Saturday, January 16, 2010

Tax the big banks

Here are the reasons to tax the big banks. Read this article.

Buy insurance up to age 60

Many agent advice consumers that they need to buy life insurance for the whole of life. This is bad advice.

The consumer only need to buy life insurance up to the time that their youngest child reaches age 25. By that time, all the children would have been financially independent. This is likely to be age 60 or 65 (for those who have their children at an older age).

There is no need for life insurance after age 65. If the consumer had been prudent in having regular saving during their working life, they are likely to have sufficient savings to take care of their retirement needs. This could amount $250,000 for an ordinary wage earner or more for a high income earner. With this savings, there is no need for life insurance cover.

The agent likes to advice consumers to buy the most expensive insurance policy, as their commission is directly linked to the amount of premium. They can earn between 12 to 24 months of the savings. If you save $300 a month, you may lose $7,200 of your savings to pay commission to the agent or the expenses and profit of the insurance company. This is a lot of money to give away, especially as the saving plan does not give you an attractive return (compared to saving in an low cost unit trust) and imposes a heavy penalty if the policy is terminated prematurely.

You should have your savings separately and buy Term Insurance or Family Income Benefit for 25 years or up to age 60 years (if this is shorter). This is adequate for most people. But you can consider your own financial situation to make a suitable decision. Do not be misled by an insurance agent or financial planner who is only interested in earning a higher commission.

Tan Kin lian

Friday, January 15, 2010

Big pay packets in Wall Street

The big pay packets are now receiving attention from various quarters. Read this article.

Life insurance for family protection

You only need to worry about life insurance when you have dependents, e.g. after you are married and have children. In the event of premature death, the life insurance policy will take care of the financial needs of your dependents.

You should buy a low cost life insurance, such as a Term Insurance or Family Income Benefit. If you take the insurance at a young age, you only need to insure for 25 years, as your children would have been financially independent on the expiry of the insurance. Furthermore, after 25 years, you would have accumulated sufficient savings, and life insurance is not needed at that time.

If you buy Term Insurance or Family Income Benefit at an older age, you can buy for a shorter period, e.g. until your youngest child reach age 25. If you take up the insurance when your youngest child is 10 years old, you only need insurance for 15 years.

The best insurance is actually a Family Income Benefit. You can insure for 60% of your current earnings. If your monthly income is $5,000, you can buy this insurance to pay $3,000 a month in the event of premature death (i.e. during the term), for a benefit that is payable for the remainder of the term. If you buy a 25 year insurance and death occurs after 10 years, the Family Income Benefit is payable for 15 years.

Alternatively, you can buy a Term Insurance to provide a lump sum of 5 years to 10 of your annual income, for a term of 25 years. If the term is less than 25 years, you can reduce the insurance sum proportionately. If you need insurance for the next 15 years, you can insure for 3 to 6 years of your income.

A Family Income Benefit is better than Term Insurance, as your family will not have to worry about investing the lump sum payable on premature death. Instead, they will receive a monthly income.

You can upgrade your Term Insurance or Family Income Benefit every 3 to 5 years, to increase the insurance in line with your higher earnings. However, even if you do not, the basic benefit should already cover most of your financial needs of your family.

You can visit this website to get an indication of the premium rate that you should be paying for Term Insurance. Although the website is for America, you can get an idea about the premium that you should be paying for similar insurance in Singapore. I have not been able to find a website to give the premium rate for Family Income Benefit.
Tan Kin Lian

Thursday, January 14, 2010

Buying Term Insurance from America

Someone asked me about the risk of buying Term Insurance from America. They premium rate is much lower than the rates available in Singapore and it is easy to buy through the internet. Here is an example of a website.

I am not aware about any risk. I believe that it should be quite easy to make a claim, if the need arises. You should choose a financially strong and reputable company. I have asked two lawyers to give me their views. I will past the replies when I received them.

Of course, it is better to buy Term Insurance from an insurance company in  Singapore, provided that the premium rate is competitive and they make it easy to buy directly through the internet. It is all right for you to pay up a higher premium for the convenience and assurance, but the difference should not exceed 20% compared to the best rates available in America. I hope that competition in Singapore should force the premium rate down to the same level as in America (as the life expectancy and health status in Singapore is better than in America.

