Many people think of risk as "something can go wrong". Actually, risk is defined as variation from the expected.
Everyone has to die one day, so this is expected and is not a risk. The risk is that one may die at a young age, and have dependents that cannot support themselves.
As we grow older, we expect to be sick more often and to incur higher medical bills. This is not a risk, as it is expected. The risk is that the medical bills may be too high and beyond our means.
This risk can be managed by making better decisions. The medical specialists have a vested interest to get the patient to spend a lot of money on treatment, even if the chance of recovery is slim. There could be better ways of dealing with the illness that is not so costly.
Buying expensive medical insurance is not really a good way to deal with this risk, as the insured may be misled into taking expensive treatment that is not effective, and may have to bear a significant portion of the bill through the co-payments.
Many health care risks can be managed through having adequate savings, and making an informed decision on how to choose the right doctors and treatment. For most people, it is better to go to subsidized wards, as the risk of given expensive, unnecessary treatment, is minimised. The high cost can be covered by basic Medishield. This will allow us to avoid the situation in America where health care takes up 16% of the GDP.
Tan Kin Lian
Saturday, January 02, 2010
A more caring community
We live in a community. Are we prepared to stand by and watch the weaker members of our society, including their children, go hungry or had a hard life? Or, do we want to help them, so that they also can have the hope of a better future?
Most people are generous and kind in nature, and will want to play a part to help the poor and the weak. This is where charity comes in, but there is also a selfish reason - if others have a decent life, there is no need to resort to theft or crime, and there is no need to have many criminals put into jail (which is also costly).
Mostly, people are poor as they do not get adequate wage and the cost of living is high. They will get into financial difficulty, if someone in the family falls sick and has to incur expensive medical bills. They may lose their savings through bad investments, or have been cheated by investment scams.
Some people are poor due to gambling, drinking and other vices - but they do not represent the majority of the poor. We can leave aside this problem for a separate discussion.
In a competitive world, we all have to work and compete hard to make sure that our business succeed. However, we have to balance competition with compassion. We should not push competition to the extreme, to the extent that other people (who may not be so smart as us) gets employed and helpless.
The European societies have a more proper balance in their lives. They pay adequate wages, have a shorter working hours and more holidays. They may be less competitive globally but they give a better quality of life to their people. They pay higher taxes, so that the ordinary people have better health care and old age pension. They may not be very rich, but they have better distribution of income and are a more caring community.
Recently, the Economist magazine carried out an online debate. 80% of the voters (probably from around the world) voted in favor of the European system of having more holidays. Many people feel that the competitive world force them to work too hard.
I prefer the European system (especially Scandinavia) of higher taxes, more social benefits, less working hours and a more caring community.
Tan Kin Lian
Most people are generous and kind in nature, and will want to play a part to help the poor and the weak. This is where charity comes in, but there is also a selfish reason - if others have a decent life, there is no need to resort to theft or crime, and there is no need to have many criminals put into jail (which is also costly).
Mostly, people are poor as they do not get adequate wage and the cost of living is high. They will get into financial difficulty, if someone in the family falls sick and has to incur expensive medical bills. They may lose their savings through bad investments, or have been cheated by investment scams.
Some people are poor due to gambling, drinking and other vices - but they do not represent the majority of the poor. We can leave aside this problem for a separate discussion.
In a competitive world, we all have to work and compete hard to make sure that our business succeed. However, we have to balance competition with compassion. We should not push competition to the extreme, to the extent that other people (who may not be so smart as us) gets employed and helpless.
The European societies have a more proper balance in their lives. They pay adequate wages, have a shorter working hours and more holidays. They may be less competitive globally but they give a better quality of life to their people. They pay higher taxes, so that the ordinary people have better health care and old age pension. They may not be very rich, but they have better distribution of income and are a more caring community.
Recently, the Economist magazine carried out an online debate. 80% of the voters (probably from around the world) voted in favor of the European system of having more holidays. Many people feel that the competitive world force them to work too hard.
I prefer the European system (especially Scandinavia) of higher taxes, more social benefits, less working hours and a more caring community.
Tan Kin Lian
Friday, January 01, 2010
Singaporeans are able to see beyond racial lines
Dear MR TAN KIN LIAN
I like to share with you a hearty observation about Singapore Idol competition results. This competition showed that Singaporeans are able to see beyond racial lines, when choosing their singing idol.
In the Singapore Idol competition, we saw Malay topped the competition consecutively from Season 1 in year 2006 to Season 3 in Y2009. This is a 100% winning streak for Malay singers, who won by on-line polling. This is despite the fact that Malays are minority in Singapore. This shows that Singaporeans have grown beyond racial line. Nobody entered the competition with preferential treatment. No single race is protected by any preferential arrangement”. Yet, our Malay fellow brothers won in three clean sweeps.
This showed that Singaporeans will vote for you if you are good and continue to improve.
I think this is another example Singapore Government should seriously consider setting a timeline to eliminate GRC for general election. In the future, it may be even difficult to define who is an Indians, for example. I see many inter-racial marriages in Singapore today.
** Record of winners for Singapore Idols **
Singapore Idol 1 (Y2004) Taufik Batisah beat Sylvester Sim.
Singapore Idol 2 (Y2006) Hady Mirza beat Jonathan Leong
Singapore Idol 3 (Y2009) Sezairi Sezali beat Sylvia Ratonel
CASHEW NUT
I like to share with you a hearty observation about Singapore Idol competition results. This competition showed that Singaporeans are able to see beyond racial lines, when choosing their singing idol.
In the Singapore Idol competition, we saw Malay topped the competition consecutively from Season 1 in year 2006 to Season 3 in Y2009. This is a 100% winning streak for Malay singers, who won by on-line polling. This is despite the fact that Malays are minority in Singapore. This shows that Singaporeans have grown beyond racial line. Nobody entered the competition with preferential treatment. No single race is protected by any preferential arrangement”. Yet, our Malay fellow brothers won in three clean sweeps.
This showed that Singaporeans will vote for you if you are good and continue to improve.
I think this is another example Singapore Government should seriously consider setting a timeline to eliminate GRC for general election. In the future, it may be even difficult to define who is an Indians, for example. I see many inter-racial marriages in Singapore today.
