Saturday, December 26, 2009

Dangers of Big Banks

Read this article.

Paul Volcker on Financial Innovation

Speaking to a group of senior finance executives, as reported in The Wall Street Journal on Monday, Mr. Volcker made his point even more forcefully. There is no benefit to running our financial system in its current fashion, with high risks (for society) and high returns (for top bankers). Most of financial innovation, in his view, is not just worthless to society – it is downright dangerous to our broader economic health.

Temasek review reported on my views about MM Lee's remarks

"Read this article in Temasek Review.  I have posted a comment as follows:

Dear Editor of Temasek Review

You article does fairly report my view and the comments in my blog, but your headline is too strong and inappropriate. It is not in my character to condemn anyone, big or small. I only wish to express my own views. I hope that your readers will not be too distracted by this inappropriate headline.
Tan Kin Lian

Glass Stegall Act

Last week, lawmakers including Senator John McCain proposed reinstating Glass-Steagall, which was struck in 1999 by the Gramm-Leach-Bliley Act.

The repeal led to a rise in conglomerates including Citigroup that were allowed to branch into insurance and proprietary trading.

Paul Volcker, a legendary former chairman of the Federal Reserve Board, was blunt: We need to break up our biggest banks and return to the basic split of activities that existed under the Glass-Steagall Act of 1933

High retail price

Some people are surprised that the retail price (e.g. of my books or torchlights) are so much higher than the wholesale price (e.g for sale to hotels) or for direct purchase from my office.

They are not aware about the high cost of distribution of these products. I have to pay to the distributor nearly 60% of the retail price. They have to give a large portion of this margin to the retail store. The goods are given on consignment. If they are not sold, they are returned to me. I have to bear the cost of production or purchase, delivery charge, GST and also take the risk of the obsolete, unsold products.

Many retailers also find it hard to survive. They have to pay high rental for their stores and wages for their sales employees. They do not get sufficient business and margin to cover their operating costs.

Many small businesses find it difficult to survive in this type of environment. In my case, I am not making any profit due to the high cost of doing business, but doing it partly for fun. (If you want a lower price for my torchlights, come to my office at get it for $5.50 if you buy more than 5 pieces).

My friend saw a rechargeable torchlight, with similar features, on sale at the airport store at $27.50.. So the price of $8 at the retail store is cheap, by comparision.

Advice on making insurance claims

Thee are three types of insurance claims that can cause you a big surprise and out-of-pocket payment. They are:
a) health care
b) personal accident or travel
c) motor repair
d) home repair or reinstatement

Here is a common example. You have been paying premiums for an expensive health insurance policy for many years. You went into hospital thinking that the entire bill is covered. When you submit your claim for reimbursement, you are told of the items that are not covered, the caps, exclusions, deductibles and other items. Your claim can be less than half of the amount that you spent.

Your claim for personal accident or travel is also subject to exclusions, limits and deductibles. A similar situation can occur with a motor repair bill. You are told about the Excess, exclusion or other limits.
The hospital and motor repair bills can occur every few years, so many people have been taken aback by their poor claim experience.

A similar situation, but less frequently, can occur if you have to make a claim for damage to your property caused by some of the perils,such as fire, flood, theft and other disasters. When you submit your claim, you will be told about the items that cannot be claimed.

Here is my advice. Before you go for medical treatment, before you repair your car or home, before you spend money thinking that they can be claimed - check with the insurance company. Let them tell you about what is covered, and what is not covered. You can then decide on what to do about the treatment or repair.

Do not be shy to ask for an estimate of the treatment or repair bill, and send it to your insurance company for them to check against the insurance cover. The insurance company may be able to assist you to find a doctor or repairer that can do the work within the amount covered by the insurance policy.

Tan Kin Lian

Pop star: Boymongoose

Enjoy the familiar music and humor.

About the father of modern day Singapore

Comment posted in this blog

Well, certainly that old man is not the father of anyone other than LHL and his siblings in that privileged family tree.

The point of my anaolgy, was that that old man can be still considered to be father of modern day singapore in metaphorical sense, therefore he ought to have some feelings for the welfare of its people, just as a father naturally wants to take care of his creation.