Tan Kin Lian

Financial Inquiry Commission

The US Congress set up a Financial Inquiry Commission to investigate the causes of the financial crisis. Some knowledgeable people and the media have identified questions to be posed to the large banks that were involved in the crisis. The questions are shown here:

Ten Questions A Financial Inquiry Commission MUST Ask

by Eliot Spitzer, William Black, and Frank Partnoy

My questions for 4 bank CEOs 

Mr Keith Hennessey, an ex-senior White House economic advisor to former president
George W Bush, is one of the members of the 10-member panel..

Questions for the Big Bankers

The New York Times's Op-Ed editors asked eight financial experts
to pose questions they would like to hear the bankers answer.

Educating our young - views posted in survey

Views posted in the survey

1. Please don't force the children to buy useless textbooks which are not comprehensive enough. At the moment there is a huge sideline industry for other "outside" study guides which are a thousand times better than the school textbooks! It penalises the children from poor families who already spend all their money on the Official textbooks.

2. Children learn the selfishness from parents. Parents are selfish because of the education system here. So, the root cause is the education system here. Under the current system, only those who can perform better academically will be "rewarded" with a place in "good" school. Consequently, lucrative career awaiting them in government service. As there are limited vacancies in these "good" schools, do you think parents would share useful info among their friends so that children of their friends would land a place in these good schools? That's how the selfishness begins and unwittingly pass it to the next generation...sad!

3. University degrees ought not to be valued over other factors in recruitment, unless the technical knowledge or skills required are those that cannot be acquired otherwise (medical, engineering, or specific professional degrees). For example, an general office worker does not require a degree to be competent; rather, what should be required are good language skills and other skills that are relevant to the job. A university degree may be a sufficient condition, but it ought not be a necessary condition.

4. Good results/certification does not equal to good future.

Participate in the survey by clicking on this link.

Wednesday, January 13, 2010

Unemployment in Singapore

I need your help to do some research on unemployment in Singapore

a) How many citizens and permanent residents lose their job each year, due to retrenchment or business failure of their employers, i.e. not due to change of job? It varies from one year to another, but I like to have an average over a number of years.

b) What is the proportion of people who lose their job, i.e. taking this average number as a percentage of those in the workforce.

c) How long does it take to find a new job and what is the average salary for the new job compared to the job that was lost? This statistics may be difficult to get, but I hope that some approximate figures are available.

d) How long does it take a school leaver to find a full time job?

You can post your findings here or send them to

Speech by Franklin D Roosevelt

Three score and six years ago, the greatest president of the 20th century gave one of his greatest speeches. On Jan. 11, 1944, in a State of the Union address that deserves to be ranked with Lincoln's "Gettysburg Address" and King's "I Have a Dream" speech, President Franklin D. Roosevelt called for recognition of a "Second Bill of Rights."

According to FDR:

"This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights -- among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty. As our nation has grown in size and stature, however -- as our industrial economy expanded -- these political rights proved inadequate to assure us equality in the pursuit of happiness."

"We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. 'Necessitous men are not free men.' People who are hungry and out of a job are the stuff of which dictatorships are made.

In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all -- regardless of station, race, or creed."

President Roosevelt was not promoting economic rights that were necessarily enforceable in court, but rather economic benefits and opportunities that every American should expect to enjoy by virtue of citizenship in our democratic republic.

Many of the rights he identified have been secured by programs with bipartisan support. These include "the right to a good education" (the G.I. Bill, student loans, Pell Grants, Head Start, federal aid to K-12 schools) and "the right of every family to a decent home" (federally subsidized home loans and tax breaks for home ownership). But even before the global economic crisis, the U.S. fell short when it came to full employment -- "the right to a useful and remunerative job in the industries or shops or farms or mines of the nation" -- and a living wage -- "the right to earn enough to provide adequate food and clothing and recreation."

Utopia of welfare corporatism

Dear Mr. Tan,

I believe this article has strong relevance to our situation in Singapore:

Some of the things that Mr. Lind mentions are occuring here.