** Record of winners for Singapore Idols **
Singapore Idol 1 (Y2004) Taufik Batisah beat Sylvester Sim.
Singapore Idol 2 (Y2006) Hady Mirza beat Jonathan Leong
Singapore Idol 3 (Y2009) Sezairi Sezali beat Sylvia Ratonel
CASHEW NUT
Apply foreign worker levy to other jobs
Hi Mr Tan
The large immigration of foreigners into Singapore is one of the most divisive issues in Singapore today. There are many Singaporeans who are unhappy and bitter about the large number of FT that have been allowed into Singapore. They feel threatened by these foreigners as many of them have proven themselves to be as hardworking and capable as Singaporeans. Their salary expectations are significantly lower. A fresh graduate from NUS for example expects to earn $2,500 to $2,800. A graduate of similar calibre from China or India is willing to work for between $1,500 to $1,800.
The large gap in salary expectations has led to large amount of economic pressure to employ foreigners rather than Singaporeans. The common thinking among many Singaporeans who are employees is that businesses are greedy and immoral. In the pursuit of profit, they would sack their own countrymen and employ foreigners.
The truth however is a lot more complex. All businesses have to operate in a competitive global environment. Consumers value goods based on quality and price; they do not take into account who made them. Within Singapore, if you employ only Singaporeans while your competitors use foreigners, you will not be able to compete. Outside of Singapore, you will lose to global competitors who are willing to use the cheapest source of labour to produce their goods. Hence ultimately if you use a Singaporean only policy to run your company, then your business will most likely fail.
Recently, in response to negative sentiment on the ground, MOM has begun to tighten the issue of the various types of passes. Many speculate that this is window dressing ahead of a widely anticipated election. Regardless of the intent, this is not a viable long term strategy. This is because technologies like the Internet have made it very easy for business to cross national boundaries. As such, if MOM persists with a policy of not allowing foreigners into Singapore, the Singapore economy will eventually be hollowed out.
The emergence of an abundance of cheap and capable foreign labour means that the income of Singaporean workers WILL fall over the next 5 to 10 years. The unemployment rate among workers who are Singapore citizens will also rise. There is no known economic theory or policy which can stop or reverse this. This fall will continue until a new equilibrium is reached. This equilibrium is such that the income of Singaporean workers is comparable to that of workers from India and China. Here it should be noted that there is no magic economic law which states that the income of Singaporean workers must always be higher than those from India and China.
This unpleasant economic truth needs to be communicated to Singaporeans so that they can understand and accept the new economic reality. If the economic reality is hidden behind half-truths like “job redesign” and “productivity improvement”, then the bitterness and resentment will be even greater then the truth is known. I label “job redesign” and “productivity improvement” as half truths as they are completely ineffective ways of addressing the problem. This is because any training or re-design improvements that you do for Singaporeans, you can also apply foreigners. Singaporeans are not so special so that the training or job re-design can only apply to them.
Open and honest communication is also necessary so that Singaporeans do not make the wrong decisions based on unrealistic expectations. At present, there is a property boom in Singapore. Many Singaporeans are borrowing large sums of money to buy property in anticipation of “More Good Years” and the ability to sell the property at a higher price. Eventually the property bubble will burst and there will be a sharp decline in prices. If we superimpose this against higher unemployment and lower wages, then we are setting the stage for a very painful and bitter period for Singaporeans.
Other than open and honest communication about the future, what we also need are policies which moderate or slow the expected decline in income. Also useful would be policies which help people cope and adjust. The following is a policy recommendation which will address many issues simultaneously.
The root of the problem is the salary gap between Singaporeans and foreigners. In recognition of this gap at the low skill level, MOM has implemented a foreign workers levy for maids and other foreigners that work in Singapore under the work permit system. Given the success of this policy, it would now be timely to extend this levy to those in Singapore under the employment pass or permanent resident scheme. The successful implementation of the foreign workers levy for so many years suggest that if it were applied to the employment pass/permanent resident scheme, it would not “chase away the talent”.
With the money collected from the levies, we can then move to restructure the CPF scheme. The Employer CPF contribution can slowly be reduced to 0%. This would be replaced by payment made from the levies collected from foreigners working in Singapore. As the number of foreigners in Singapore increases, this CPF contribution would increase.
By implementing a policy like this, we put substance into the nice-sounding policy announcements that “foreigners are in Singapore for the benefit of Singaporeans”. It would help heal our society which is increasingly being polarized along the lines of Singaporean and Foreigner. Also we moderate the narrowing of the wage gap between Singaporean and Foreigner in a manner that is least painful to Singaporeans.
Aurvandil
The large immigration of foreigners into Singapore is one of the most divisive issues in Singapore today. There are many Singaporeans who are unhappy and bitter about the large number of FT that have been allowed into Singapore. They feel threatened by these foreigners as many of them have proven themselves to be as hardworking and capable as Singaporeans. Their salary expectations are significantly lower. A fresh graduate from NUS for example expects to earn $2,500 to $2,800. A graduate of similar calibre from China or India is willing to work for between $1,500 to $1,800.
The large gap in salary expectations has led to large amount of economic pressure to employ foreigners rather than Singaporeans. The common thinking among many Singaporeans who are employees is that businesses are greedy and immoral. In the pursuit of profit, they would sack their own countrymen and employ foreigners.
The truth however is a lot more complex. All businesses have to operate in a competitive global environment. Consumers value goods based on quality and price; they do not take into account who made them. Within Singapore, if you employ only Singaporeans while your competitors use foreigners, you will not be able to compete. Outside of Singapore, you will lose to global competitors who are willing to use the cheapest source of labour to produce their goods. Hence ultimately if you use a Singaporean only policy to run your company, then your business will most likely fail.
Recently, in response to negative sentiment on the ground, MOM has begun to tighten the issue of the various types of passes. Many speculate that this is window dressing ahead of a widely anticipated election. Regardless of the intent, this is not a viable long term strategy. This is because technologies like the Internet have made it very easy for business to cross national boundaries. As such, if MOM persists with a policy of not allowing foreigners into Singapore, the Singapore economy will eventually be hollowed out.
