Saturday, September 12, 2009

View from a prudent home buyer

Dear Mr Tan,
Thank you for giving advise to the public and in a selfless manner. I fully agreed with you.

In fact, I had been visiting show flats since Lehman Brother collapse and also talking to banks to survey the ground. My conclusion is, it's scary and if you are not careful, you will get into trouble when things go wrong. Let me explain further, my wife and me are in our 40s, consider to be middle income, all the banks encouraged us to take a loan of around $2M and up to 70 years old.

I really laughed out when those bank advisers work out the numbers for me. Then some showed me a "black" face when I asked them how am I going to earn my present income when I get to 55 or 60 years old even if I like to, to support a high loan repayment every month?

They have no answer for me, some say property price will continue to go up. Ha, what goes up must come down, Newton's Law. Most of these banks are very young people, in their 20s, I wonder if they really know or out to earn high commissions.

My conclusion after this one year of "shopping" is one needs to be prudent, don't expect the banks to do that.

I have not buy any property yet because I see a bubble is forming across Asia. Many people do not understand how much interest they are paying by stretching their loans to maximum years. My experience previously is for the first 5 years or so, 75% of the monthly payment goes into servicing the interest and the balance goes into paying the actual loan.

So a 25 years loan or longer will mean one is paying more than 50% compared to buying with cash. And there's no certainty that one will continue to have a job in this era and property is an illquid investment especially when market crash, there will be few or no buyers when you most need to sell.

I wrote such a long message because I'm very worried for many s'poreans, looking at the recent euphoria and property prices. How many had given a thorough and serious thought about planning for their retirement? I remembered that someone once said that most s'porean are asset rich but cash poor.

I had seen several distress cases happening to my friends and colleagues, when they faced negative equity. The bank either had them to top up the difference or takeover the property which they lost $300K to $500K in 1998. I don't know how many people really think it's possible that the property they bought now can drop more than 30%.

I hope you will be able to educate the Singapore public, the banks will not do that.

Town hall meeting with Geithner

I watch a CNBC broadcast of a town hall meeting with US Treasury Secretary Geithner. He answered many difficult questions posed by the American people regarding the economy, banking crisis and other issues.

I was impressed with the manner in which he answered the questions. More importantly, he was open and accountable. He addressed the questions presented by the TV hosts and the ordinary people.

I reflected. Surely, the MAS or the political leaders could have held a town hall meeting with the investors who signed the several petitions? What makes Singapore so different that they could ignore the petitions or refuse to meet with the people who were misled into losing their life savings. Are the plights of these people not important? Can they be ignored?

Is there accountability among our top leaders and civil servants?

Sale of UOB Life

Someone asked what will happen to their single premium endowment taken with UOB Life, it the company is sold to a new buyer (as reported in the newspapers).

There is no need to worry. The new company will take over the full liability. It also has to meet the risk based capital requirement, so there is adequate capital to back the liability.

This is just speculation at this time. UOB may not sell its subsidiary. Or there may be no buyer.

CPF Retirement account or CPF Life

Dear Mr. Tan,
For those born before 1954, is it better to:
a) Retain the retirement account or
b) Convert the retirement account into CPF Life?

If you convert into CPF Life, you may get a bonus of up to $4,000 (depending on your current earnings and your property value). If you get a good bonus, it is better to convert to CPF Life.

Apart from the bonus, the key difference between the retirement account and CPF Life is that with the latter, a part of your savings is converted into a life annuity payable from age 62. The interest rate earned on your savings varies from 3.75% to 4.25%. This is probably the same as the interest rate credited on your retirement account.

Under the life annuity, your longevity risk is pooled with other annuitants. Those who die younger will leave the balance of their money in the fund to be shared among those who survive longer. (Hopefully, you can be the long survivor).

If you are in poor health, it is better to stay with the retirement account. If you are in reasonably good health (compared to other people of the same age), you should convert into CPF Life (and join the pooling of risk).

You have four options for CPF Life, namely, Basic, Balanced, Plus and Income. These options take away different proportions of your savings to be pooled. The Basic option has the smallest percentage that is pooled. Under the Income option, 100% of the savings is pooled. If you are not sure, take the Balanced option.

Tan Kin Lian

Seven new rules for first time home buyers

Here are some useful tips.

Here is a rule of thumb. If your repayment is to be kept at 30% of your income (plus 5% going towards maintenance, tax, insurance and other ownerhshop cost), and you take a 30 year loan at 4% interest, the cost of your home should be not more than 5 years of your income.

If your combined income (two working parents) is $50,000, you should buy a property for not more than $250,000. If you have the 20% cash payment, you can go up to $300,000.

Do not overstretch and buy a more expensive property (including HDB flat). Do not be misled by the low interest rate charged on your HDB loan now - as the interest rate is likely to increase in the future. It can be a burden on your finances.