"In the utopia of welfare corporatism, today's public benefits -- Social Security, Medicare, unemployment insurance and, in a few states, public family leave programs -- would be abolished and replaced by harebrained schemes dreamed up by libertarian ideologues at corporate-funded think tanks like the Cato Institute and the Heritage Foundation. Tax subsidies would be funneled to insurance companies, brokers and banks. Social Security would be replaced by a bewildering miscellany of tax-favored personal savings accounts. Medicare would be replaced by a dog's breakfast of tax subsidies for purchasing health insurance and personal medical savings accounts. Unemployment insurance would give way to yet another Rube Goldberg scheme of tax-favored unemployment insurance accounts. As for family leave -- well, if you're not wealthy enough to pay out of pocket for a nanny for your child or a nurse for your parent, you're out of luck."

I also agree with this:

"The strongest case for economic citizenship instead of welfare corporatism is economic. Economic citizenship is more efficient and cheaper in the long run, because the government need only meet costs, while subsidized private providers must make a profit."


Prices of HDB Flats

Some comments in the survey

1. HDB Flat used to be financed by one breadwinner with 20 years loan period in the past, but now it is financed by double-income family yet stretched to 30 years, this is a reflection of un-affordability in price.

2. Most young (<30 years old) are willing to spend more on repayment because they think that their salaries will increase and with more income in future, the repayment % will go down> They are not aware that the 23% that goes into the cpf OA when they are fresh out of school will be reduced to 19% when they are 35 and even lesser as they grow older. Even under a 5% yearly salary increment without hitting the 4k cpf cap, the 5% increment cannot cover the drop in 4% to the cpf OA.

3. I hope that HDB does not act like a private company like Capitland. If so, then it should be listed like a REIT in SGX.

4. I think prices should reflect the national income level and should not be subject to speculation or COV. Because HDB monopolises the public housing market, their priority should be to ensure prices remain within the means of the average Singaporean. HDB housing should also only be made available to Singapore citizens and not permanent residents. It is highly unfair for permanent residents to be entitled to buy a HDB flat and later on sell for a profit when there is no 100% guarantee that they intend to live in the country until the day they croak. If the government sincerely believe that Singaporeans are their priority - this is the key area they need to seriously look into or make proper adjustments before it's too late.

Survey - Educating the Young

Read here for my views. 

Take part in this survey.

Sports Hub to be ready by 2015

The Sports Hub was supposed to have been completed earlier. Now it will be ready by 2015, a few years behind schedule. The delay was due to financing problems faced by the developer.They were not able to raise the funds during the financial crisis and had to stop work.

I have always considered that public infrastructure and facilities should be owned by the state. The funding of these assets should not be privatized, as this would bring along a host of problems, such as the rate of return to be allowed to the investors on the monopoly. In this particular case, the financiers, i.e. the banks, had to deal with the problem of the viability of the project and the financial standing of the asset owner and hub operator.

If the state owns the assets, they will also have to deal with these issues. But, there is now a culture in Singapore to avoid taking the responsibility to make the hard decisions and to pass the them to the private sector and the market and let them find a solution.

A problem does not get solved when it is made by complicated or passed to people who have less resources to handle them. The private sector has to deal with all of the viability and operational issues, and also have to worry about raising the funds and, unlike the state, it does not have a AAA credit rating.

A better approach is for the state to own the Sports Hub and to lease it to the operator at an annual fee. I hope that the lesson of the Sports Hub will be learned and that the funding of mega-projects are not outsourced to the private sector in the future.

Tan Kin Lian


US Congress inquiry into the Financial Crisis

The US Congress is conducting an inquiry into the cause of the financial crisis. Here are some questions to be asked.

Authorities act on money lenders

Parliament has passed the Money lender's Amendment Bill. Singaporeans can now celebrate. With this new law, the Police can now take action on this menace - the vandalism committed by loan sharks against the properties of the borrowers, and against innocent neighbors whose flats were vandalized by mistake.

It appears that in this law abiding country, there was no law against vandalism in the past - that the Police were powerless to act against the loan sharks and vandals under the existing law. Surely, this cannot be the situation in Singapore?

More worrisome is my feeling that the Police did not act, because they were waiting for a decision at the top level, that this problem needs to be tackled. It seems that we have now developed a culture in Singapore to avoid responsibility and initiative, and to wait for the "boss" to decide for us.

