Friday, July 17, 2009

6 day detox programme (3)

Here is the final report of my 6 day detox programme. Several of my blog readers and friends have decided to try the programme. I will ask for their assessment and post them here.

TODAY: On the issue of responsibility

MAS was asked about its accountability in the minibonds saga at the press conference:

About the Lehman saga, there were some comments that MAS sort of allowed such instruments to be marketed to consumers. Do you think MAS should take some responsibility?

Mr Heng Swee Keat, managing director of MAS, replied: “I have highlighted a number of things that MAS has been doing in terms of regulation and the supervision of financial institutions (FIs).

“And if you go through the investigation report which has been issued, you will notice that there is a fairly detailed report that goes into the operation of the FIs, and quite a lot of those are operational lapses.

“I emphasised in my remarks that those are the actions that we expect board and senior management of FIs to take, to ensure that guidelines and standards are complied with.”

Would it be fair to say that MAS has no responsibility for the crisis?

Mr Shane Tregillis, MAS deputy managing director of market conduct, said: “We outlined the steps that we took before. In terms of setting the rules, in terms of inspecting, you can clearly outline what we have done since the problems emerged.”

MySudoku Contest 17 July

Try the MySudoku contest in My Paper (Wo Bao) today. It appears on Fridays. Rules of the contest can be found here:

The prize is TKL Sudoku Vol 1. This book of challenging puzzles can be bought at:

Thursday, July 16, 2009

Petition to Prime Minister (2)

Read this online petition to the Prime Minister of Singapore. It ask the Prime Minister to get the Monetary Authority of Singapore and/or other relevent body to get the financial institutions to offer compensation similar to what is being offered in Hong Kong.

If you agree with the Petition, please sign it and encourage other investors (who have not been compensated) to join in.

The working committee agreed to lodge the Petition is there are at least 300 signatures. If there is insufficient signatures, we will not lodge the Petition.

This Petition is dated 29 August 2009. We will get additional signatures from investors who attend the gathering on 22 August, especially those who are not able to use the internet.

Shape Quiz book is now ready

The long awaited shape quiz books is now ready. It is quite attractive. Available for only $7.90 here.

Here are two Youtube videos on how 6 year old Cheyenne solve the shape quiz. The quiz is suitable for children, adults and seniors. It is challenging and fun. You can also organise a competition for a group of friends, to see who can get the shape first.

6 day detox programme (2)

I have now completed 5 days out of the 6 day detox programme. The results have been satisfactory. Read my experience here.

Wednesday, July 15, 2009

When do you say the Emperor has no clothes

Read this article.
Give your views here, after reading the article.

SCMP:Cleaning up the mess after a big player falls

15 July 2009

In the last part of a series, Enoch Yiu examines proposals on how to deal with future financial failures. The Lehman Brothers minibond crisis showed just how ill-prepared Hong Kong is for the collapse of a new breed of hybrid investment products.

Bank deposits are insured up to HK$100,000, which may soon be raised to HK$500,000. Consumers can recoup up to HK$150,000 in the case of a failed broker, although the investments themselves are not covered. And the insurance industry is considering its own compensation fund in the case of failures.

But crossover products have left consumers without protection. Ten months after Lehman collapsed, leaving behind HK$20 billion in now virtually worthless minibonds, customers are still awaiting a resolution.

Regulators are trying to negotiate compensation. The government is mulling the creation of an ombudsman. Meanwhile, banks are rehearsing ways to handle any collapse, and other industries are looking on with interest.

Many Lehman minibond investors, frustrated at the lack of compensation, criticise the lengthy negotiations with the minibond sellers and the lack of clear guidelines from the regulators about handling their complaints.

They are even confused about where they should take their case - the Hong Kong Monetary Authority, which regulates banks, or the Securities and Futures Commission, which regulates the securities market.

"I did not know where to file my complaint, so I ended up contacting the Democratic Party to help me out," said investor May Chan.

The quick answer: Investors who bought minibonds from banks should go to the HKMA; those that bought them from brokers need to go to the SFC. But the whole process has left investors confused and angry.

In its negotiations with financial institutions, the SFC has so far only been able to prod full compensation for investors out of Sun Hung Kai Financial (HK$85 million) and KGI (HK$1.6 million). The SFC wanted the same compensation from banks but failed. Banks are negotiating with customers on a case-by-case basis.

Bank of China (Hong Kong) reportedly suggested compensation at 60 per cent of the minibond investment. But SFC chief executive Martin Wheatley told legislators last week that it was unacceptable, because banks should pay the higher value of the principal investment.