To be fair, fifty years ago, in creating the Singapore model, I think he was truly a good man fully consumed in trying to make singapore better, how to form a cohesive society, how to forge a common destiny. I dont think he was as vicious as Alexandra the Great... in his younger days his policy and vision, and government style was targetting at improving the lot of the locals, and worked pretty well ...even if he anihiliated political opponents.

Fifty years on, he has lost his mind totally this Christmas day 2009.

Many sufferings of singaporeans today are due to his bad judgement and self contradictory policies, in these latter days, but the most vicious and deplorable thing is that he turns around and makes a big sweeping statement that the laziness of Singaporeans is one of the root sources of the problem he and his team created unwittingly!!! With unaffordable HDB prices, with no minumum wage guarantees, no welfare, moving-time lines for old age cpf funds withdrawls, no protection for the ordinary citizens (remember Lehman).. where is the incentive to work hard any more? To make a lazy person work hard, you must provide an environment that makes Life meaningful, and an achievable, worthwhile challenge.

Alas, There is none in 2009.

Twenty years ago it was more meaningful to work hard. But now, you work till you die and cannot even claim your CPF, your own money - yet the government has billions of dollars in its coffers to "invest" with and play big and lose big. Not forgetting MM and his cronies get paid four five times of president Barrack Obama and then turns around and blames you for his bad judgements and policies.

How can he compare with China workers! There are pockets of comfort in many smaller cities in china where life is simple and sustainable. So the chinese workers are prepared to work hard in singapore, they have something to look forward to back home when they bring the money earned in Singapre to their loved ones. They have motivation to work.

We the citizens of Singapore, have none, today 2009.

My heart still bleeds as i reread his response to National Geographic, effectively blaming Singaporeans to be lazy, in front of American media. American has no idea what the heck is happening here, so they would believe his "Christmas day message" not understanding the deeper local issues enumerated above.

Maybe Dr Lee Wei Leng should say something. I enjoy reading her Sunday articles in the papers. She is the only person who makes sense in the family. She is the only one who rock that old man out of his madness and senility.


Good and bad regulation

Dear Mr. Tan
How Much Would Better Disclosure Help?
 ...the difference is
between good regulation and bad regulation.
 ...good regulation is
that which enhances knowledge and competition,
both of which make markets function better. ..
 ...bad regulation is
that which restrains competition and stifles innovation. ..
 ...firms must be able to fail
in order for the competition to work..
 ...less government interference
also helps to prevent single firm or industry dominance. ..
  One of the central causes of the financial crisis
was a lack of information...
  There are those who complain about the cost of additional disclosure.
To that, I respond: good.
Complex financial products should be more costly to sell...
 Of course, information and understanding aren't the same thing...

Friday, December 25, 2009

Today in Singapore

Read this blog. It is well written and contains interesting observations about current affairs in Singapore.

Bad snow storms

There is bad snow storms in America, Europe and China. I suspect that this is contributed by climate change.

Need to tax fat bonuses

Here are some views.

Why roulette is better than land banking

Dear Mr. Tan,

Read this article

Land Banking Companies
Why the majority of them are (legal) scams

UK land sold by Land Banking firms have about a 1% chance of receiving planning permission over the next 20+ years.

That means you have a 99%+ chance of owning a piece of land that is almost completely worthless.(the land is typically marked up by 1500% when you buy it and resale on the open market without planning permission is almost impossible)

In roulette you  have a  2.7%  chance of winning  if you put all your money on a single roulette number.
You will also find out immediately  that you have lost all your money and should learn very quickly not to gamble. If you win Roulette  will also give 35 times payout not the two to three times offered by the land banking companies.

If I were to sell a  single roulette number with a 3 to 1 payout  for winning as an amazing investment opportunity I am sure I would be shut down and probably put in Jail.

Can anyone explain why are Land Banking companies not subject to the same scrutiny ?

SCMP: Investors offered 80 pct payout for Lehman products

Many investors in Singapore would wish that they have the same kind of assistance that is offered in Hong Kong.   Read this report.

Repaying bailout funds

During the global financial crisis, many banks were on the verge of collapse. The collapse of one big bank could trigger the collapse of other banks, risking the stability of the entire global financial system. The US Government stepped in to provide billions of taxpayer funds under the TARP (troubled assets relief program) program to stabilize and restore confidence in the system.