Tan Kin Lian

Rechargeable torchlight for use in hotels

I sent this brochure to a hotel owner. They are interested to try it.

Magic of the Shape Quiz

View this powerpoint to learn how the shape quiz can give you hours of fun, keep dementia away and train a flexible mind. You can buy the Shape Quiz at  (Internet Shop)

Investment principles for 2010 and beyond

Read this article in Market Watch.

1. The markets are a dangerous place. They are little more than legalised casinos.
2. Fear and greed drives the markets.
3. Technical analysis does not work.
4. Stay liquid and diversify

a) Never invest with money that you may need in an emergency
b) Money that you may need should be in a saving account, to be used in an emergency
c) Investments are always priced at watch they are worth
d) Actively management funds rarely beat the benchmark

The 4th principle is useful and has to be read many times.

Tuesday, January 12, 2010

Adapting to the competitive school environment

Dear Mr. Tan,

My son attended an Elementary School in America when he was in First Grade and Second Grade. He enjoyed school very much and was very participative in class as the teachers would encourage the pupils to speak up even though they may not give the right answers at times.

We returned to Singapore when he was in Primary 3 and he continued to enjoy schooling and did very well in school. He was then posted to the best class in primary 5 and 6. It was a very competitive class and the students are rather conscious with their marks and grades for everything they did. My son was under a lot of stress and began to lose confidence in himself. He constantly feels that he is not good enough and started to worry too much about examinations. We have always assured him that we would be proud of him no matter what grade he gets. Learning to him is no longer fun but a competition for higher marks. 

 Fortunately, he did reasonably well in PSLE and is now in Secondary One. He is making new friends and is adapting well to the new environment. We can see that he is gaining his self confidence slowly and we are glad that he is enjoying school again.

Excesses and redemption

The free market, unregulated capitalism in America during the past two decades has caused a lot of damage to the global economy. It has created sub-prime mortgages, which were then packaged into collateralised debt obligations (CDOs) and backed by credit default swaps (CDSs) and dubious credit ratings and sold all over the world. It created a big, unsustainable bubble in  housing prices, which has since collapsed, causing the biggest financial crisis in several decades.

In spite of its shortcomings, there are redemptive features in the American system. The poltical leaders have realized their mistakes and are enacting new laws to protect consumers, taxpayers and to stop the predatory practices.

Their state attorney generals are willing to step forward and take action on behalf of consumers to address cases where financial institutions could have broken the law in misrepresenting products to consumers or were negligent in giving bad advice. In many cases, the financial institutions were willing to settle the cases out of court and to compensate the consumers. The financial institutions knew that they had acted wrongly and that they are likely to be found guilty by the American system of justice.

Many consumers in Singapore have suffered similar damages on similar products sold in Singapore. It is possible for the Attorney General's office in Singapore to take a similar measure on behalf of these consumers who are not able to engage their own lawyers (at unaffordable fees). Their only recourse was through FIDREC (dispute resolution), but the outcome had been tedious and long and usually unsatisfactory. They have to bear their losses silently (as public protests are not allowed).

The poor level of consumer protection in Singapore will cause long term damage to our reputation as a financial hub. I hope that this serious shortcoming can be addressed before it causes irrepairable damage.

Tan Kin Lian

Educating our young

I have been invited by a political party to give my views on the following. I am not able to attend that meeting, due to clash of schedule, but I will be giving my views in this blog.

1.What are the education policies needed to prepare our next generation?
2.How can we make education as the key means of enhancing social mobility and employability of Singaporeans?
3.What are the education plans for Special Need/Disabled Children?

I like to invite my readers to give your views on these topics.

Read here for my views.

Tan Kin Lian

Capitalism and socialism

The free market capitalism that the world has gone through in recent years has caused the collapse of the global financial system. Without regulation and restraint, it has created a large asset bubble in housing and has produced unjustified huge profits for the financial sector. The wealth taken away by the financial sector has improverised the rest of the economy and cause long term damage.

Some people think that the capitalist system will continue to work well, if there is stronger regulation. I agree that it is better than weak regulation, but it will still not solve the underlying problems of unemployment, exploitation of the weak and insecurity.

To solve these fundamental problems, we have to adopt socialist principles. It means higher taxes but better social security, such as employment, old age pension, affordable health care and education. More of the basic needs should be provided by society, and funded by taxation, rather than be paid individually (which allows the consumers to be exploited by the providers).