Permanent Secretary for Financial Services and the Treasury (Financial Services) Au King-chi said the government would consult soon about whether Hong Kong needed to set up a new agency, a financial services ombudsman, to handle complaints and negotiations between banks and customers in disputes like that over the Lehman minibonds.

"The SFC has asked for the power to compel compensation, while the HKMA has not," said Ms Au.

The government will consider the experiences of financial services ombudsmen in Britain, Singapore, Australia and Canada.

But legislator Kam Nai-wai believes an ombudsman would have little effect. "What we need is a real super-regulator that has the power to add tough regulations on banks and brokers that sell investment products to investors. We do not need another complaint channel," he said.

There is also the question of what mechanism should exist to deal with the collapse of a large investment bank or broker. Banks have already held rehearsals. In 2006, Hong Kong introduced its deposit protection scheme - initially set at HK$100,000, with a proposed rise to HK$500,000. A year later, it conducted its first annual rehearsal to deal with failed banks. Another rehearsal was conducted at the end of last year.

"Such an exercise cost several million dollars and a whole week, but it is all worth it," said Raymond Li Ling-cheung, the chief executive of the Deposit Protection Board. "The rehearsal makes sure we have a group of contracted providers, such as accountants, lawyers, cheque printers and PR firms, that are prepared for the worst. This will allow us to give cheque payments to the depositors within 14 days of a bank collapse."

Hong Kong Stockbrokers Association chairman Kenny Lee Yiu-sun said such rehearsals could be expanded to the securities market.

"It is worth it for the SFC and the related regulators to have similar rehearsals to inform the public about the impact of the collapse of a giant player like Lehman," he said.

When Lehman collapsed on September 15 last year, the SFC banned the exchange clearing house from taking the cash and stock of Lehman to settle the trades it made on the previous trading days. The clearing house was thus forced to trade in the market to settle the transactions.

Since the market fell 1,052 points that day, the trades were executed at prices lower than had been agreed upon. The result was a loss of HK$160 million, forcing the exchange to make a provision.

Legislator Chim Pui-chung said the restrictions on the Lehman settlements were a mistake. In previous cases, the clearing houses took stock and cash from the collapsed firms to make settlement, which was international practice in the Lehman case.

"Luckily, Lehman did not have a large volume of unsettled trades in Hong Kong," said Mr Chim. "The clearing house would go bankrupt if the SFC imposed curbs on collapsed brokers with unsettled trades valued at HK$20 billion or HK$30 billion."

Mr Chim urged the SFC to confirm it would not repeat the practice.

However, the SFC argued that the powers of the commission to issue a restriction notice are set out clearly in the law, although it agreed to learn from the Lehman experience. "Based on the experience with Lehman, we have been working closely with the Hong Kong exchange to establish internal guidance as to how future restriction notices will be dealt with," the commission spokesman said.

The collapse of a giant player like Lehman is rare. Nevertheless, it exposed a range of problems in the financial regulatory system - loopholes in the law, gaps in the regulatory system, inadequate investor protection and a lack of preparation in the event of the failure of a large firm. The question is whether the government is prepared to fix the problems before another giant goes down.

SCMP:Tsang's disapproval rating at record high

Chief Executive Donald Tsang Yam-kuen's disapproval rating has reached a record high after the July 1 protest, a poll shows.

Forty-five per cent of 1,006 people interviewed on the phone last week said they lacked confidence in him, the highest proportion to hold that view since he became the chief executive in 2005.

The figure was also 6 percentage points higher than that recorded in the previous survey late last month, the University of Hong Kong's public opinion programme found.

At the same time, the proportion of people who approved of Mr Tsang's performance dropped from 45 to 40 per cent.

His support rating also fell by 1.6 points to 53.8 points.

"Both in terms of the support rating and the approval rate, the popularity of Donald Tsang has dropped again after a rebound two weeks ago, probably due to the effect of the July 1 rally," Robert Chung Ting-yiu, director of the programme, said.

The latest poll was conducted after thousands of people marched on July 1 to air a range of demands, including calls for Mr Tsang's resignation and universal suffrage.

Some protested against the outsourcing of civil servants' work, while a group of investors who lost money on minibonds, a high-risk derivative investment, demanded compensation for their losses.

A spokesman for the Office of the Chief Executive said Mr Tsang respected the findings of the poll.