Big food vs Big Insurance

One of the cause of the high health care cost in USA is obesity and its related medical conditions. Read this article.

Make websites easy to use

Many websites give bad experience to customers. They ask for a lot of unnecessary information to be provided, and they are unstable or difficult to use. The customers have to re-enter the information many times, to be rejected time and again. Some customers give up and go back to the old ways.

Websites should make it easy (not difficult) for customers to transact, so that more of the work can be done online, and reduce the pressure on the front line staff to handle customers personally or over the telephone.

Many websites of government agencies and bis companies have the same characteristics - they are difficult to use. It seems that they engage expensive consultants who make life complicated for everybody, so they can justify high fees. When will our leaders step back and use their common sense?

Tan Kin Lian

Forbers: World turns disapproving eyes on Singapore banquet

A worrying report about Singapore.

Financial Planning - Practical Steps

I will be writing about Financial Planning - Practical Setps over the next few days. The topics will cover the following:

1. How much to save from monthly earnings?
2. How to identify your future financial needs?
3. What risks do you need to insure against?
4. How much can you afford to save?
5. How to invest your savings?
6. How to identify an honest financial adviser
7. What are honest financial products?

Watch out for these topics over the next few days. Tell your friends to come to my blog.

Friday, September 11, 2009

Fair and balanced

MAS requires advertising and marketing materials on investment products to be "fair and balanced". What do you consider to be "fair and balanced"? Give your views here.

Financial planning at a late age

Dear Mr. Tan.
By chance, I come to know about FiSCA through the news media and I must say that the articles therein are very very useful.

I write to seek some advice. I am nearly 60 years old and lost my job a few years ago. I tried to start a business, but was unsuccessful. I stopped all my insurance policies ealier. I have just sold off my property, and after repaying the loan from the bank, I have about $300,000 cash.

Is it too late for me to make a financial plan? What insurance policies should I take up now? My children are all working now. I need $1,500 a month for myself and my wife.

You can buy the MediShield to cover yourself and your wife. There is no need to buy any other insurance policy. Read this FAQ.

You can put as much as is allowed in CPF to earn 4% per annum, and invest the rest in long term government bonds to earn 2% to 2.5%. If you wish to earn a higher return, you can consider the suggestion set out in this FAQ.

If you earn 2% pa on your money and you draw out $1,500 a month, the $300,000 will last you about 20 years.

Website for budget airline

I had a bad experience in booking a ticket at the website of a budget airline. Read here.

Media interview on Lehman collapse

I gave two interviews on the Lehman collapse. They will appear on:

Sunday Times - 13 Sept
Channel News Asia - Thurs 17 Sept 8.30 pm

I described the events over the past year, and the difficulties faced by investors in getting a fair settlement. Eventually, many of them remain uncompensated. I hope that most of the points are covered in the news report, and are not censured.

I shall be speaking to some foreign TV stations.

Dubai Metro opens

Find out more about the Dubai Metro here.

Legal action by Minibond investors

Here is a report of the legal action taken by Minibond investors, advised by Conrad Campos.

Good return from policies taken in the past

Hi Mr Tan,
I am a FISCA member. I have some Income policies that have matured or will be maturing soon, as follows:

a) Growth (SP endowment) taken for 15 years, invested $25,000, maturity sum $53,591
b) Growth (SP endowemnt) taken for 15 years, invested $14,430, maturity sum $21,435
c) Growth (SP endowemnt) taken for 15 years, invested $21,645, maturity sum $32,151
d) EIS Endownment taken for 16 years, annual premium $6,213, maturity sum $158,052

Am I getting a good and fair return?



The return is as follows:
15 year Growth (case a,b, c): 5.2% p.a.
16 year EIS endowment (case d) 5.3% p.a.

The return is good. You've got a good deal. The return is better than similar policies taken with other insurance companies (based on other examples that I have seen).

However, this attractive return is for policies taken with NTUC Income in the past. I understand that the return for policies taken now are much lower.

Please ask many people to join FISCA

Student volunteers of FISCA

Some students wish to volunteer to help the work of FISCA, but they cannot afford the membership subscription of $36.

FISCA accept volunteers who do not need to be members, unless they wish to. Go to to enrol as a volunteer. We hope that those volunteers who have a source of income will also help FISCA financially by being a member.

Tan Kin Lian

FISCA's views on MAS new regulations on investment products

Letter published in Today paper, 11 September 2009

The Financial Services Consumer Association (FISCA) was recently established to educate consumers about financial matters and to guide them on the choice of suitable financial products for their long term investments.

FISCA wishes to express our support for the following proposed regulations by the Monetary Authority of Singapore on the sale of investment products to retail consumers:

a) Financial institution to ensure marketing and advertising materials is "fair and balanced"
b) Financial institution to provide simplified product disclosure document
c) Provide institution to provide cooling off period (7 days)

We understand that it will be a challenge to agree on what is “fair and balanced” as it may differ from the perspective of the seller and the buyer. FISCA will make our contribution from the perspective of consumers.