Examples of exploitation of consumers are the high charges taken away by financial institutions, doctors and lawyers for their services. The consumers cannot afford these high charges. If the basic services are provided by the state, and paid by the state, there is less need for consumers to have to pay higher charges for these basic services. These professions can continue to offer their services to the affluent and rich.

There is the fear that services provided by the state can be wasteful and abuse. This is a valid fear, but it can be managed and minimized by adopting transparency and accountability. Under the free market capitalism, there are also abuses, but they take the form of exploitation of the ignorance of consumers (i.e. cheating) and by profiteering (i.e. overcharging).

Socialism and democracy can go hand in hand. Europe has a democratic socialist model. It worked reasonably well in giving a satisfactory life for its people. It is not perfect, but neither is capitalism.

Some people don't like the world "socialism" or "democratic socialism". Professor Paul Krugman has used the world "social democracy", which sounds more acceptable.

What the people need to avoid are abuse of power by the people in charge. This applies to socialist and capitalist systems equally. There are some capitalist economies that are undemocratic and do not respect the will of the people.

Tan Kin Lian

Monday, January 11, 2010

HDB flats and population growth

Recently, there has been a great deal of interest in the run up in property prices. The following are some statistics from the Yearbook of Statistics 2009 which can help explain why.
Number of HDB flats
Total Population
Resident Population
From 2003 to 2008, the total population increased by 17.6% The resident population increased by 8.2%.
The number of HDB flats however only increased by 1.2%.
It is unclear why HDB has been building so few HDB flats from 2003 to 2008. The numbers very clearly suggest that the HDB building program has been unable to keep pace with the increase in population. The current boom in housing prices is therefore not fueled by "irrational speculation" or HDB pricing polices. Rather it is due to a very real supply shortage in housing to meet the demands of our growing population. 
The danger in these type of situations is that the large price increases will bring about a very sharp market correction. In response to criticism, the HDB has recently announced that they will step up building.
Large number of private developers have also launched new projects to "cash in" on the record prices.
On the demand side, MOM has also recently implemented policies so that it is more difficult for foreigners to come and work in Singapore.
The market will therefore almost certainly overshoot and we can be assured of a very dramatic fall in housing prices, most probably in 3Q2010 to 4Q2010.

Learning from Europe - social democracy works

Read this article by Paul Krugman and weigh the facts.

Term insurance - buy directly

Many consumers find it difficult to buy Term Insurance directly in Singapore. When they call the hotline of the insurance company, their case is passed to an agent who quotes them an unrealistic high price for term insurance and pushes Investment Linked Policies or Critical Illness policy as a consumer, giving misleading advice that these savings policies give better value (which they do not!).

If you insist and do get a quotation for Term Insurance, you can compare it with the rates quoted in this website, which offers the term insurance in America. I am not suggesting that you buy from America, as there are other issues that you need to consider. But, at least you can find out if the rate for Term Insurance quoted in Singapore is fair.

For example, in my website, I gave a "benchmark" premium of $541 for a male age 30 insuring $200,000 for 20 years. If you find a better offer from a Singapore company, it is acceptable. However, if you are offered a much higher premium, you know that the agent is trying to mislead you with an unrealsitic quote.

I tried the above website and found rates (for a non-smoker in regular good health) to range from $327 to $506 for the 9 companies listed. So, it is possible to get lower premium compared to my "benchmark".

Tan Kin Lian

More jobs in health care sector

This article explains the increase in jobs in the health care sector, in spite of a weak economy in America. The same trend will apply in Singapore as well. There will be more jobs in health care in the future.

Economic recovery depends on government stimulus

This article suggests that the economic recovery is fragile and depends on government stimulus. The global economy continues to be in bad shape.

In my humble opinion, it will take a long time for the global economy to recover, if we continue with the free market capitalism. Here are some obvious problems with free market capitalism:

a) wide disparity of income
b) insecurity of jobs
c) financial sectors makes huge profits, without creating real value
d) bad business ethics and cheating
e) poor protection of workers and consumers
f) poor leadership from government leaders

If I am wrong, the global economy will recover soon. If I am right, be prepared for a decade of economic depression, or a change towards socialism (which is a better economic system, so I think).