The taxpayers were shocked that these bailed out banks continue to pay huge bonuses to their top executives. The Government decided to introduce caps on the salaries and bonuses that could be earned by these executives.

Many bailed-out banks have decided to return the TARP money, so that they can continue to be relieved from the caps on these huge bonuses. They are able to get money from their shareholders, as the global financial system has now been restored. They can go back to the "good old days".

How did the banks make huge profits during these "good old days"? They take big gambles. They bet billions of dollars on financial trading and on creating asset bubbles, through housing, mergers and acquisations,  leveraging and financial engineering (also called "innovation").

If they get it right, they make billions of dollars of profit. If they get it wrong, the hold the global financial system to hostage.

The world has to put a stop to these huge gambles. The banks should be banned from these types of gambling. They key role is to do basic banking services, such as collecting money and giving loans to businesses and households. It may be boring, but it is a valuable service that builds real wealth.

As long as the governments condoned and even encouraged such gambling behavior, in the name of creating "financial hubs", the global financial system will continue to be at risk.

Tan Kin Lian

Goldman Sachs and synthethetic CDO

Here is the reply from Goldman Sachs to the New York Times article on synthetic CDO.

Quality of life and occupation

This survey showed that teachers have the best quality of life.

Insuring a home for the right value

Read this report. You need to insure your home for the cost of rebuilding, and not on the current value of the home.

Thursday, December 24, 2009

Are Singaporeans less hard working and hard driving?

Here is an interview given by Mr. Lee Kuan Yew to the National Geographic magazine:

Over time, the MM says, Singaporeans have become "less hard-driving and hard-striving." This is why it is a good thing, the MM says, that the nation has welcomed so many Chinese immigrants (25 percent of the population is now foreign-born). He is aware that many Singaporeans are unhappy with the influx of immigrants, especially those educated newcomers prepared to fight for higher paying jobs. But taking a typically Darwinian stance, the MM describes the country's new subjects as "hungry," with parents who "pushed the children very hard." If native Singaporeans are falling behind because "the spurs are not stuck into the hide," that is their problem.

I find this remark to be quite unfair to Singaporeans. Already, they have to study very hard in schools, such that many children do not have time to play and enjoy their childhood. The male citizens have also to serve National Service. I read that many immigrants are not willing to become Singapoore citizens if they are required to serve National Service.

In spite of these efforts, Mr. Lee said that the Singaporeans have become "less hard-driving and hard-striving".

Confidentiality agreements

We read many inside stories about confidential decisions taken by large corporations which were leaked to the media. These information were leaked out by their employees who were covered by confidentiality agreements. The employees talked to the journalists and asked for their names to be not published.

Many investors in Singapore are required to sign confidentiality agreement by the financial institution and by FIDREC. They dare not even discuss the matter with people that they need to seek advice. I find that these investors  are rather naive about their legal rights and how to respond to such legal matters.

Compare their behavior with the American employees who are willing to give information to the media that were supposed to be covered by confidentiality agreements, on the understanding that their names will not be quoted and that the information cannot be traced to the source.

Did the investment banks benefited at the expense of their clients?

Read this report.

Old and new citizens

A reader wrote to the Straits Times to suggest that "old" citizens and "new" citizens should be treated differently for priority allocation into the choice schools. A new citizen wrote today to state that this would be unfair and is bad for Singapore.

For the past 20 years, I have strongly disliked the practice of our Government leaders and top civil servants in writing complicated rules to differentiate between different classes of people - graduates and non-graduates,  different allocation to benefits according to the type of house that you live in, different eligibility to tax relief according to the birth order of your child or the year of birth, different level of health care subsidy according to the type of house you live in and income, complicated rules to determine eligibility for welfare payments, and so on.

If you are caught on the wrong side of the rule, bad luck to you. And the people who write the rules will know how to be on the right side of these rules. It is unfair, but this is Singapore. We are used to this type of environment.

I wish Singapore to be fairer and simpler. We should make high income earners pay more tax, and after that, apply the same level of benefits to all citizens, regardless of income level or housing type. There is no need for complicated rules.

We should pay an adequate allowance, almost like a full time salary, to our National Servicemen. After that, there is no need to have complicated rules to give them slightly more in entitlement to Government benefits.

Tan Kin Lian

Will Goldman Sachs sue Thomas Adams?

Read this story.

