Tuesday, November 04, 2008

Dr Lan Luh Luh – your further clarification is required.

Posted at request of Richard Woo

Firstly, it is heartening to note that Dr Lan is cognizant, from her own experience [she “talked to some of them on many previous occasions”], that “quite a number” of the financial managers [RMs?] had no understanding of the products they were selling. A good start for you, Dr Lan.

But we do not know how many RMs she had spoken to, on those “many previous occasions”, and whether they were the same persons or different persons. “Some” here can mean two or three only and if Dr Lan had spoken to only two or three people, it would not be accurate to say “quite a number of them did not even understand…” Furthermore, an extrapolation from the past may not be an accurate reflection of the present; the ones she spoke to may not be the ones who are doing the selling today; the latter may be more knowledgeable or better educated.

Secondly, Dr Lan commented: “Although I understand that many of these financial managers are required to go through related financial courses and tests (and that these tests are not necessary easy to clear), the fact that there can be so many alleged mis-selling incidents may indicate that some of these people themselves might not have been adequately trained.” There is no question that mis-selling has occurred, with regard to the so-called structured products linked to Lehman Brothers. Would Dr Lan agree with this statement, taking into account that several distributors have begun making restitution for having mis-sold?

Would Dr Lan also agree that when these products were being flogged to the public, the distributors made no distinction as to whom the products should be sold? In other words they were selling to every Tan, Lim and Chua, male or female, elderly or young, educated or illiterate? Would she agree that some of the sales measures, including promotion advertising material, adopted by some, if not all, distributors were clearly out of sync with the inherent risks of the products? Would she agree that these products were high-risk investments?

I refer now to the last paragraph of Dr Lan’s clarification: “Under these circumstances, the normal investors who are supposed to be savvy and understood the products they bought cannot complain subsequently when the products turn bad. In Lehman's case, actually many might know about the risk (i.e. they may stand to lose all if the banks collapse), but who would have heard of 6 months ago that any American bank, esp. one as strong as 158-year old Lehman, would go into liquidation? This is generally the worst risk -- almost like an unthinkable apocalypse -- and in this case, it materialized. So barring all the talks about misselling etc., people who knew the risk but just thought that it would never materialized cannot complain.”


The last sentence seems to be the lynchpin of the entire paragraph. So, am I right in saying that Dr Lan is not excluding the right of “normal investors” to seek restitution for mis-selling, provided they can prove that they had been mis-sold, through misleading adverts and other misrepresentations made by the RM? Would Dr Lan discount the possibility that any distributor having mis-sold to A could also have mis-sold to B, or X or Y?

Finally, Dr Lan, [1] how do you define “normal investors”? and [2] whether there is anything in law that distinguishes “normal investors” from other investors?

BTW, to all those who have mistakenly assumed Dr Lan as a male, Dr Lan is a “she”.

Richard Woo

12 comments:

ym said...

following is certainly very disturbing news for the financial industry...

chief risk officer of bear-stearns named SVP at federal reserve :
http://www.ny.frb.org/newsevents/news/aboutthefed/2008/oa081031.html

is it meritocracy?.. or cronism?.. or maybe the fed wants to tap his expertise is collapsing bear stearns?

Anonymous said...

I doubt she talked to any RM. I doubt she even gave the minibond saga a lot thought

A lot of things she has said were said at the spurt of the moment. She like to make off-the-cuff comments. That is sad.

Anonymous said...

Before anyone jump at anyone throat, I took a step back and relook.

Ok agreed, the said party tried to bring across certain points that would arguably be controversial at best. (BUT i dont think they are entirely irrational either, fine fine shoot me as well.)

But i think all these are but a smoke screen, as like the sales man or lady in the executive jacket or a tie or stocking.

At the end of the day, dont waste bullets gunning down the wrong moose, a smoking barrel doesnt make an effective hunter. A fed one at that.

Go where the decision maker is, the real McCoy is usually much better disguised (and silent in TIPTOEING-A-ROUND - there, THATS your Tipper.)

Anonymous said...

Hi RW,

She again missed all the points and I could infer that she replied without making any research.
Unlike the commercial banks of our own DBS, UOB & OCBC, Lehman Brothers & Morgan Stanley are investment banks though US based.

The Lehman Minibond Series and Morgan Stanley Series are not safe BONDs and the machanism are far more complicated than what she thought.

It is the work of CDSs - Credit Default Swaps - are regarded as unregulated intruments, arcane and toxic; and is the major causes for the near collapse of the insurance giant AIG (Refer to ST 28 Oct 08 Page A17). If she did some research she should be able to link the AIG precicament to the structured product that put the 10,000 retail investors into misery. A prudent person shall make a little effort to understand the underlying problem of Lehman Minibonds before making comments.

