products..
cos they find that too much cash floating in their book, they simply cannot make enough return with their loan-credit card charges to pa so many FD.

WOndering our US trained smart bankers bought these ideals from american bankers knowing that it is a cheat. Worst, they hire stupid RM with set target and incentives to 'con'

This is a pure cheating case.; November 22, 2008 5:03 AM
Anonymous said...: you should join in and pretend to be an potiential buyers.

please bring alone your min-recorder and release it for public hearing , how the sales talk...by RM; November 22, 2008 5:36 AM
Anonymous said...: These toxic structured financial products disguised as bond-like investments are classic examples of unscrupulous financial engineering at work - scam schemes of the century by so called investment banks. We all have been duped, robbed and taken for a ride & we still don't know about it!!! These people should be brought to the World Court (if there is such a Institution)to answer for their crimes!!!; November 22, 2008 6:27 AM
Anonymous said...: No use to write. If they (MAS) wanted to do something more positive than what they have done so far to the victims, they would have already done it.

Mr Tharman is also more concerned about the banking system being weakened through compensation to the victims rather than the distress of the victims.

Probably they have evaluated and thought these 10000 victims can be sacrificed in the larger scheme of things.

That's the way gahmen operate, not just in these issues but in all areas, isn't it?; November 22, 2008 6:33 AM
Anonymous said...: "OCBC top guy said they only sell via OCBC securities, not banking branches. ?"

But why tie up with IFAs and sell the risky products to risk adverse people? Is it even worse? The advisers know very well these products are risky, so find ways to cover their resp while making profits from unsuspecting victims??? Unethical???; November 22, 2008 7:56 AM
Anonymous said...: "My RM from Hong Leong Finance even told me that the minibonds were approved by the MAS! "

RM said the products are "Approved" by MAS, but MAS said they were only "Registered".
So is it a clear case of misrepresentation by the RMs??????
So the FIs should compensated us!!!!!; November 22, 2008 8:03 AM
Anonymous said...: Everything got terms and conditions, disclaimers and in small prints.........so if investors choose to ignore it, and once it is signed on the dotted lines then nothing can be disputed! worst still if a Bank or a Mortgage company goes burst!!!
but how is the 10,700 so called investors claimed mis-selling and only Divine Intervention can come to their rescue......trying cancelling your package tours, say at short notice and see whether you can get a full refund??? Simple at that!!!; November 22, 2008 8:25 AM
Anonymous said...: 8:25 AM

Go do your homework.

"....Everything got terms and conditions, disclaimers and in small prints.........so if investors choose to ignore it, and once it is signed on the dotted lines then nothing can be disputed!...."

Before U open your mouth, U shall try to get a copy of the RM recommedation/Fact Find/Data form to know how poorly it is strurctured and how U would find the relevance of this stupid paper to the 'Crdedit-linked' structured product. I will tell your that it is another evidence of 'misrepresentation'.

So much about, "...terms and conditions, disclaimers and in small prints...." so u wanted to tell us U know about 'Contract Law", U learn about 'void contract','voidable contract, & 'uneforceable contract', Do U? U know about 'misrepresenation', Do U?

Read the small prints if U are able to get a copy of the CLN borchure, U tell me what do U understand from the small prints? U know that TCs fund managers do not understand them?

Read the stupid RM recommedation shit with your EYES OPEN before U OPEN your mouth!; November 22, 2008 10:02 AM
Anonymous said...: ST likes to label the ah pehs and ah sohs who bought minibombs as stupid and greedy, and deserve losing life-savings. But it seems like their own reporters are unable to distinguish between Lehman Bros corporate bonds (a normal bond) and Lehman Minibonds (not a real bond, but a structured product). See ST p A10 on 21/11/08.

Lehman Bros Corporate Bond is not available to retail investors. It can only be traded between institutions or private bkg customers, such as fund managers.

Lehman Minibonds is a structured product (NOT a bond) engineered to trick unsuspecting ah pehs and ah sohs, and sold thru the bank branches (or their mobile consumer investment counsellors/ relationship managers). It cannot be traded, due to lock-in period. It is unlikely that fund managers would queue up at DBS Parkway Branch to buy Lehman Minibonds. It is unlikely that a fund manager can be tricked by a low-calibre consumer bank staff into buying Minibonds (if he is really tricked into doing so, he really don't deserve to be a fund manager).

BTW, I feel sorry for MM cos the Town Council Mgt really let him down, made him lose face.; November 22, 2008 11:48 AM
Anonymous said...: In the Slim 10 case, the distributor was liable for damages.
Was the actress "stupid and greedy" to be thin even though she was quite slim already?
Did she eat the tablets with open eyes and open mouth?

She won the case.

http://en.wikipedia.org/wiki/Slim_10
http://findarticles.com/p/articles/mi_m0WDP/is_2003_Oct_6/ai_108553528; November 22, 2008 9:21 PM
Anonymous said...: How many RMs sign up 10,000+ FD-investors?
so now these 10,000+ will live like what obama said..>
People "are lying awake at night wondering if next week's any interest paycheck will cover next month's bills," if their FD will remain, if their Their FD savings will disappear, he added.; November 23, 2008 4:03 AM