I am surprised that Thomas Adams and the New York Times is bold to write the article in this direct manner. They are protected by a vigorous culture of tranparency and accountability that is available under the American system.

Singapore is far behind in this aspect. It is so easy for for big businesses and powerful people to sue individuals in Singapore and intimidate them into silence. It is unfair and undesirable, but this is the Singapore system. I hope that this situation will be corrected.  

Merry Christmas and Best Wishes for 2010

To the visitors of my blog, all the best for 2010

Tan Kin Lian

Playing with fire

An elderly bank officer told me. He spent a few years as a wealth manager of a bank. He knew the risks of the financial products and were careful in explaining the risks to his clients.

These same products were given to young bank officers to sell to their clients. The young officers did not understand the products but they were bold in recommending them to their clients. They were driven by the commission that comes with the sales and were keen to meet the sales targets.

Why are these young people allowed to play with fire? We need a better way of regulating the sale of financial products. Surely, risky and complex products cannot be allowed to be sold by inexperienced people?

Imagine someone who takes a 3 week course in medicine who is then allowed to prescribe drugs!

Churning the CPF savings

There is a report about financial advisers advising low income families to wthdraw their CPF savings for investment in unit trusts. The financial advisers earn up to 3% on the front end charges and give a rebate to the CPF member. By churning these investments many times, the CPF member is able to withdraw a fairly significant  amount of savings. The problem is - for every $1 that is withdrawn, the CPF member is likely to lose $3 (my guess) of savings.

The CPF tries to bar the errant financial advisers from being involved in the future. This is similar to telling a thief that if he is caught, he will be barred from stealing in the future. I hope that our Government will make this type of activity into a crime that can send the culprits to jail.

We have a law on Financial Advice, which is administered by the Monetary Authority of Singapore. Surely, this law requires the licensed advisers to operate ethically and avoid dishonest transactions, such as illegal withdrawals of CPF savings? If this is the case, the MAS should investigate and take action under this law. We cannot have people who are licenced to abuse their privileges.

Tan Kin Lian

Wednesday, December 23, 2009

Rechargeable torchlight and shape quiz

You can get them from the following shop in Sim Lim Tower:

Torchlight: $8, Shape Quiz: $2

Skylimit Int Enterprise Ptd Ltd
10 Jalan Besar
#B1-21 Sim Lim Tower
Singapore 208787
Telephone: 62929155 / 62935766

Vera and Nadya

My grand daughter Vera is now 3 years old. Her sister, Nadya, is 1 year old. They had a birthday party recently. Visit this blog.

Here is a video of their visit to my home.

Helping the poor

We need a better way to help the poor in Singapore, rather than the bureaucratic, "many helping hands" approach.

Ask about the charges

I am the trustee for a trust fund set up to provide income for a non-profit organisation. The trustees held a meeting with the investment adviser to discuss the investment policy of the fund. The investment adviser made some recommendations on the asset allocation of the trust fund, and in particular, how to invest the cash portion that has grown to a significant proportion.

After discussion, the trustees accepted the recommendation. I finally asked the investment adviser, "how much do you earn as commission through executing the transactions that you have recommended?"

The client service manager was taken aback by this unexpected question, but she quickly recovered and replied, "It is in accordance with what has been told and approved by the trustees previously and that is ....% for shares and ....% for bonds".

Lesson: Never be shy to ask this important question. Do not assume that you know. Even if knew, it s good to get the facts reconfirmed.

Tan Kin Lian

Get full facts about the financial product

You should get full facts about the financial product before you invest in it. If there are any points that are unclear, you should ask the product seller. If you still do not understand the product, do not invest in it.

Always ask for the relevant facts to be put in writing. Do not take the verbal representations given by the seller. The seller may mislead you and later claimed that you had misunderstood the representations.

Always refer to the printed materials. If any important point is not covered in the printed materials, or is not explained in a transparent manner, you should be suspicious about the financial product. Most importantly, you should ask about the charges and commission earned by the product seller.

In the past, you could trust financial products to be transparent and fair as they were properly regulated. The standard of regulation and consumer protection has deteriorated in recent years, so you have to be careful and to do your own due diligence. 

If you are not clear about the financial product, DO NOT INVEST IN IT. Do not ask somebody else (e.g. TKL) to explain the product to you. 