FISCA is strongly in favour of the simplified product disclosure document, which has to be not more than four pages and to be in a question and answer format. To improve the impact of this approach, we suggest that the simplified product disclosure documents should be posted on the MAS website, to allow consumers to compare similar products offered by financial institutions

This comparison will make it easy for independent experts to analyse the product from the perspective of consumers and compensate for the relative weaker position of consumers in understanding the fairness of the terms of the product. FISCA will happy to organise the independent experts to provide this service and to publish the findings in our website,

FISCA strongly welcomes the introduction of a cooling off period. We hope that it can be increased to 14 days, as has been practised for the sale of life insurance products.

The MAS regulation is stated to be for “investment products” and is stated to include “life insurance products”. FISCA believes that term insurance and health insurance products are not investment products and should be specifically excluded, for the avoidance of any doubt. There is no need for a financial adviser to be involved in the sale of these products, as this would significantly add to the cost of these non-investment products. I hope that MAS can clarify on this matter.

Tan Kin Lian
Protem President, FISCA

Financial Advisers can volunteer for FISCA

FISCA welcomes financial advisers, who share the aims of the association, to join us as volunteers and help in the evaluation, research and other work.

We will also provide opportunities for these financial advisers to offer their service for a fair remuneration, that is based on the actual time spent and not a commission that is tied to the recommended product.

Some FISCA members, who had bad experience with financial advisers or relationship managers, may be suspicious of these advisers, but the suspicion can be dispelled by honesty and sincerity.

If you wish to volunteer, send an email to

Tan Kin Lian

8th anniversary of terrorist attack on World Trade Center, NY

Today is September 11, 2009. It is the 8th anniversary of the terrorist attack on the World Trade Center, New York. Read here.

Thursday, September 10, 2009

Obama's speech to Congress about health care

Obama pushes healthcare reform plan

Full speech - 52 minutes, 26 standing ovations.

Kennedy's letter to Obama

A touching letter between two great leaders who are dedicated to public service.

... to salute your leadership in giving our country back its future and its truth.

... For me, this cause stretched across decades; it has been disappointed, but never finally defeated. It was the cause of my life.

... I learned that you will not yield to calls to retreat - that you will stay with the cause until it is won.

... you have also reminded all of us that it concerns more than material things; that what we face is above all a moral issue; that at stake are not just the details of policy, but fundamental principles of social justice and the character of our country.

... I entered public life with a young President who inspired a generation and the world. It gives me great hope that as I leave, another young President inspires another generation and once more on America's behalf inspires the entire world.

Future of FISCA

Someone posted an anonymous comment that FISCA would not survive two years. Although he has a negative motive (from the way that he said it), it is true that FISCA will have to face many challenges, and that there are many vested interest that wish to see it fail.

FISCA will succeed if it is able to get the support of consumers. FISCA needs financial resources to carry out its work to educate its members and look after its interest. The membership subscription of $36 will not be sufficient to meet its financial needs.

I hope that there will be supporters who are willing to make a Donation (say $50 or more) towards FISCA. Please be generous, if you wish to see FISCA succeed. You can make your donation here.

Lehman Collapse - one year later

Read this story.

Payout on life insurance policy

Are you getting a fair payout on your life insurance policy that you has recently matured or was surrendered? Give your particulars here. I will give you an analysis of the yield, to be compared with similar policies from other insurers.


Common sense approach towards investment products

Several people have posted comments that they have lost trust in investment products. They are not impressed with the recent announcement by the Monetary Authority of Singapore in improving the regulatory regime on the sale of investment products. They lost their trust in financial institutions after losing a lot of money on the credit linked notes.

I wish to advise these investors to learn from the lessons from the sad episode. It is important that consumers should be educated. The key lessons are:

a) Invest some time to understand the fundamentals of investing. Join FISCA (Financial Services Consumer Association).

b) Stay away from any product that you do not understand. Although I can be considered a financial expert, I have to stay away from many complex and opaque products, such as dual currency investments, land banking, credit linked notes, time sharing, etc.

c) Use your common sense. Ask a few questions about the financial product. What do I get from the product? How much do I pay? What is the chance of making a profit or a loss? How much do the seller earn by selling the product to me? These are simple questions, but they cannot be answered. Even the seller does not know the answers. So, I stay away from these products.

d) Do not trust the words of any sales person. You need to see any informations stated clearly in writing. If the wordings are not clear, do not accept them.

e) Avoid special invitation to sales seminars. I have received many telephone calls to attend land banking seminars, time shares, property launches, etc. I decline. These events are costly and have to be covered by the commissions earned on the actual sales.

f) Invest in stocks and bonds for the long term. I spread my savings into 20 stocks, chosen for their long term value. I hold them through the cycles of the stock-market. I advised my children, who have smaller sums to invest, to put their savings into a low cost, exchange traded fund.