The emergence of an abundance of cheap and capable foreign labour means that the income of Singaporean workers WILL fall over the next 5 to 10 years. The unemployment rate among workers who are Singapore citizens will also rise. There is no known economic theory or policy which can stop or reverse this. This fall will continue until a new equilibrium is reached. This equilibrium is such that the income of Singaporean workers is comparable to that of workers from India and China. Here it should be noted that there is no magic economic law which states that the income of Singaporean workers must always be higher than those from India and China.
This unpleasant economic truth needs to be communicated to Singaporeans so that they can understand and accept the new economic reality. If the economic reality is hidden behind half-truths like “job redesign” and “productivity improvement”, then the bitterness and resentment will be even greater then the truth is known. I label “job redesign” and “productivity improvement” as half truths as they are completely ineffective ways of addressing the problem. This is because any training or re-design improvements that you do for Singaporeans, you can also apply foreigners. Singaporeans are not so special so that the training or job re-design can only apply to them.
Open and honest communication is also necessary so that Singaporeans do not make the wrong decisions based on unrealistic expectations. At present, there is a property boom in Singapore. Many Singaporeans are borrowing large sums of money to buy property in anticipation of “More Good Years” and the ability to sell the property at a higher price. Eventually the property bubble will burst and there will be a sharp decline in prices. If we superimpose this against higher unemployment and lower wages, then we are setting the stage for a very painful and bitter period for Singaporeans.
Other than open and honest communication about the future, what we also need are policies which moderate or slow the expected decline in income. Also useful would be policies which help people cope and adjust. The following is a policy recommendation which will address many issues simultaneously.
The root of the problem is the salary gap between Singaporeans and foreigners. In recognition of this gap at the low skill level, MOM has implemented a foreign workers levy for maids and other foreigners that work in Singapore under the work permit system. Given the success of this policy, it would now be timely to extend this levy to those in Singapore under the employment pass or permanent resident scheme. The successful implementation of the foreign workers levy for so many years suggest that if it were applied to the employment pass/permanent resident scheme, it would not “chase away the talent”.
With the money collected from the levies, we can then move to restructure the CPF scheme. The Employer CPF contribution can slowly be reduced to 0%. This would be replaced by payment made from the levies collected from foreigners working in Singapore. As the number of foreigners in Singapore increases, this CPF contribution would increase.
By implementing a policy like this, we put substance into the nice-sounding policy announcements that “foreigners are in Singapore for the benefit of Singaporeans”. It would help heal our society which is increasingly being polarized along the lines of Singaporean and Foreigner. Also we moderate the narrowing of the wage gap between Singaporean and Foreigner in a manner that is least painful to Singaporeans.
Aurvandil
Treat immigrants fairly and well
Many Singaporeans disagree with the recent policy of the Government to allow a big influx of foreigners into Singapore for whatever reasons, i.e. to boost our economic growth or to compensate for our low birth rate. This has created a lot of problems for the locals, which has not been properly recognized, i.e. competition for jobs, over-crowding and other social problems.
Some have suggested measures to differentiate between "old" and "new" citizens, between citizens and permanent residents and so on. I think that it is better to adopt a policy of treating everyone equally, as far as possible, in the daily lives.
We have to remember that many immigrants have made big sacrifices to come to live and work in Singapore. Some have borrowed and paid large sums of money to migrate to Singapore. If we accept them, it is our duty, as decent people, to treat them fairly and well. We should not deny them the right to have proper housing and fair wages. If they become permanent residents and citizens, they should be entitled to the usual benefits that are given to residents.
We should get away from the bad policy of differentiating different groups of people according to their residency status, graduate status, type of housing, income levels and other "rules". This causes disputes and unhappiness, pits one group of people against another group and will result in a fractious society.
We have to recognize a severe disadvantage placed on our male citizens in having to serve two years of full time National Service and the continuing liability of being called up regularly for in-camp training. We need to find ways to reduce or remove this disadvantage.
Tan Kin Lian
Some have suggested measures to differentiate between "old" and "new" citizens, between citizens and permanent residents and so on. I think that it is better to adopt a policy of treating everyone equally, as far as possible, in the daily lives.
We have to remember that many immigrants have made big sacrifices to come to live and work in Singapore. Some have borrowed and paid large sums of money to migrate to Singapore. If we accept them, it is our duty, as decent people, to treat them fairly and well. We should not deny them the right to have proper housing and fair wages. If they become permanent residents and citizens, they should be entitled to the usual benefits that are given to residents.
We should get away from the bad policy of differentiating different groups of people according to their residency status, graduate status, type of housing, income levels and other "rules". This causes disputes and unhappiness, pits one group of people against another group and will result in a fractious society.
We have to recognize a severe disadvantage placed on our male citizens in having to serve two years of full time National Service and the continuing liability of being called up regularly for in-camp training. We need to find ways to reduce or remove this disadvantage.
Tan Kin Lian
Community based loans
I have suggested a "community based" scheme to provide loans to families that are need money for their daily expenses due to loss of employment, high medical bills or other factors beyond their control. I have received some questions on how this scheme can operate. I will answer them:
a) Who provides the funds? The community (i.e. the Government)
b) Who bears the loss of bad debts? The community will have the right to place a lien on the assets, e.g. CPF savings, of the borrowers. If there are insufficient assets, the bad debts will be written off and will be borne by the community, i.e. the taxpayers.
c) Who decides on the people who should be granted these loans? Loan assessors working on the set of eligibility criteria.
d) What rate of interest should be charged on the borrowings? 1% to 3% higher than CPF interest rate.
This community based scheme will operate on principles that are different from commercial banks or loan sharks, and will still aim to make the borrowers responsible for repaying the loans. However, these loans should be provided at an affordable interest rate, so that the borrowers are not burdened with exorbitant interest payments.
This scheme requires responsible people to be loan assessors to carry out investigations into the financial situation before the loan is granted. The assessor has to interview the borrower and visit the family to make personal judgement (which is a skill that needs to be developed, as many Singaporeans prefer to decide on paper and avoid taking personal responsibility to make judgement).
This will provide an alternative to borrowing from loan sharks, leading to bankruptcy, petty crimes and other social problems.