Earthquake and tsunami

I received an e-mail on 14 July containing this message:

Quake and Tsunami Predicted on July 22 2009 Hello there. I just wanted to let you know that please stay away from the beaches all around in the month of July. There is a prediction that there will be another tsunami or earthquake hitting on 22 July 2009. It is also when there will be sun eclipse. Predicted that it is going to be really bad and countries like Malaysia (Sabah & Sarawak), Singapore, Maldives, Australia, Mauritius, Sri Lanka, India, Indonesia, Philippines are going to be badly hit. Please try and stay away from the beaches in July. Better to be safe than sorry. Please pass the word around. Please also pray for all beings. Quake and Tsunami Predicted 22 July 2009

I just saw the news headlines on Channel News Asia (15 July):
* 7.8 earthquake off New Zealand
* Tsuname alert given out.

I don't know whether there will be another earthquake on 22 July. We have to wait and see.

Singapore GIC, Temasek, and Transparency


6 day detox programme

I have started a 6 day detox programme, which is working well. My experience so far (after completing 3 days) is shown here.

True cost of life assurance

Many people know that life assurance is useful to provide for the financial security of their family. But they are not aware that the protection can be obtained at a low cost using term insurance or accident insurance.

They are recommended to buy a whole life, endowment, critical illness or a specially designed plan (marketing under branded names) that have high hidden cost and gives a poor return on their savings.

This FAQ explains the true cost of life assurance. It will help you to make a better choice in buying your life assurance in the future. It does not help the policyholders who already bought the life assurance and the past and has already paid the high upfront cost.

Read this FAQ and pass it to the younger people to be educated, before they buy the wrong life assurance policy.

Financial consumers need new watchdog: Obama admin

By Kevin Drawbaugh and David Lawder

WASHINGTON (Reuters) - The U.S. government's fragmented system for protecting financial consumers is "designed to fail" and must be replaced by a single, powerful new agency, a senior U.S. Treasury official said on Tuesday.

As the Obama administration seeks support for a sweeping package of financial regulation reform proposals, Treasury Assistant Secretary Michael Barr urged lawmakers at a hearing to create a new Consumer Financial Protection Agency.

"The present system of consumer protection regulation is not designed to be independent or accountable, effective, or balanced. It is designed to fail," Barr told the Senate Banking Committee. "It is simply incapable of earning and keeping the trust of responsible consumers and providers ..."

"We have to have a fresh start with a new agency whose sole mission is standing up for the American people."

His call for change met general support from Democrats.

"While we can tailor this a little bit better, the reality is we need this," said Democratic Senator Robert Menendez.

Some Republicans resisted the proposal, following lines of attack already set by lobbyists for the financial industry, which sees the agency as a threat to its profitability.

"This is a tremendous overreach ... This is way out of bounds," said Republican Senator Bob Corker at the hearing.

Senator Richard Shelby, the committee's top Republican, called the proposed new agency "a radical departure."

President Barack Obama last month unveiled a wide-ranging package of proposals to rewrite the rules for banks and capital markets in response to a severe financial crisis that has dragged down economies worldwide for more than a year.

He wants to enact new laws by the end of the year. His proposals are expected to move rapidly through the House of Representatives, where Democrats are in firm control, with the closely divided Senate likely to move more slowly.

The Consumer Financial Protection Agency (CFPA) would take over consumer protection duties on mortgages, credit cards, payday loans and other products. At present, more than 10 agencies, including the Federal Reserve, handle these issues.

"We expect the agency to have strong and stable funding through a mix of appropriations and fees. The agency would have transferred to it the staff, the resources, and the fees collected by the bank agencies," Barr said in an interview with Reuters Television.

The Financial Services Roundtable, which represents most of the nation's largest financial groups, in remarks to be delivered at a House committee hearing on Wednesday, said:

"We strongly oppose the creation of a separate, free-standing Consumer Financial Protection Agency."

Rather, the group -- whose members include Citigroup, JPMorgan Chase & Co and UBS AG -- said it supports beefing up consumer protection in existing agencies.

But Senate Banking Committee Chairman Christopher Dodd said at the hearing on Tuesday that the present oversight system broke down in the recent crisis in a "spectacular failure."

He said, "Stronger consumer protection could have stopped this crisis before it started.

"We are in a radical situation ... The classical model (of regulation) has fallen apart."

(Reporting by Kevin Drawbaugh and David Lawder; Editing by Diane Craft)

Tuesday, July 14, 2009

The New Paper:The real problem? Underwriters hiding product's risk

14 July 2009

For the first time, the Monetary Authority of Singapore has banned 10 banks and brokers from selling structured notes for six to 24 months.