It is important for ordinary people to learn the fundamentals about long term investments. I have set up FISCA (Financial Services Consumer Association) to meet this need for financial literacy. It will focus primarily on the undertanding of long term savings.

If you remain uneducated about financial literacy, you can stay away from investment products only for a short time. You are likely to fall for the next scam that comes your way. It is better to be financially literate, so that you can understand what to avoid. Take the first step and join FISCA.

Tan Kin Lian

Wednesday, September 09, 2009

Interview by Foreign TV

A few foreign TV stations wish to find a Minibond investor to be interviewed, to share his or her experience on the impact of the investment on their life, and how the distress that they suffered to get compensation. If you are willing to be interviewed, please send an email to Please come forward for your story to be told.

Lack of standard to compare the payout

My doctor asked me about the work of FISCA. I said that there are a lot of challenges, due to the unfair treatment of consumers.

I quoted the example of a policyholder who paid 21 years of premiums under a whole life policy with some riders. At the end of 21 years, he just got back to the total premiums paid, i.e. break-even point. The total amount was $54,000. A similar policy taken with a good insurer would have paid $75,000 (or 39% more).

The doctor was surprised. Surely there must be some standard for the consumer to compare the payouts? Where did the difference in the maturity payout go to?

I said that most consumers are in the dark. They are not able to compare what the payouts would have been, if they had taken a similar policy from another insurer. The insurer that gave a poor return probably had higher expenses and kept a larger part of the surplus as surplus or orphaned money.

Many years ago, if a policyholder sends a complaint to MAS, the MAS officer would ask the insurance company for an explanation. The insurance company would have to justify the low payout and have to give the answer truthfully.

This practice has stopped in recent years, after the formation of FIDREC. The policyholders are now asked to send their complaint to FIDREC. Unfortunately, FIDREC does not have the same powers as MAS.

To ensure fair treatment of consumers, it is important that the concept of asset share for each individual policy, as practiced in Malaysia, must be adopted in Singapore. This will ensure that consumers get a fair payout and make the practice more transparent.

Tan Kin Lian

Sudoku pocket book (Logic9)

There is some interest in the Sudoku pocket books (Logic9). Each book has 128 puzzles at 4 levels (32 puzzles at each level). They are suitable for mental exercise in the train, bus or plane. The 3 volumes sell for $7.90 in total (compared to the orginal price of $15 for 3 volumes). It represents a discount of 47%. Stocks are limited. Go to

Health care practices in USA

Wendell Potter: The Making of a Health-Care Whistle-Blower

A new society (7) - a fair price

In a market economy, a fair price is obtained when there are many sellers and buyers of the product and all parties have the relevant and accurate information to make their decision. The fair price is likely to be based on the cost of producing and distributing the product, plus a fair margin of profit to the parties involved.

Usually, the buyer does not have the accurate information about the product and may be misled into paying an inflated price. This can occur under the following situations:

a) When the seller mis-represent the cost or value of the product
b) When the seller is unethical in profiteering, i.e. making an excessive profit at the expense of the buyer
c) When the seller has superior information that is not available to the buyer and use this information to an unfair advantage

Consumers may be misled or cheated into paying an inflated price for many types of investment products and for medical, legal services, legal and other professional services.

For investment products, it is easy to mislead the investor by making unjustified projections of the future profits from the investments. They pay a high price and do not get the value from the investment product.

For professional services, it is difficult for the consumer to judge the value and price of the professional service and may be easily over-charged.

It is important to have a system of tranparent and fair pricing for these financial products and professional services. This requires guidelines of prices to be established in a consultative manner, involving sellers and buyers, and easy access to relevant information by all parties.

Fair pricing is for the benefit of all parties and promotes honest and ethical dealings.

Tan Kin Lian

MAS respond to feedback on sale of investment products

Here is the MAS report.
Give your comments here. What do you like? What is still missing?

Gambling on foreign currency

If you buy foreign currency, you are gambling on its exchange rate in the future. If it goes up, you make a profit. If it goes down, you make a loss.

If you lose on your position, you can decide to hold to that position, and hope that it will recover. It may recover or it may get worse (and increase your loss). This is gambling, so it is better to recognise its nature and think like a gambler.

It is all right to gamble, provided that you get the full benefit of any upside, and take the full loss of any downside. Make sure that your cost of the transaction is small, i.e. less than 0.3% for each side of the trade. The cost is the spread between the buying and selling price at the same time, and the additional charges that you have to pay to the bank.

There is another type of gambling that you should avoid. Do not gamble when the odds are loaded against you. If you gamble on a card game, do not gambling against a shark who has marked cards. He has superior information and is likely to win against you.