Tan Kin Lian
a) Who provides the funds? The community (i.e. the Government)
b) Who bears the loss of bad debts? The community will have the right to place a lien on the assets, e.g. CPF savings, of the borrowers. If there are insufficient assets, the bad debts will be written off and will be borne by the community, i.e. the taxpayers.
c) Who decides on the people who should be granted these loans? Loan assessors working on the set of eligibility criteria.
d) What rate of interest should be charged on the borrowings? 1% to 3% higher than CPF interest rate.
This community based scheme will operate on principles that are different from commercial banks or loan sharks, and will still aim to make the borrowers responsible for repaying the loans. However, these loans should be provided at an affordable interest rate, so that the borrowers are not burdened with exorbitant interest payments.
This scheme requires responsible people to be loan assessors to carry out investigations into the financial situation before the loan is granted. The assessor has to interview the borrower and visit the family to make personal judgement (which is a skill that needs to be developed, as many Singaporeans prefer to decide on paper and avoid taking personal responsibility to make judgement).
This will provide an alternative to borrowing from loan sharks, leading to bankruptcy, petty crimes and other social problems.
Tan Kin Lian
Thursday, December 31, 2009
Impact of December holidays
My blog had an average of 2,000 visitors a day in earlier months. It dropped to 1,500 in December. It has now recovered to 2,000. This is the impact of the school holidays in December. 25% of Singaporeans travel outside of Singapore.
Blind trust - there must be a reason?
Many practices are outmoded after some time, for example, immigration requirements, security checks, audit checks, registration in hotels. Some of these practices were introduced several decades ago and were needed then. But, the world has since changed.
Nobody wants to take the responsibility to review and update these outmoded practices. The burden of these practices usually fall on the shoulders of the customers or ordinary people who have no choice but to comply with the rules.
Some people will defend these practices as follows: "There must be a reason to continue these practices. It must be serving a purpose". Has it occurred to these people that the most likely reason is that nobody cares. If the long suffering people do not speak up, who really bothers?
Some people said that there is no point in speaking up in Singapore as our views are likely to be ignored. While this is true, and is a sad state of affairs, I encourage people to continue to speak up. One day, the voices will be heard.
Most importantly, we have to avoid giving excuses on behalf of the people who are supposed to review the outmoded practices. If the reasons are still valid, let them come out and explain the reasons on their own. This will encourage accountability.
Tan Kin Lian
Nobody wants to take the responsibility to review and update these outmoded practices. The burden of these practices usually fall on the shoulders of the customers or ordinary people who have no choice but to comply with the rules.
Some people will defend these practices as follows: "There must be a reason to continue these practices. It must be serving a purpose". Has it occurred to these people that the most likely reason is that nobody cares. If the long suffering people do not speak up, who really bothers?
Some people said that there is no point in speaking up in Singapore as our views are likely to be ignored. While this is true, and is a sad state of affairs, I encourage people to continue to speak up. One day, the voices will be heard.
Most importantly, we have to avoid giving excuses on behalf of the people who are supposed to review the outmoded practices. If the reasons are still valid, let them come out and explain the reasons on their own. This will encourage accountability.
Tan Kin Lian
Pushing the buck around
An investor, who was misled into investing a large sum of money in land banking plots made a complaint to his Member of Parliament. He provided documentation to support his complaint. The MP wrote to Monetary Authority of Singapore who referred the investor to the Commercial Affairs Department. He met with an officer of CAD who told him that they have received several similar complaints and were investigating the matter. Nothing was heard from CAD for the past two months.
The investor asked me what to do. He said that one party is pushing the buck to another party and nobody is interested to take charge of this matter. I wondered why the CAD did not wish to contact the complainant and get more facts. The complainants are kept in the dark. This seemed to be a habit in Singapore.
I asked the complainant to take the matter up with his elected MP again. I hope that the MP will follow up on this matter, rather than let sad state of affairs continue.
Tan Kin Lian
The investor asked me what to do. He said that one party is pushing the buck to another party and nobody is interested to take charge of this matter. I wondered why the CAD did not wish to contact the complainant and get more facts. The complainants are kept in the dark. This seemed to be a habit in Singapore.
I asked the complainant to take the matter up with his elected MP again. I hope that the MP will follow up on this matter, rather than let sad state of affairs continue.
Tan Kin Lian
Nuisance
From: Wikipedia
Nuisance is a common law tort. It means that which causes offence, annoyance, trouble or injury. A nuisance can be either public (also "common") or private. A public nuisance was defined by English scholar Sir J. F. Stephen as,
"an act not warranted by law, or an omission to discharge a legal duty, which act or omission obstructs or causes inconvenience or damage to the public in the exercise of rights common to all His Majesty's subjects".
"Private nuisance" is the interference with the right of specific people. Nuisance is one of the oldest causes of action known to the common law, with cases framed in nuisance going back almost to the beginning of recorded case law. Nuisance signifies that the "right of quiet enjoyment" is being disrupted to such a degree that a tort is being committed.
Nuisance is a common law tort. It means that which causes offence, annoyance, trouble or injury. A nuisance can be either public (also "common") or private. A public nuisance was defined by English scholar Sir J. F. Stephen as,
"an act not warranted by law, or an omission to discharge a legal duty, which act or omission obstructs or causes inconvenience or damage to the public in the exercise of rights common to all His Majesty's subjects".
"Private nuisance" is the interference with the right of specific people. Nuisance is one of the oldest causes of action known to the common law, with cases framed in nuisance going back almost to the beginning of recorded case law. Nuisance signifies that the "right of quiet enjoyment" is being disrupted to such a degree that a tort is being committed.
Morgan Stanley sued over failed $1.2 billion CDO
http://sg.news.yahoo.com/rtrs/20091230/tbs-business-us-morganstanley-lawsuit-7318940.html
Reuters - Wednesday, December 30. By Jonathan Stempel
NEW YORK - Morgan Stanley has been sued by a Virgin Islands pension fund that accused the Wall Street bank of defrauding investors by marketing $1.2 billion of risky mortgage-related notes that it expected to fail.
The lawsuit filed December 24 in Manhattan federal court said Morgan Stanley collaborated with credit rating agencies Moody's Investors Service and Standard & Poor's to obtain "triple-A" ratings for notes marketed in 2007 as part of a collateralized debt obligation known as Libertas.