Tan Kin Lian

Tuesday, December 22, 2009

The Fed's regulatory errors

What were the mistakes made by the Fed in regulating the banks? Are there lessons for other central banks?

Observations about Hong Kong

Here are some observations about Hong Kong and lessons for Singapore.

Stress at FIDREC hearngs

Dear Mr Tan,

Thanks for your kind assistance and I managed to get back some compensation from the FI finally.

Nevertheless, for most of the victims like myself who had gone thru the hearings, we have to transfer our "Bonds" to the FIs and not entitled to anymore residual value. I questioned the fairness of this system, as the residual value may end up be higher than the compensation ? (so far I know all compensations are below 50%) We are not given any other options. If we do not accept the award, we have to engaged our own lawyer to fight with the giants. Many want to end this nightmare after more than a year and are forced to accept this "compensation".

Unlike HK, FIs will still refund the victims and not gain anything if the residual values are higher than the 60%-70% that had already been compensated.

In addition, I understand many cases are still pending at Fidrec, due to disputes between the IFAs & FIs. The MAS/ Fidrec has yet to settle whom should be liable for this saga, and the victims have to decide by themselves whom they want to go against .... again, is this FAIR ? If one choose to go against 2 parties, they were told to pay 2 times and have to go through 2 hearings (that means 2 times the stress!) Furthermore, Minibonds have to wait till the residual values are confirmed before able to proceed hearings with IFAs and FIs. Currently, only those bought directly with the Banks are allowed to proceed with the hearings. (Not sure why ?)

Recently, Fidrec has tried to conduct mediation with some IFAs, these are all wasting of time, as results is "we are only introducers". Yet, many are forced to attend, else, may not be able to proceed with the hearings.

I wonder why we victims have to shoulder all these stress ? We are just laymen and do not know what are the hidden "agreements" between these business partners. After more than a year, MAS/ Fidrec has to be firmed with the directions and make clear whom should we go after, rather than leave everything to the victims.

I really feel sad for the whole financial system here in Singapore .............. how to become a Financial Hub with this kind of unfair system in place ?

Many Pinnacle Notes are going bust soon ... would advice other victims to be strong, since no one able to help us.


Avoid ETF with steep fees

Some ETF have steep fees and should be avoided. Read this article. When investing in ETF, make sure that the annual fees is less than 0.5%. The STI ETF has annual fee of 0.3% only.

Need for savings and liquidity

It is important for each person to have savings and liquidity. I have suggested that each person should set aside 50% of current earnings (inclusive of CPF) for housing and the future. As CPF takes about 35% (including employer's contribution), the personal savings should be 15%. Younger people living with their parents can save a larger proportion (say upt o 30%) if they do not have to repay any study loan or contribute towards their family expenses.

It is also important for the savings to be liquid. They can be kept in a bank account to earn interest of 1% or less.  This allows the savings to be withdraw without any penalty, to meet expected cash needs, such as medical bills, down payments or temporary unemployment.

For longer term investments, the savings should be invested in financial products that have low front end charges. For example, they can be invested in stocks and bonds traded on the Singapore Exchange, where the transaction cost is 0.3% of the invested sum. They can also be invested in a diversified exchange traded fund, where the annual fee is also 0.3%. As these products typically earn a yield of 4% to 6%, the upfront charge can be recovered within one year.

You should avoid investing in financial products, including life insurance products, where the front-end charge can take away up to two years of your savings. As you need liquidity, you cannot afford to incur such a large penalty. As you have the choice of SGX products with a front end charge of only 0.3%, why pay up to 200%?

If you need life insurance cover, buy a term insurance and pay the cost of insurance. It is small. Do not worry about getting this money back. Treat it as an expense.

Make sure that your savings earn an attractive rate of return. Invest in products that have a low transaction charge (say 0.3%) and a low annual fee (say 0.3% per annum) to enjoy professional management and diversification. Make sure that you have liquidity and do not have to pay a high penalty when you need to withdraw your savings for the unexpected expenses.

Tan Kin Lian

Monday, December 21, 2009

Shape Quiz at $2

The Shape Quiz is now available for $2. It comprises of 100 shapes in a printed sheet and comes with 4 plastic pieces. Available from (Internet shop). It is a good gift for children for the new year. You can order it to be sent to you by post.