Similarly, you should not gamble on dual currency trade when the terms of the transaction are set by the bank who is taking the other side of the trade. You can be sure that the terms will be loaded in favour of the bank, who makes a profit when you make a loss.

One year ago, the Australian dollar dropped 30% against the US dollar over two weeks. The investors who were "long" on Australian dollars suffered a 30% loss. Those who were "short" on Australian dollars did not benefit from a 30% gain. They only get 2% or 4%. The rest of the gain goes to the bank who wrote the terms of the dual currency trade.

Are there circumstances where the bank will lose? Maybe, but the risk is small for the bank. They employ financial engineers to set the terms of the trade. These financial engineers look after the interest and profit of the banks. Guess who loses?

In some countries, the regulators ban this type of product as it is unfair to retail investors. But there is no such scrutiny in Singapore, so retail investors can be given unfair terms of the trade, i.e. "taken for a ride".

Lesson: never gamble on exotic products where the terms are written by the other party of the trade.

Tan Kin Lian

Tuesday, September 08, 2009

SCMP:Peace of mind at last for the minibond investors

What a difference two months makes. During the July 1 protests, minibond investor Peter Lee was desperate and stressed - chanting slogans and trying to storm the Bank of China headquarters in Central. Now, he is relaxed and cheerful.

Having struggled for almost a year, Lee last month received a partial refund of more than HK$3 million after accepting an offer by banks to repay customers at least 60 per cent of their initial investment in minibonds.

"I'm very happy because the year-long distress has come to an end," Lee said. Lee was among thousands of Hongkongers who lost billions on minibonds guaranteed by Lehman Brothers when the US investment bank went bankrupt in September last year.

Unlike previous Sundays in the past year, during which he staged protests or met other investors, Lee yesterday had a relaxed lunch and then went hiking with friends. "I was suffering before," he said.

Lee said he would set aside HK$1 million to fund his son's studies in New Zealand - delayed by a year because his savings were tied up in minibonds. The rest would be used to pay for a flat he had bought.

"Although I accept it unwillingly, I don't think we can do more to fight for a better deal," Lee said.

He said his family of four will join other minibond victims at a protest tomorrow to mark a year since the US investment bank's collapse.

Yu Shing, 79, who invested HK$1.08 million in minibonds and got 70 per cent back late last month, also felt relieved. "He feels much better now," daughter Eileen Yu said, adding that stress had contributed to a stroke he suffered in November.

Monetary Authority figures show that from August 7 to September 2, about 70 per cent - or 17,717 - of the 25,000 eligible Lehman-linked minibond investors had accepted the banks' offer. So far, 183 customers have turned it down.

Meanwhile, dozens of investors classified as "experienced" or "professional" marched from Chater Garden to the Monetary Authority yesterday demanding that they be included in the offer.

The Securities and Futures Commission defines "experienced" investors as those who, in the three years before their first purchase of minibonds, executed at least five transactions involving leveraged products, structured products or a combination of them. "Professional" investors have a portfolio worth more than HK$8 million and at least two years of investment experience.

Minibonds are not corporate bonds but high-risk, credit-linked derivatives, marketed as a proxy investment in well-known companies.

Life settlement

A life settlement is the practice of selling a life policy to a third party, who will continue the policy and take over the interest of the original life assured. Read this article to explain the pros and cons of this practice.

Higher productivity - reduce commitng cost

I have a simple suggestion to increase national productivity - by reducing commuting cost. Read this article.

Six principles of life

I received this e-mail.
  • No point using limited life to chase unlimited money
  • No point earning so much money you cannot live to spend it.
  • Money is not yours until you spend it.
  • When you are young, you use your health to chase your wealth;when you are old, you use your wealth to buy back your health. Difference is that, it is too late.
  • How happy a man is, is not how much he has but how little he needs.
  • No point working so hard to provide for the people you have no time to spend with.

A new society (6) - sources of occupation

There are three important sources of occupation:
a) Employment
b) Contract work
c) Retail

An employee is required to work for a specified number of hours each day, perform specific duties and is paid an agreed remuneration/

A person who performs contract work is paid for the work done at the agreed fee. This usually depends on the time taken and the skill required. The contract work can be for professional services, such as medical and legal work, or involving skilled or manual labour. The contractor is not certain of the number of paid work, but can usually plan based on the average quantum of work for that trade.

A retailer runs a business and earn a profit margin on the goods sold. The retailer has to pay for the fixed cost, such as rental of the retail space. The trades include the sale of goods or cooked food.

Under the exploitative capitalist system, the cost of the rental or other fixed cost can be a burden to the contractor (e.g. hire of a taxi) or the retailer (e.g. rental of the shop). Another burden is the interest cost of capital or credit to set up a business.