The ban doesn't affect other structured products. POSB still advertises 2.78 per cent interest in the first year for its five-year structured deposit linked to four Singapore blue chip companies.

That one is safe but, as usual, it is impossible to calculate the yield you can expect after five years.

Banks won't tell what we really need to know: A history of actual versus advertised yields for structured deposits.

Banks and brokers sold us billions of dollars of structured notes. Defaults stand at $686 million. Some have become worthless, like DBS High Notes 5. Others still have value, like Minibonds.

MAS report

In the just-released 119-page MAS report, 10 banks and brokers describe how they measure customer risk attitudes. It's useful but doesn't address the real problem: Underwriters hiding the product's risk.

Structured notes promise a safe-looking yield of around 5 per cent per year. But underwriters invest your money in risky bonds that yield much more, like 15 per cent. They keep the difference of 10 per cent, which is called 'expenses'.

The problem is, they don't disclose expenses or total yield in the prospectus or anywhere else. Investors see only their 5 per cent yield, which is low enough not to trigger any alarm bells.

That is half the story. The other half is a built-in conflict: Underwriters have fixed expenses and can earn more by investing your money in high-yielding, risky bonds.

Those bonds are more likely to default but underwriters have that covered too. A typical contract is written so that investors lose everything if only 10 to 15 per cent of the bonds default.

Investors must then forfeit the remaining 85 to 90 per cent of 'good' bonds to the underwriter. An example of this is Pinnacle Notes 9 and 10.

Underwriters get an even better deal when a 'reference entity' - like Lehman Brothers - defaults. It triggers transfer of 100 per cent of investors' money to the underwriter. An example is DBS High Notes 5.

In that case, DBS said it sold its rights to the $103m of investor losses. I asked, but the bank declined to say when it sold, how much it received and whether the buyer was an affiliated company.

Next, DBS set aside $70m to refund losses here and in Hong Kong.

The 7 Jul MAS report shows DBS made refunds of $7.6m to High Notes 5 investors. That is 11 per cent of the $70m DBS allocated to reimburse Singapore and Hong Kong investors.

The low payouts here may be explained by higher payouts in Hong Kong.

Compensation by HK v S'pore banks

WE HAVE heard that 63 per cent of decided structured note cases received full or partial refunds.

That is impressive, but the number falls considerably when you look at dollars paid to all investors.

The data comes from the 7 Jul MAS report, a 26 Jun speech by Senior Minister Goh Chok Tong and losses reported for Pinnacle Notes 9 and 10.

It shows $107m out of $686m of defaulted notes - 16 per cent - was returned to investors.

Contrast that with Hong Kong banks. On 7 Jul, The Standard newspaper there reported that 16 distributors for Minibonds met with the Securities and Futures Commission on 29 Jun to indicate they would pay 60 per cent of the amount invested. A few investors - aged 65 and above - would receive 70 per cent.

To recap, our banks paid investors 16 per cent. Hong Kong banks propose paying at least 60 per cent.

Petition to the Prime Minister

Several investors have suggested that a petition be sent to the Prime Minister to ask him to get the banks to offer compensation similar to Hong Kong, namely 60% now and 40% of the proceeds at maturity. Is there any point to organise this petition? Can it be the focus of the Gathering on 22 August in Hong Lim Park?

MySudoku Contest 10 July 2009

539 entries were received for this contest. Three winners will be picked by a draw from those who submitted the correct answers in accordance with these rules. The winners will be contacted by SMS.

The next MySudoku contest will be on 17 July 2009.

Additional contests that are still open:
TKL Intelligence Quiz
Name The Shape.

Improve your intelligence through practice and exercise your mind with the puzzle books here.

Watch this Youtube video on how to solve the Shape Quiz.

Logic9 (Sudoku pocket books)

Dear Mr. Tan,
A few years ago, NTUC printed Logic9, which is the same as Sudoku. I like the size of Logic9 which is small to fit into the pocket. It is very useful when I am in a plane or train. I looked for it in a few bookstores, but it is not available. Where can I buy it?

NTUC Income stopped selling the Logic9 (Sudoku) books two years ago. They do not have the stock any more. I have some stock of Vol 2 to 4. I have placed them for sale at my website at a 20% discount for 3 volumes). You can click on "details" to see a photo of the books.

The stock is limited and will run out soon. If you are interested, you should place your order now. It is useful as a gift.