According to the complaint, the CDO was backed by low-quality assets, including securities issued by subprime lenders New Century Financial Corp, which quickly went bankrupt, and Option One Mortgage Corp, then owned by H&R Block Inc.
The complaint alleged Morgan Stanley knew the CDO's assets were far riskier than the ratings suggested, but was "highly motivated to defraud investors" with pristine ratings because it was simultaneously "shorting" almost all the assets. This was a bet that their value would fall, which they did in 2008. "Morgan Stanley was betting the entire investment it was promoting would fail," according to the complaint, which was made available on Tuesday. "The firm achieved its objective." Alyson Barnes, a Morgan Stanley spokeswoman, declined to comment. S&P spokesman Frank Briamonte had no immediate comment. Moody's did not immediately return a call seeking comment. Moody's, a unit of Moody's Corp, and S&P, a unit of McGraw-Hill Cos , were not named as defendants.
Many banks face lawsuits from investors who say they were misled into investing in securities they believed were safe but which were in fact tied to risky subprime mortgages.
Morgan Stanley is also a defendant in a closely watched case in the same Manhattan court that concerns whether rating agencies deserve free speech protection for their opinions.
The December 24 complaint said Morgan Stanley knew securities in the Libertas CDO were suffering a dramatic rise in delinquencies, but provided a misleading "risk factor" in a prospectus that rising delinquencies "may" hurt values in the $1 trillion residential mortgage-backed securities market. It called this representation "analogous to Captain Smith's telling passengers of the Titanic that some ships have 'recently sunk' in the Atlantic and therefore 'our ship may sink,' without mentioning the facts that his ship struck an iceberg, had a hole in it, and was filling with water."
The lawsuit seeks class-action status, and also seeks compensatory and punitive damages, among other remedies. It was filed by Coughlin Stoia Geller Rudman & Robbins LLP, a law firm specializing in securities class-action lawsuits. Morgan Stanley shares were up 22 cents at $29.51 in afternoon trading on the New York Stock Exchange.
The case is Employees' Retirement System of the Government of the Virgin Islands v. Morgan Stanley & Co et al, U.S. District Court, Southern District of New York, No. 09-10532.
Reuters - Wednesday, December 30. By Jonathan Stempel
NEW YORK - Morgan Stanley
The lawsuit filed December 24 in Manhattan federal court said Morgan Stanley collaborated with credit rating agencies Moody's Investors Service and Standard & Poor's to obtain "triple-A" ratings for notes marketed in 2007 as part of a collateralized debt obligation known as Libertas.
According to the complaint, the CDO was backed by low-quality assets, including securities issued by subprime lenders New Century Financial Corp, which quickly went bankrupt, and Option One Mortgage Corp, then owned by H&R Block Inc
The complaint alleged Morgan Stanley knew the CDO's assets were far riskier than the ratings suggested, but was "highly motivated to defraud investors" with pristine ratings because it was simultaneously "shorting" almost all the assets. This was a bet that their value would fall, which they did in 2008. "Morgan Stanley was betting the entire investment it was promoting would fail," according to the complaint, which was made available on Tuesday. "The firm achieved its objective." Alyson Barnes, a Morgan Stanley spokeswoman, declined to comment. S&P spokesman Frank Briamonte had no immediate comment. Moody's did not immediately return a call seeking comment. Moody's, a unit of Moody's Corp
Many banks face lawsuits from investors who say they were misled into investing in securities they believed were safe but which were in fact tied to risky subprime mortgages.
Morgan Stanley is also a defendant in a closely watched case in the same Manhattan court that concerns whether rating agencies deserve free speech protection for their opinions.
The December 24 complaint said Morgan Stanley knew securities in the Libertas CDO were suffering a dramatic rise in delinquencies, but provided a misleading "risk factor" in a prospectus that rising delinquencies "may" hurt values in the $1 trillion residential mortgage-backed securities market. It called this representation "analogous to Captain Smith's telling passengers of the Titanic that some ships have 'recently sunk' in the Atlantic and therefore 'our ship may sink,' without mentioning the facts that his ship struck an iceberg, had a hole in it, and was filling with water."
The lawsuit seeks class-action status, and also seeks compensatory and punitive damages, among other remedies. It was filed by Coughlin Stoia Geller Rudman & Robbins LLP, a law firm specializing in securities class-action lawsuits. Morgan Stanley shares were up 22 cents at $29.51 in afternoon trading on the New York Stock Exchange.
The case is Employees' Retirement System of the Government of the Virgin Islands v. Morgan Stanley & Co et al, U.S. District Court, Southern District of New York, No. 09-10532.
Top priorities for the next decade
My office is at an industrial park. During lunch, I observed the customers at the canteen. They mostly work in the factories and earn a modest income to feed a family. They have children and financial commitments. They work hard and have useful skills.
They probably do not have much time to plan or worry about the future. Their biggest risk is the loss of the job. If their employer's business does not succeed, they will be retrenched and have to look for another job. For many people, it would be difficult to find another job that would replace their modest earnings. There is probably nothing that they can do, but to hope for the best.
The next risk is setting aside sufficient savings for their retirement needs. It is already difficult for them to have adequate savings set aside from their modest earnings, given the high cost of living. But, many of them do save for the future. The danger is that the may be cheated from getting a decent return. The financial institutions have developed many "innovative" products that have high charges, usually non-transparent, and give a poor return for the customers.
Some of these products are risky or are downright scams. But the ordinary workers are not in a position to recognize these unfair products. We should not expect these ordinary workers to be financial experts. It is the job of the regulators and the political leaders who have the responsibility to look after the welfare of the people who elected them.
The top priorities for the next decade is to give the security of a job that pay a modest but fair income to ordinary workers and the means for them to set aside savings that can give them a fair return for the future.
Tan Kin Lian
They probably do not have much time to plan or worry about the future. Their biggest risk is the loss of the job. If their employer's business does not succeed, they will be retrenched and have to look for another job. For many people, it would be difficult to find another job that would replace their modest earnings. There is probably nothing that they can do, but to hope for the best.
The next risk is setting aside sufficient savings for their retirement needs. It is already difficult for them to have adequate savings set aside from their modest earnings, given the high cost of living. But, many of them do save for the future. The danger is that the may be cheated from getting a decent return. The financial institutions have developed many "innovative" products that have high charges, usually non-transparent, and give a poor return for the customers.