Life would have been better, if the tradesmen and retailers do not have to carry a heavy fixed burden (in terms of rental or interest cost). They should earn an income based on their efforts. Perhaps that income can be shared with the providers of the capital or the retail space.

Life Settlement

Read this story.

Singapore now stands alone

In early 2006, when the housing bubble in the USA was slowing down, the investment banks were saddled with the mortgage loans and corporate debts that were turning bad. They had to get rid of these assets.

They looked for countries with weak protection of consumers, which were convinced about the merits of using "the light touch" to regulate the financial sector and encourage financial innovation. They found Hong Kong, Singapore and Taiwan.

The investment banks created complex financial products involving credit default swaps and collaterised debt obligations. They wrote the prospectus in legal language that even financial experts could not understand. They marketed these products with misleading advertisements, highlighted the high interest rate paid by these structured products but misrepresented and understated the nature of the risks.

Over 30,000 retail investors were enticed to invest more than USD 1 billion of their hard earned savings in these complex products. Most of these savings were previously placed in secure bank deposits.

These structured products collapsed during the global credit crisis. Looking back at the events, there was no doubt that the underlying assets would certainly fail - it was only a matter of time.

Taiwan acted early to get the financial institutions to compensate the investors.

Singapore acted next to implement a settlement for certain "vulnerable investors" - people who were elderly and uneducated. Investors of small amounts were compensated partially or in full. The total amount compensated was less than 20% of the investment, but the mainstream media gave the misleading impression that the majority had been compensated.

Many investors accepted inadequate offers as they had no other recourse, and pittance is better than nothing. Even "vulnerable investors" who had invested large sums were not compensated, as the offers were made entirely at the discretion of the financial institution.

Hong Kong took almost a year to negotiate a general settlement for investors of the Lehman Mini-bonds (but did not cover the other structured products). The views of these investors, made through their representatives, were taken into account in the final settlement.

Now, only Singapore stands alone in not getting a fair settlement for many investors. A petition signed by 777 investors was lodged with the Prime Minister, who declined to meet the investors or to delegate his officials for this task. Many Singapore investors would be delighted to get a similar Hong Kong settlement.

How can justice be seen to be done, when the people affected do not have any say to influence the outcome? Is this the pinnacle of arrogance in a democratic country?

Tan Kin Lian

Independent, impartial medical advice

If you have a family member who is very sick and it will cost $100,000 to treat the patient with a 1% chance of recovery, would you spend this money?

Many people will say "yes". A human life is priceless and cannot be measured in money terms.

Think again. Is the human life worth $10 million? Remember, the cost has increased 100 times due to the low chance of survival. Will the person that is saved, really enjoy life in the future? Does it matter that the patient is already elderly? Does it matter that the life that is saved will continue to suffer, due to some continuing disability?

Should the $100,000 be used to look after the future well-ebing of other members of the family? Should a family suffer from a lifetime of debt, in their vain effort to save the life?

It is difficult for the family to take this type of decision. They should not rely on the advice of the doctor who is treating the patient, as the doctor will have a serious conflict of interest. A large part of the money is paid for the doctor's fees.

There is a need for independent, impartial medical advice. The family should be told about the likely cost, the chance of survival, and the other options (including the right to die in dignity and with love from the family). They should be counselled that they are not neglecting their duty by taking a difficult decision to safeguard the financial welfare of the living.

Tan Kin Lian

Alchemy and financial innovation

Alchemy is the supposed technique of transmuting base metals, such as lead and mercury, into silver and gold by the philosopher's stone. It never happened. Many people were cheated over the centuries.

The modern form of alchemy is "financial innovation". It has led to massive transfer of wealth from ordinary people to the investment bankers, and to the collapse of the global economy.

Lehman Brothers set for landmark appeal

By Anousha Sakoui FT, August 4 2009

Lawyers for the Lehman Brothers US estate will appeal against a decision by English courts that retail investors from Papua New Guinea, Australia and New Zealand should be paid ahead of the failed bank in the unwinding of a complex structured vehicle, according to people familiar with the situation.

The case over the ranking of creditors to a special purpose vehicle – SPV – called Dante, to which Lehman was a swap counterparty, is being closely watched for its potential implications for the securitisation and derivatives market.

It highlights the Lehman administrators’ fight to unwind 1.2m derivative contracts worth a net $40bn (€28bn) to which the bank was a counterparty, of which Dante is one such transaction. The gross notional value of derivative assets is $39,000bn for Lehman entities in Chapter 11.

Dante is one of a string of SPVs created that issued credit-linked notes to investors and to which Lehman is a swap counterparty. Swap counterparties are normally repaid ahead of other creditors, unless the counterparty is in default.

As Lehman is in default, investors in that SPV represented by Perpetual Trustee Company as trustee believe they should be paid out ahead of Lehman, as is set out under the English law documents governing the transaction. The Lehman estate is owed $100m, according to these people.