Regular savings in a bank

Some banks offer regular savings plan that pays higher interest rate. Here are the terms from DBS Bank (see MySavings Account).

This is suitable for young people to set aside some regular savings. If you have to withdraw your savings, you do not have to suffer any loss of your savings (unlike a life insurance policy, where more than 50% of your savings is taken away).

Sunday, January 10, 2010

HK: Bank staff did not understand mini-bonds

According to this report, the Securities and Futures Commission in Hong Kong admitted that they found the bank staff did not understand the mini-bonds that they sold and that their risk assessment was superficial. The same situation applies in Singapore, except that we are not so honest in admitting our mistakes.

Walk away from your mortgage

Here is an advice to home owners whose properties have fallen. It is given in the context of America where the financial institution may not have recourse to the borrower. The legal situation in Singapore may be different.

Benefit illustration - Life or Investment Linked Policy

Many agents will tell you about the new products that have been recently introduced. Most of these products have the same features - marketing gimmicks, complicated to understand, high charges, poor return to the investors.  Do not believe what the agent tells you, as they will usually exaggerate the good features (such as potential high return) but hide the bad features (i.e .not guaranteed, returns are exaggerated). They usually do not tell you that more than half of your savings is taken away from you to pay their commission during the initial few years.

If you have received a benefit illustration on a life insurance policy, and you are not sure what you have bought, you can send it to me at I will help you to see if you have been given the correct information by the agent.

Tan Kin Lian

Students and young people should avoid saving in life insurance policies

I told this story a few months ago, and wish to repeat it.

A polytechnic students told me that he received a monthly allowance of $600 from this father, who is a bus driver. His friend sold him two life insurance policies that takes away $300 a month in premium. He knows realize that it was a bad decision, as he needed the money for his schooling and other expenses, and finds it difficult to pay the monthly premium. If he gives up the policies, he would suffer a large loss in the premiums that he had paid. He is now in a dilemma.

I like to advice young people to avoid taking life insurance policies, as a large part of the premium during the first few year goes to pay the commission to the agent. If you stop the policy, you will lose more than half of the premiums that you have saved. You will need the savings for other unexpected events.

My same advice goes to young people starting work for the first time. The insurance agent will sell you a life policy or investment-linked policy. They are all the same. You will get a poor return and a large part of your premium goes to pay commission to the agent.

Many people save in a life insurance policy (and be tied up for 20 years for a miserable 2% return), and roll over their credit cards paying 24% per year. This is bad financial management.

It is important for you to save, but you should save in a bank account. If you need to withdraw your savings, you do not have to suffer a penalty. If you wish to invest, do it at a later date, and invest in an exchange traded fund (such as the STI ETF) which has low transaction charges and gives you a good long term return.

But, before you invest, you can read my book "Practical Guide to Financial Planning", which will be available  in March 2010, or join the Financial Services Consumer Association, FISCA (

Tan Kin Lian

Dhanabalan: Bubble in bets on events

Dear Mr Tan
In today's straits times, Dhanabalan said "the financial crisis is not the result of bankers making ill-judged loans to the real economy; it is the result of a bubble in bets on events in the real economy"

I do not know why he used the unusual word "ill-judged loans" but i believe he is talking about the subprime loans existing prior to the crisis of 2009. According to many internet articles I have read, and also a YouTube video explaining the Financial Crisis, the crisis was caused by sub-prime loans which are chopped and repackaged to CDOs etc. to spread the risks to the unwary investors. As a layman, I can understand this.

But Dhanabalan said it was nothing to do with these. He said the Financial Crisis was due to "a bubble in bets on events in the real economy". The Straits Times writer also added that it was a bubble "formed from bets on how events in the economy would pan out". I have absolutely no idea what Dhanabaln or the writer is saying about "bubble in bets on events".


This is how I interpret Mr. Dhanabalan's views. By real economy, he meant lending to companies to manufacture products, distribute goods, employ people. By taking bets, he meant that they were speculating on the asset prices through sub-prime, collateralized debt obligations (CDOs), credit default sways (CDS), and other derivatives.

If the housing prices continue to go up, they all win their bets. When the housing prices fall, the financial system collapse.

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