Some of these products are risky or are downright scams. But the ordinary workers are not in a position to recognize these unfair products. We should not expect these ordinary workers to be financial experts. It is the job of the regulators and the political leaders who have the responsibility to look after the welfare of the people who elected them.
The top priorities for the next decade is to give the security of a job that pay a modest but fair income to ordinary workers and the means for them to set aside savings that can give them a fair return for the future.
Tan Kin Lian
Investment return, adjusted for inflation
It is important to take account of inflation in looking at investment return. This is explained in this article. You should aim to get a real return of 2%, after deducting inflation, tax and expenses. Many investors get a negative return due to investing in the wrong asset class, e.g. safe investments with guaranteed return, and high expenses.
Wednesday, December 30, 2009
Financial institutions bet against their clients
This article suggests that financial institutions made profits where their clients suffered large losses.
Y2K scam
I decided to do some research to see if other people pointed out the Y2K scam. I found this website. Enjoy reading.
Don't worry. The next decade will bring new scams. Life will continue to be exciting and creative. You can also count on some talented people being able to create scams, which is easier than creating real wealth and happiness,
Don't worry. The next decade will bring new scams. Life will continue to be exciting and creative. You can also count on some talented people being able to create scams, which is easier than creating real wealth and happiness,
Approaching a new decade
In two days time, we will enter a new decade. Many people have forgotten what was the big issue at the end of the last decade. It was the so called Y2K bug that never occurred. During the last two years of that decade, management consultants went round to spread the panic that if the Y2K bug was not fixed, computer systems around the world would collapse. This would happen not only to commercial systems but to military systems as well.
Several hundred millions, perhaps more, were paid in consultancy fees to fix the perceived Y2K problem. It frightened top management of big organisations, financial regulators and political leaders. It was a boom time for management and I.T. consultants who had the expertise to fix this imaginary problem. It reminded me of the fairy tale by Hans Christian Anderson told to children, about the emperor's imaginary new clothes.
I was one of very few who dared to argued that nothing would possibly happen and that the Y2K panic was exaggerated. I reasoned with I.T. experts and top accountants, but they argued back more strongly about the potential disasters that could happen. I concluded that they were extremely stupid or dishonest. As they were talented people, I concluded that it must be dishonesty, as they had pocketed large profits from providing the consultancy to fix the problem.
There were hundreds of millions of computers, big or small, around the world that needed to be fixed. Not all of them could be fixed in time and to the specification required by the consultants. It would be reasonable to expect several millions of them, which were not properly fixed, to fail with disastrous consequences. None of the failures occurred. All the computers continued to work fine on the turn of the century.
Companies that spent tens of millions to fix the Y2K problem gave a collective sigh of relief and congratulated their people for averting the disaster. Those who realised that they were conned by the scam of the century were too embarrassed to bring up the issue. This matter was best forgotten, which was what happened quickly.
The following decade brought about its own scams, in the form of the technology bubble, corporate scandals, housing bubble, financial innovation, derivatives, CDOs, CDS and the like. They made super wealth to the "talented" people but the rest of the world that much poorer.
What scams will the next decade bring?
Tan Kin Lian
Several hundred millions, perhaps more, were paid in consultancy fees to fix the perceived Y2K problem. It frightened top management of big organisations, financial regulators and political leaders. It was a boom time for management and I.T. consultants who had the expertise to fix this imaginary problem. It reminded me of the fairy tale by Hans Christian Anderson told to children, about the emperor's imaginary new clothes.
I was one of very few who dared to argued that nothing would possibly happen and that the Y2K panic was exaggerated. I reasoned with I.T. experts and top accountants, but they argued back more strongly about the potential disasters that could happen. I concluded that they were extremely stupid or dishonest. As they were talented people, I concluded that it must be dishonesty, as they had pocketed large profits from providing the consultancy to fix the problem.
There were hundreds of millions of computers, big or small, around the world that needed to be fixed. Not all of them could be fixed in time and to the specification required by the consultants. It would be reasonable to expect several millions of them, which were not properly fixed, to fail with disastrous consequences. None of the failures occurred. All the computers continued to work fine on the turn of the century.
Companies that spent tens of millions to fix the Y2K problem gave a collective sigh of relief and congratulated their people for averting the disaster. Those who realised that they were conned by the scam of the century were too embarrassed to bring up the issue. This matter was best forgotten, which was what happened quickly.
The following decade brought about its own scams, in the form of the technology bubble, corporate scandals, housing bubble, financial innovation, derivatives, CDOs, CDS and the like. They made super wealth to the "talented" people but the rest of the world that much poorer.
What scams will the next decade bring?
Tan Kin Lian
Affordable HDB flats
The Minister for National Development said that HDB flats can be sold at a lower, more affordable price if the buyer accept that they have to be sold back to the Government at cost. He asked if Singaporeans would prefer to have this system.
I suggest the following approach:
a) Offer both choices to the citizens. Some prefer to pay more and have market values for their HDB flats. Others prefer to pay less and forego the capital gain. It depends on the personal circumstances. The PM once said that we cannot have "one size fits all".
b) The resale price to the HDB should be adjusted for inflation and for the shorter lease.
c) There should be a sufficient margin (say 30% to 40%) between the sale price of the "affordable" flat and the "marketable" flat.
We should also consider the Swiss system, where most people rent their flats. They can invest in property REITS, but they do not need to own their property. The properties can be owned by the REIT. This will give them the flexibilty to move closer to their place of work, following a change of job. They are not tied to their own purchased property.
Tan Kin Lian
I suggest the following approach:
a) Offer both choices to the citizens. Some prefer to pay more and have market values for their HDB flats. Others prefer to pay less and forego the capital gain. It depends on the personal circumstances. The PM once said that we cannot have "one size fits all".
b) The resale price to the HDB should be adjusted for inflation and for the shorter lease.
c) There should be a sufficient margin (say 30% to 40%) between the sale price of the "affordable" flat and the "marketable" flat.
We should also consider the Swiss system, where most people rent their flats. They can invest in property REITS, but they do not need to own their property. The properties can be owned by the REIT. This will give them the flexibilty to move closer to their place of work, following a change of job. They are not tied to their own purchased property.