But lawyers for Lehman Brothers Special Financing believe the subordination of Lehman’s claim is contrary to US bankruptcy laws, which do not allow forfeiture of assets on bankruptcy.

While the English courts sided with the investors, unusually the judge stayed any enforcement of the collateral until any appeals have been heard.

“In staying the effect of his ruling, the judge both permitted Lehman to pursue its appeals in the English courts and, more importantly, recognised that the application of US bankruptcy law could compel a different result,” said a person with knowledge of the case.

The case could take years to resolve and highlights the difficulties lawyers face unwinding many structured vehicles, legacies of the credit boom, which were not set up with failure or insolvency in mind.

Analysts believe the case could have important implications for the securitisation market.

“A ruling against the investors would be hugely negative for the credit markets as the concept of bankruptcy remoteness will most likely not be value for any transaction if the swap counterparty has a US connection,” said analysts at Creditsights in a report. They believed such a decision could lead to further rating downgrades for similar collateralised debt obligations and could force rating sensitive investors to sell their holdings, pushing spreads up.

Preparing for the Worst

Robert Kiyosaki, author of Rich Dad, Poor Dad, has a negative view about the future of the world economy. Read this article.

Monday, September 07, 2009

BBC: Capitalism, A Love Story

Read this article. It explains clearly why and how the world has got into this big mess, and also suggest a better way forward. I agree with the views made by Michael Moore.

Staged Accidents

A staged accident is created by a workshop to make a big claim on insurance company. It is dangerous. When will action be taken against these criminals? Read here.

Shape Quiz

The Shape Quiz helps to develop creativity among children. They learn to use their thinking to find the solution to the shapes. Here is an example of how Cheyenne (6 years old) tackle the quiz. She has an artistic talent and is able to see how the pieces fit into the bigger whole.

You can buy the shape quiz book here: http:/

MAS and PM decline request for a meeting

Dear Mr Tan

I refer to your requests to the Prime Minister and MAS to meet with yourself and a representative group of investors. The Prime Minister's office has referred the request to MAS.

MAS has responded to your petition on 31 August, where we set out our approach to handling investors' complaints on failed structured notes. This has also been explained to Parliament during its 20 July sitting and detailed in numerous MAS' public statements over the last nine months. We have released our investigation findings for the financial institutions that sold the notes as well as the regulatory actions taken.

MAS has addressed publicly, the issues raised in your petition on a number of occasions. As such, we decline your request for a meeting.

Investors who are not satisfied with the outcome of the financial institutions' resolution of their complaints can approach the Financial Industry Disputes Resolution Centre (FIDReC), or seek legal advice on the recourse that is available to them, based on their own facts and circumstances.

Yours sincerely,

Andrew Khoo
Executive Director, Capital Markets, MAS

A new society (5) - Enjoyment of work

Each person should have the opportunity to enjoy their work. They should choose a job that suits their interest and skills. They should earn a fair wage that can meet their cost of living.

They should work hard because they enjoy their work. They should not work hard just for the sake of accumulating wealth. The greed is not desirable.

The love of doing good to society, and not the accumulation of wealth, should be the key motivator to good work. This motivation can apply to doctors, teachers, religious leaders or any worker who provides service to others.

It is necessary for a person to put in additional work to set aside savings for retirement or to raise a bigger family or to give a better life for their children. But this desire should be pursued up to a reasonable limit.

If more people have the right motivation, the society can provide a happier and better life for the people.

Tan Kin Lian

A good compensation for Minibond

Hello Mr Tan
I invested a small sum of Lehman Minibond with a bank. After negotiation with FIDREC, tbe bank offered 50% less 50% of interest paid to me, and I get to keep my shareholding. Please advice if I should just accept since my is a small amount.

If the bank is willing to allow you to keep the Minibond and to receive the future proceeds at maturity, it is a good deal for you. You should accept it.

Do you like the concepts?

A few people have passed comments that the suggestions in "A New Society" are too idealistic and impractical. They asked how these ideas can ever be implemented in our current environment.

I wish to advice readers to separate the concepts from the implementation. We need to focus on the concepts and ask, "will this lead to a better world?" It will take time to educate people and to show them that a new society can be build on new principles.

Similarly, the major religions will take a long time to be understood and accepted, before they become part of the mainstream life.

A considerate driver

It is rare to find a considerate driver in Singapore. Read this story.

Sunday, September 06, 2009

Survey: Land Banking

Dear Mr. Tan,
Appreciate that you can help, this is because land banking involves many people whom I know (more that 10 people invested) and the total amount is huge. We have no avenue to seek help. CASE doesn't take care of Investment link issue. MAS said Land investment is not under them. I believe if this goes to the speaker corner of make public, there will be a lot of investors step forward. Hope that we can meet to discuss the case in more detail. Appreciate you reply.