Climbing stairs as an exercise

When I was in Sichuan the tour guide made this observation. When he was in Singapore, he was surprised that people queue up for the lift, even though they only need to travel a few floors. In Chengdu, most buildings are up to 5 stories only, and people are used to walking the stairs.

I agree with this observation. I have now decided to walk up the six floors to my office in Ang Mo Kio, instead of taking the lift. This will give me the chance to exercise a few times a day.

Time to scrap the White Pages

The telephone directory is now unnecessary. It is time to scrap this directory and save the trees. Read this report.

Coping with unemployment

Many developed countries have unemployment benefits. Even America, which believes in individual responsibilty and the free market, have unemployment benefits. The leaders in these countries know that the unemployment benefits can be abused, but they still provide these benefits as, in their judgement, the good outweighs the abuses.

In the free, competitive market, people compete for jobs. Some win and other lose. The losers gets unemployed. They have families to feed. In a weak economy, it is not easy to find an alternative job that can pay an adequate wage for their needs. Should they have to borrow and pay a high interest charge? Do the family have to grow hungry? Some have to resort to crime to get some money. Is this a good outcome?

What about people who are lazy and will enjoy the unemployment benefit, without working? These countries have found many ways to overcome this problem. Some countries, fix a limit on the duration of the unemployment benefits. In America, this is usually 12 months, although it has been extended due to the extremely weak economy. In other countries, the unemployed worker is required to attend job training and interviews, and to accept reasonable offers. They can only get the unemployment benefits, when jobs are not available.

These measures are not perfect, but they work reasonably well. If this was not the case, they would have been stopped.

What about countries, such as Singapore, that do not provide unemployment benefits? It is important to have personal savings that can be drawn down to meet emergencies, such as unemployment. Most young people are able to get jobs. They should set aside personal savings of 15% to 30% when they are young. These savings should be invested in financial products that can be withdrawn easily, without paying a high penalty. They include stocks and bonds traded on an Exchange.

Tan Kin Lian

Investing in properties

Many people made huge gains by investing in properties in the past. This was achieved at a time when property prices were relatively low, compared to today. At today's prices, it will be difficult to expect further appreciation along the scale as was achieved in the past.

The trend of interest rate is also going against property investments. During the past twenty years, there was a decline in interest rate globally. This decline contributed to appreciation in property prices. For example, if interest rate dropped from 6% to 3%, the prices of properties will double.

Interest rate is very low now. At the short end, it is near zero. For longer terms, it is around 3%.  In the future, it is likely to increase. This will result in a drop in property prices. It could drop by 50%, if the long term interest rate were to double from today's level.

Interest rate is expected to remain low, due to deflation, but may increase from the highly depressed level of today, so you can expect some correction in property prices in the year's ahead.

To learn about what can happen when the property market corrects, we have to look at what has happened in America and Europe. They have allowed the property prices to increase too much due to low interest rate, subprime mortgages and financial instruments. When these markets correct, the damage to the economy has been severe.

In all, it is a bad time to invest in properties as a long term investment. People still have to buy a property to live in, although they should consider the option to rent a property. Apart from interest rate, property prices will also depend on supply and demand and the economic situation. But interest rate does play a big part.

Be careful about investing in properties (other than for own occupation).

Tan Kin Lian

Understanding fund brochures

The language used in fund brochures look impressive. But, what do the words really mean? Here is one person's explanation. Be careful before you invest. Understand what you are investing in.

Sunday, December 20, 2009

Why pay Singapore TV licence?

Dear Mr Tan
This subject has been brought up many times. Occasionally, the authorities would give replies, including at least once in Parliament, but they failed to convince the public.
Personally, I do not object to the Government collecting money from me because they need to pay the service providers too and, in this case, for "funding public service programs on TV and radio". However, I have always had an uncomfortable feeling as to how they actually spent $8 million a month.
Just my own thoughts.

Need to investigate AIG

Read this report.

Bonus of bankers

America should set caps on the bonus of bankers, just like UK and France. Read this report.

Panda in zoo in Chengdu, China

Watch this video.

Pearl Shaol Falls in Jiuzhaigou, China

Here is a video of this beautiful waterfall in Jiuzhaigou, China.

Take care of customers

Here is the ranking of various types of businesses based on how well they take care about their customers.

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