Tan Kin Lian
Over production
The world is producing more goods than is really needed. The over production has lead to the wasteful use of energy and resources and damage to the environment. Through competition, more people are working harder to produce goods that are not really needed. We have too much clothes, electronic equipments and gadgets and too little time (due to long working hours) to enjoy them.
We work longer hours to keep our job, but in the process cause other people to lose their jobs, because they work in "less efficient" businesses or countries.
Is this called "prosperity and affluence" ?
Tan Kin Lian
We work longer hours to keep our job, but in the process cause other people to lose their jobs, because they work in "less efficient" businesses or countries.
Is this called "prosperity and affluence" ?
Tan Kin Lian
Expressing my views
I write in this blog to give my views and observations. Readers are free to give their views, which may differ from my views. In doing so, there is no need for them to criticize or attack my views, especially if they are doing so anonymously or under a fake name. I recognize one troublesome person, by his style of writing, who has a habit of being cynical and negative. I hope that he can create his own blog to write his views, rather than be a nuisance in my blog.
Loan shark menace
A reader wrote to the Straits Times that there is a need to find a solution for people in need of cash, so that they do not have to rely on loan sharks. For these people, the loan sharks are the only source of cash, even though the interest rates are exorbitant, and the loan sharks have to resort to criminal activities to enforce the repayments.
Some people resort to loan sharks due to gambling debts (which can be avoided). Others are forced to borrow money due to unemployment or big medical bills.
I encourage people to have personal savings, so that they have money to draw down during these emergencies. There is a case for the community to provide funds for people who are in need of temporary cash due to factors beyond their control. They are required to pay back the borrowings, but the rate of interest should be kept modest.
Many developed countries have unemployment benefits, which are given to people who lose their jobs. The benefit is paid for a certain period, such as 12 months. Beyond that, they can receive a lower amount of welfare benefits to survive.
My proposal for a community-based borrowing is less generous that the safety net available in the advanced countries. But, it is better than a "loan shark" scheme that is practiced here.
Tan Kin Lian
Some people resort to loan sharks due to gambling debts (which can be avoided). Others are forced to borrow money due to unemployment or big medical bills.
I encourage people to have personal savings, so that they have money to draw down during these emergencies. There is a case for the community to provide funds for people who are in need of temporary cash due to factors beyond their control. They are required to pay back the borrowings, but the rate of interest should be kept modest.
Many developed countries have unemployment benefits, which are given to people who lose their jobs. The benefit is paid for a certain period, such as 12 months. Beyond that, they can receive a lower amount of welfare benefits to survive.
My proposal for a community-based borrowing is less generous that the safety net available in the advanced countries. But, it is better than a "loan shark" scheme that is practiced here.
Tan Kin Lian
Need for a minimum wage
Here is a case to illustrate the need for a minimum wage to offset the harmful effects of free market competition.
Bus operators in Malaysia compete fiercely for business. They have to offer lower fares. To survive, they pay low wages to their bus drivers, who have to work long hours to make up for the inadequate pay. Due to insufficient sleep and rest, they are more prone to accidents, which is risky to the passengers.
There is a need for regulation on the minimum wage and maximum hours of work for bus drivers to ensure safety to the public. This principle can be extended to construction and production work. We should have a minimum wage and maximum working hours in most occupations.
Tan Kin Lian
Bus operators in Malaysia compete fiercely for business. They have to offer lower fares. To survive, they pay low wages to their bus drivers, who have to work long hours to make up for the inadequate pay. Due to insufficient sleep and rest, they are more prone to accidents, which is risky to the passengers.
There is a need for regulation on the minimum wage and maximum hours of work for bus drivers to ensure safety to the public. This principle can be extended to construction and production work. We should have a minimum wage and maximum working hours in most occupations.
Tan Kin Lian
Tuesday, December 29, 2009
Hassle given to travellers
When I visit another country, I am usually asked to complete three detailed forms for immigration, custom and health. They ask a lot of detailed questions. It is quite troublesome to complete these forms.
I suspect that the authorities do not use the information in the forms, but they still ask the visitors to complete them anyway. It cost them nothing. They do not care about the hassle given to the visitor.
The immigration form was necessary in the days before computerisation. It was the only way for them to record who has visited their country. But, after computerisation was introduced, the information of the visitor was already automatically recorded into the computer. But the immigration authority continued to ask the visitor to fill up the form.
Have you wondered why they ask you to enter information on where you are staying? The only purpose is to contact you in an emergency. If this was the purpose, it would be easier to ask the visitor to give the mobile phone number. Anyway, the forms were introduced in the days before mobile phone was available, and has not been changed.
I wonder why all the governments around the world, including Singapore, employ highly paid civil servants, but they do not think, or do not care.
My Indonesian friend passed this remark. A civil servant had said that it is their job to make life more difficult (and not simpler) for the other people.
I suspect that the authorities do not use the information in the forms, but they still ask the visitors to complete them anyway. It cost them nothing. They do not care about the hassle given to the visitor.
The immigration form was necessary in the days before computerisation. It was the only way for them to record who has visited their country. But, after computerisation was introduced, the information of the visitor was already automatically recorded into the computer. But the immigration authority continued to ask the visitor to fill up the form.
Have you wondered why they ask you to enter information on where you are staying? The only purpose is to contact you in an emergency. If this was the purpose, it would be easier to ask the visitor to give the mobile phone number. Anyway, the forms were introduced in the days before mobile phone was available, and has not been changed.
I wonder why all the governments around the world, including Singapore, employ highly paid civil servants, but they do not think, or do not care.
My Indonesian friend passed this remark. A civil servant had said that it is their job to make life more difficult (and not simpler) for the other people.
Alternative to Travel Insurance
I took two long trips in 2009, to Alaska and to Sichuan. Each trip was for more than a week. I decided not to take travel insurance, and to bear my own risk. My wife wanted to take travel insurance (as she is more risk averse) but finally decided against it.
I already have a large cover under a personal accident insurance. If there is an accident, it will be covered under this annual policy.
The travel policy covers loss of luggage, flight delay and other risks. But the amount of compensation is quite rather small, say $100 or so. It will be quite troublesome to make a claim for such a small sum. If I fall ill during the holiday, the medical expenses may cost a few hundred dollars. But the chance of making a claim is rather low.