In her clarificationof the issue, she had another reckeless remark in that: "..... In Lehman's case, actually many might know about the risk (i.e. they may stand to lose all if the banks collapse), but who would have heard of 6 months ago that any American bank, esp. one as strong as 158-year old Lehman, would go into liquidation?" When U did put in a little effort to work on how severely the US & the world suffered from the financial crisis involving the US sub-prime market plight via the CDOs, CDSs and the like, U wouldn't be surprised that ML, BS, LB and even MS, JPM & GS the investment banks which with such a high exposure to CDOs might fail.

Structured products concern, the issuer or rather the swap counterparty can fail owing to hugh CDOs exposure. The same goes to reference entities especially investment banks are there. Finally, the most critical one that have yet to fail in Lehman Minibonds, ML Jubilee 3 & DBS HN2 debacle are the default in underlying assets which involves the further credit swap with other investment banks too.

The FACT is that it is too complicated and too high the risk for those who was proclaimed by Dr Lan to have known the risk to risking their 100% capital for a peanut 5% return. Those who wish to undertake the risk will have to bet in three major areas: Swap counterparty doesn't fail; REs do not fail; and the underlying assets do not go below the subordinate level which is determined by a complex mathematics calculaton involving probablity. As the underlying assets are US$ denominated ,there is currency play too.

In short, I see nothing but FLAW in her clarifiacation.

Tks!

siewkhim said...

Dr Lan, I for one thought you are a male on account of your name.

Dr Lan, I would advise you to short circuit this potentially long drawn exchange of postings
by just saying that you wish not
to go further into the issue as
you do not have the luxury of time.

Ken said...

Richard,

I'll be surprised if Dr Lan bothers to reply to you...stop nick picking. Get on with your life.

G C said...

If a product is mis sold it is mis sold. There was no such differentiation as to which category of investors. The reason of differentiating into "vulnerable" group from other is purely on humanity ground, as I believe.

Form what have been reported so far in Hong Kong and Singapore the products have most probably mis sold to all investors, as in the first place this structured products was so inferior as compare to others that are readily available in the market at the sometime.

It is time for the regulators to initiate investigation to find out the truth on this financial fiasco. Other wise we will never learn from this painful happening and the financial world would not be "safe" so to say.

G C Tham

adego said...

RW, why u bother to ask what she think about this and that?

so what if she(he) says, 'yes, I agree' or whatever, does that help in anyway? she's not going to hong lim or anywhere to help to recover the losses.

she is not going to be involved much, besides talking to the press, and pple like u.

so what if there was mis-selling to A, B, C, D, XY, XYZ, BAC, CAB and XYABCPQIVU?

so what if normal investors became abnormal after this episode?

so what if she gives a beautiful definition of normal investors? E.g. perfect, sensible, thoughtful, rational, smart, make micro mistakes (minimini bonds), can see from top (pinnacles), seldom get drunk, and sing like soprano ('High' notes)

Ross said...

ym,

Yes, totally agree with you :

following is certainly very disturbing news for the financial industry...

chief risk officer of bear-stearns named SVP at federal reserve :
http://www.ny.frb.org/newsevents/news/aboutthefed/2008/oa081031.html

is it meritocracy?.. or cronism?.. or maybe the fed wants to tap his expertise is collapsing bear stearns?

Look at following news too :

1) cronies of Paulson from JP Morgan Chase Goldman Sachs etc are now put in charge of "distributing" US$750 Billions of taxpayers money to their friends in the industry

2) $120 Billions of the $123 Billions earmarked of taxpayers money meant to rescue AIG have already disappeared into the blackhole in less than 1 month !!!

And they still want to save the "investment" banks ?

Richard Woo said...

To anonymous:

Please do not misread or impute anything more into what is stated. My message was merely an attempt at seeking further clarification.
Dr Lan is no doubt just an onlooker [a pretty one btw] but with her expertise she can provide valuable input through making comments, as she has done. And we can of course learn from her.
If she has no intention of providing further input [and why should she?], that's Ok. She has her own work to consider and may not have the time for any further dialogue in this area.

Thank you, Dr Lan.

PS: All this in the spirit of dialogue - nothing more.

Richard Woo said...

Ken, tks for the advice.

Ten thousand people are in this and they all have a huge problem in their hands, which on the surface may have already adversely affected their lives, and what will be their future may depend on the kind of help being rendered by other people.

As fellow citizens, we should consider it our duty to help in whatever way we can. I have no doubt that discussions or the mooting of relevant issues can contribute positively.

rgds Richard Woo

Anonymous said...

MAS should employ Alan Greenspan to formulate the hands off regime. He is up for grab, of course for multi million dollar salary to work alongside the Harvard grad. Since MAS is adamant to pursue non intervention policy and leave the FIs and the intermediaries to do what ever they like, Greenspan is an expert. The whole team can take coffee break as often and as long and bochap.

Jay

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