Monday, July 13, 2009

Maximise shareholder value

During the past 15 years, Singapore businesses have adopted the concept of maximise shareholder value. This is implemented not only in the private sector, but in the government-linked companies also. This concept has led to salaries of top executives ballooning to several million dollars a year.

There are several flaws in this concept, as stated in this article. It is this concept that has led to the widening income gap in Singapore. Shareholder value is enhanced, when wages are depressed or profits are made at the expense of fair treatment of customers.

I hope that this flawed concept is changed soon.

Tan Kin Lian

Low interest rate

Interest rate globally is at a low level. Central banks have pumped a lot of money into the economy to stimulate its recovery. The hope is that low interest rate will encourage some people to buy to buy houses or cars, or businesses to invest and produce goods.

Low interest rate is bad for savers. They will not earn sufficient interest on their savings. To earn a higher return, they have to take the risk and invest in stocks or other assets.

Eventually, the economy will recover. At that time, the prices of equity, property and other assets will increase. Those who take the risk now will benefit from the recovery.

The alternative is to avoid risk and accept the low rate of interest, which is now less than 1% per annum. This is not sufficient to cover inflation. In my case, I prefer to remain fully invested and wait for the recovery.

Tan Kin Lian

Tiered interest rate

Several banks have offered tiered interest rate on savings accounts. A different interest rate is applied to different tranches of savings. This type of complicated structures bring two issues:
a) does the bank state clearly how the interest is to be computed?
b) is the customer able to check that the correct amount of interest has been credited?
In a savings account, the balance can fluctuate every day. Does the bank apply the tiered interest calculation on the daily balance?
Will the bank be willing to show each customer how the interest credited in each month is calcuated?
I hope that bank customers are given the correct amount of interest and are not short changed, due to their inability to check on the calculation of the interest.

Ask for investigation report through FIDREC

Dear Mr Tan,
I have filed my case with FIDREC and I am waiting for FI's investigation report. I will decide, after getting the report, on whether to proceed to the next step, i.e. to get FIDREC to adjudicate the case. It is important for me to get the investigation report first.

For any investor who wants to go through legal action, it is necessary to get FI's investigation report. In Chinese, we have to know the enemy to win the battle.

Currently, when we were interviewed by the FI, it is one direction. We have to answer many questions, but FI do not need to answer us anything.

I agree with your approach. It is important for the complainant to get the report from the financial institution and decide how to present your case for mis-representation. You should submit documentary evidence or witnesses who can attest to your side of the story.

The Emperor's Clothes

Edited from Wikimedia

"The Emperor's New Clothes" is a fairy tale by Danish poet and author Hans Christian Andersen about an emperor who unwittingly hires two swindlers to create a new suit of clothes for him.

The tale is one of Andersen's most popular. It appears often in selected collections of his work and is frequently published in illustrated storybook editions for children. The tale has seen adaptations in animated film, and television drama.

An emperor of a prosperous city who cares more about clothes than military pursuits or entertainment hires two swindlers who promise him the finest suit of clothes from the most beautiful cloth. This cloth, they tell him, is invisible to anyone who was either stupid or unfit for his position. The Emperor cannot see the (non-existent) cloth, but pretends that he can for fear of appearing stupid; his ministers do the same. When the swindlers report that the suit is finished, they dress him in mime. The Emperor then goes on a procession through the capital showing off his new "clothes". During the course of the procession, a small child cries out, "But he has nothing on!" The crowd realizes the child is telling the truth. The Emperor, however, holds his head high and continues the procession.
How do you tell the Emperor that things are going wrong, or things that he does not like to hear?

Sunday, July 12, 2009

Brain Workout in The New Paper

The Brain Workout in the New Paper is taken from my book, TKL Intelligence Quiz. The puzzles in this book is based on the famous quiz created by Albert Einsten. Einsten said that 98% of the people in the world could not solve the quiz. My book teaches the reader on how to be among the 2%.

There are 72 quizzes in my book: 24 at each of three levels. The first level is based on 4 houses and is easier to solve. The next level is based on 5 houses and is the same as Einstein's quiz. The third level is based on 6 houses and is more challenging than Einstein's quiz.

After practicising a few quizzes, the reader will be able to master the technique and be able to solve the quizzes quite quickly. This quiz is also suitable for a challenge among several competitors - to see who can solve the quiz first.

Serangoon North HUDC Privatisation

Dear Mr Tan,
Hope you can post this article in your blog site. Hopefully someone out there may be able to offer the residents in Serangoon North HUDC estate some ideas on how they can proceed from the present jam they are in.
Aik Theng Chong

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