I have taken more than a 100 trips during the past years and have never had the need to make a claim. I do not buy travel insurance for these trips. If the chance of a claim is 1 in 100, it is worth taking the risk. The premium saved on 100 trips would more than cover any future claim.
Tan Kin Lian
I already have a large cover under a personal accident insurance. If there is an accident, it will be covered under this annual policy.
The travel policy covers loss of luggage, flight delay and other risks. But the amount of compensation is quite rather small, say $100 or so. It will be quite troublesome to make a claim for such a small sum. If I fall ill during the holiday, the medical expenses may cost a few hundred dollars. But the chance of making a claim is rather low.
I have taken more than a 100 trips during the past years and have never had the need to make a claim. I do not buy travel insurance for these trips. If the chance of a claim is 1 in 100, it is worth taking the risk. The premium saved on 100 trips would more than cover any future claim.
Tan Kin Lian
Monday, December 28, 2009
Bad experience with land banking plot
Dear Mr. Tan,
Some years ago a good friend of mine purchased some UK Land Banking plots. She was so blinded by the opportunity that when I questioned it we fell out for a while. She could not believe that such opportunities could be allowed in Singpaore and advertised on the TV if they were not true. She was not particularly greedy in fact I found her to be a very kind and gentle person.
Like many of us she wanted an opportunity to help her get ahead in life and be secure. The upshot was she has lost a significant portion of her savings to a scheme that has no chance of success.
I felt ashamed that such things could happen in the UK. After investigating and contacting some UK local authorities I was horrified at the way these schemes are run. They are designed to have absolutely no chance of success and to extract as much money as possible from the unfortunate investor.
Unfortunately what i've also discovered is that defamation law makes it very difficult to criticise a scam unless it is almost 100% proved especially in Singapore. It seems the only way to prove a scam without time and huge resources is to wait for the company to fail.
Even then typically the company will restart 2 or 3 times under different names claim mismanagement by a single executive and take more money from their loyal customers.
SF
Some years ago a good friend of mine purchased some UK Land Banking plots. She was so blinded by the opportunity that when I questioned it we fell out for a while. She could not believe that such opportunities could be allowed in Singpaore and advertised on the TV if they were not true. She was not particularly greedy in fact I found her to be a very kind and gentle person.
Like many of us she wanted an opportunity to help her get ahead in life and be secure. The upshot was she has lost a significant portion of her savings to a scheme that has no chance of success.
I felt ashamed that such things could happen in the UK. After investigating and contacting some UK local authorities I was horrified at the way these schemes are run. They are designed to have absolutely no chance of success and to extract as much money as possible from the unfortunate investor.
Unfortunately what i've also discovered is that defamation law makes it very difficult to criticise a scam unless it is almost 100% proved especially in Singapore. It seems the only way to prove a scam without time and huge resources is to wait for the company to fail.
Even then typically the company will restart 2 or 3 times under different names claim mismanagement by a single executive and take more money from their loyal customers.
SF
Sunday, December 27, 2009
The Talent Myth
During the past decade, there was a belief that talents are important for the future of a business or a country. Common sense and practical experience were discarded in the "war for talent". Talent was richly rewarded at the expense of the ordinary workers. Here is an interesting story about a well known company that pursued this strategy to an extreme. It brings useful lessons of people who belief in this strategy.
Talent and fat bonuses
For the past decade, there was a prevailing thinking that talented people cerated wealth and should be remunerated handsomely with fat bonuses and share options.
There was no distinction between the type of wealth and how they were created. In many cases, the wealth was created on top of a big asset bubble in properties and shares. The "talents" in the property and financial sector earned huge remuneration and bonuses.
When the asset bubble burst, these are the sectors that had to be bailed out. But, the fat bonuses are kept by the so-called "wealth creators".
The sad fact is that we are now going back into another asset bubble, with the low interest rate and bailout using taxpayer's funds. This will not be sustainable, and the world is likely to face another financial crisis - unless the asset bubbles can be reined in. But, that would be very difficult, given the low interest rate in the world today. In the meantime, the business leaders will continue to take the fat bonuses.
Tan Kin Lian
There was no distinction between the type of wealth and how they were created. In many cases, the wealth was created on top of a big asset bubble in properties and shares. The "talents" in the property and financial sector earned huge remuneration and bonuses.
When the asset bubble burst, these are the sectors that had to be bailed out. But, the fat bonuses are kept by the so-called "wealth creators".
The sad fact is that we are now going back into another asset bubble, with the low interest rate and bailout using taxpayer's funds. This will not be sustainable, and the world is likely to face another financial crisis - unless the asset bubbles can be reined in. But, that would be very difficult, given the low interest rate in the world today. In the meantime, the business leaders will continue to take the fat bonuses.
Tan Kin Lian
A good settlement mediated by FIDREC
An investor told me that the FIDREC mediator was able to get the financial institution to buy back 50% of the Lehman mini-bonds at full value (less interest received). He retained the remaining 50% of the investment.
In my view, this settlement is fair and is in accordance with my suggestion that both parties (i.e. the distributor and the investor) should share the loss equally. Actually, the investor suffered a larger loss as the capital sum had been invested for a few years without any return.
Anyway, the investor was glad to receive this settlement and thanked me for advising him to go to FIDREC. I hope that the other financial institutions would make a similar offer to their investors.
Tan Kin Lian
In my view, this settlement is fair and is in accordance with my suggestion that both parties (i.e. the distributor and the investor) should share the loss equally. Actually, the investor suffered a larger loss as the capital sum had been invested for a few years without any return.
Anyway, the investor was glad to receive this settlement and thanked me for advising him to go to FIDREC. I hope that the other financial institutions would make a similar offer to their investors.
Tan Kin Lian
Financial sector is too big and unproductive
Several top economists have commented that the financial sector has grown to be too big. They do not create any value, in terms of actual production of goods and services to improve the quality of life. They are a drain on the productive economy and take away the best brains in recent years. They create bubbles and led to the collapse of the financial system.
I agree with these views. You can watch a video of the speeches given by these top economists in the academic section of Temasek Review.
I agree with these views. You can watch a video of the speeches given by these top economists in the academic section of Temasek Review.
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