"Capitalism is evil," says new Michael Moore film

Read this story. I agree with the points stated in this article. The evils of capitalism can be replaced by some of the concepts described in my articles on "A New Society". We can keep some elements of capitalism, but in a modified form.

A new society (4) - time to rejuvenate

Many people work all the time. They are afraid to take an extended break or holiday, if they face the risk of losing their job to another person.

They work for a lifetime and look forward to enjoy life after retirement. But, when they get old, they are not able to move around easily or to enjoy the retirement.

I like to propose a better system. Each person should be allowed to take one or two months off every every three years of work. This should be made a feature of the employment contract.

To fund for this holiday, they have to pay an additional 3 to 6% of their wages into a fund, which is used to pay their replacement income when they take the vacation.

This arrangement should apply to all workers, so that there is no competition for people to continue working hard to show that they are productive.

When the worker takes the extended vacation, temporary workers can take over their work. Alternatively, the employer can have a pool of these workers to replace the permanent workers on vacation. These relief work can be a good training ground for the future workers.

The extended vacation can be for holidays, for continuing education, or for taking up a hobby. When the time comes for full retirement, it is easy for the retiree to find some other ways to occupy their time or to engage in suitable hobbies.

Tan Kin Lian

Product issuers were probably cheating

The standard of honesty has deteriorated so much in recent years, that many people do not understand what is "cheating".

The seller of a gold ornament is cheating, if he knowingly mis-represents the ornament to be made of gold, when it is actually fake.

The seller of a property is cheating if he knowingly mis-represents the property to be freehold, when it is actually a leasehold.

The financial institution that creates a credit linked note is cheating, if it writes the prospectus in a manner to mislead the investors about the true nature of the product. If the creator is aware that some of the underlying assets have already turned bad (as reflected in a severe drop in value), but they continue to mis-represent the product based on its outdated credit rating, they are cheating.

The top people in the financial institution may not be aware that the product was created to generate profits by misleading the investors. But the financial institution should take the responsibility for the actions of its employees.

The standard of honesty has become so low, that cheating is now tolerated as being part of the free market. But this is a mistaken belief. A free market can only operated if there is a climate of honesty and trust.

There is a duty on the Government to investigate cases of suspected cheating and to bring the culprits to court. The judges can decide on these cases. Quite often, the court case may not be necessary as the party may be willing to settle the matter by paying appropriate compensation without admitting liability. This approach is practiced in America.

Tan Kin Lian

Distributors were negligent

The distributors who sold the credit linked notes were negligent, but were not cheating.

Most of them were probably ignorant about the true nature of these structured products. They mis-represented the products, but not intentionally. In the greed to earn the attractive commission on the sale of the products, the sales representatives failed in their duty to give proper advice and information to the customers. The financial institutions also failed in their duty to supervise the sales representatives.

The negligence has caused loss to the investors. The investors deserve to be fairly compensated for the loss. The financial institution cannot hide under the disclaimers signed by the customers, as there was negligence and misrepresentation.

The compensation does not need to be full. It would be fair for the loss to be shared equally between the investor and the negligent distributor.

An honorable financial institution would recognise that it had neglected its duty and come forward to offer a fair settlement to all affected customers, and not only to certain customers based on educational level or age. Great Eastern Life has acted honorably and deserve to be commended.

But many financial institutions chose to look at its bottom line profit, and decided to use its financial power to fight these cases in court. And, sadly, they were backed by the Government.

When will Singapore return to its old values of honesty, fairness and justice?

Tan Kin Lian

Reduced air fare

A regular airline is willing to be flexible in its fare to get a business. Read this story.

New Exotic Investments Emerging on Wall Street

Read this article. The Wall Street bankers are primarily interested in earning the large fees by creating these products. They will leave it to the retail investors to face the consequences. Advice: stay away from all types of exotic products when they come to Singapore and are marketed to you.

The future will be different

A consumer told me about his personal experience. He took an endowment policy with NTUC Income and a similar policy with another company. Both policies matured. The total premium paid was $25,000 for each policy. The Income policy returned $40,000. The other policy paid $27,000. The difference was $13,000.

Here are my observations:
a) I have heard about similar experiences from other policyholders.
n) It is possible for an insurance company to give poor returns, due to high expenses and low bonus payout
c) NTUC Income gave a good return in past years, but the future will be different

Lesson: buy term and invest the difference. Read here:

Read this FAQ:

Cheated by a lawyer

An investor told me that he has been cheated by a lawyer. The lawyer took up his case and charged him a large fee to handle it. The lawyer did not handle the case diligently and did not act in his interest.

I advised the client to lodge a complaint with the Law Society regarding the conduct of the lawyer. But, he is not prepared to do so.

Many Singaporeans are so gullible that they can be cheated time and again. The standard of honesty in our society has deteriorated to a low level.

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