The raising of a family can be made an individual or a social decision. I prefer it to be a social decision.
In a society, each family can have the right to raise two children with the cost being largely borne by the society. The cost will cover pregnancy, childbirth, medical care of the mother and child, education of the child and an allowance to be given to each child.
This will encourage every family to have at least two children. Families that wish to have more children will have to bear a larger proportion of the cost, maybe 50% to 70%.
Some religion encourage their followers to have children, according to the will of God or Allah: "Go forth and multiply". Similarly, a secular society can meet a large part of the cost of raising children.
If a large part of the cost is borne by society, the citizens will have to pay a higher tax. But they will get it back through the benefits provided to their children. Those who prefer to remain single will have to pay a tax for reduce the burden of the parents. This will encourage more people to have a family and raise children.
Maybe, each person can work 1 or 2 hours a day (on top of 4 hours of work for the basic necessities) to pay for the cost of raising the children needed by society.
Tan Kin Lian
Saturday, September 05, 2009
Health insurers reject claims
President Obama wanted to introduce a "public option". It will allow the uninsured to choose a health plan provided by the Government. This is intended to provide competition to health insurers and make them more efficient.
The health insurers industry lobby against the public option. They told Americans that the public option would lead to a "death panel" will have responsibility to control cost and decide if any insured person should receive expensive treatment.
As a result of this lobby, many Americans are now afraid of the "public option". But the insurance industry is not being honest and truthful. They are already adopting this practice. Read this article.
Voilunteer for FISCA
If you wish to volunteer or join FISCA, please go to the website, www.fisca.sg
Please do not call me or send e-mail to me, as I am not able to personally handle all of these requests. Thank you for volunteering and joining.
Loan insurance limit challenged
Read this article. It shows how the Consumer Association and the Regulators (Financial Services Authority and Competition Authority) look after the interest of consumers in the UK. We need to learn from them. It is not just business.
Lack of transparency and fairness
I posted the case of a policyholder who paid an annual premium of $2,000 and received $54,000 after 21 years (yield of 2.2%).
A similar policy, taken with another insurer, would have given a yield of 5% p.a. giving a payback of $75,000. The difference is $21,000 or 39%.
Where did the $21,000 disappear to? It went into high expenses or are retained in the fund to "smooth the bonus". There is lack of transparency and fairness. The policyholders are at the mercy of the insurance company!
A good way to overcome this problem is to introduce the calculation of asset share for each individual policy, as implemented in Malaysia.
A similar policy, taken with another insurer, would have given a yield of 5% p.a. giving a payback of $75,000. The difference is $21,000 or 39%.
Where did the $21,000 disappear to? It went into high expenses or are retained in the fund to "smooth the bonus". There is lack of transparency and fairness. The policyholders are at the mercy of the insurance company!
A good way to overcome this problem is to introduce the calculation of asset share for each individual policy, as implemented in Malaysia.
Research 2 - Meeting the Basic Needs of a Population
I wish to ask for a volunteer to carry out this research. If you wish to volunteer, please send an email to kinlian@gmail.com.
1. This research is to look at the percentage of the population that is required to be occupied to meet the basic needs of the population, such as food, shelter, clothing, health and education. This study excludes the secondary needs, such as entertainment, leisure and discretionary expenditures.
2. What percentage of the population is engaged in the occupations that cater for the basic needs?
Research 1 - Cost of Raising a Child
I wish to ask for a volunteer to carry out this research and to submit a report to me. If you can volunteer, please reply to kinlian@gmail.com.
1. If a country has more children, how many additional jobs will be created, e.g. teachers, doctors, nurses, carers and other occupations that are directed connected to taking care of the child from birth till the child enters the workforce. You can add the hardware cost, such as building schools, child care centers and medical clinics for the children.
2. Estimate the total annual cost and divide by the number of children. This will be the cost for each year of raising a child.
Which government agency is responsible?
A journalist asked me: "Mr. Tan, as motor insurance fraud have been quite rampant, which government agency should address this problem? Should it be MAS or the Land Transport Authority?
I replied that this is a shameful state of affairs. There is only one Government in Singapore. How can one agency (or department or ministry) point its fingers towards another agency to solve the problem? At the end, no agency take responsibility and the problem remains unsolved.
Finger pointing is now so prevalent that it now becomes a Singapore culture to avoid responsibility. If the people at the top behave in this manner, why should the people lower down do differently?
Many scams and cheating are not investigated, even if complaints are lodged. The Government officer ask the complainant to "provide evidence" before they will act. It is difficult for the ordinary people to provide hard evidence, as they can only be carried out by the Police with the powers and resources to carry out investigation into suspected crimes.
Quite often, the complaints are usually just filed away and investigation is not carried out. Our Government officers prefer to sit behind the desk to write papers, rather than go out to investigate.
This has developed into a habit for the past 15 years and has led to an increase in cheating cases, not only with motor insurance claims but also in investments and other areas.
Tan Kin Lian
I replied that this is a shameful state of affairs. There is only one Government in Singapore. How can one agency (or department or ministry) point its fingers towards another agency to solve the problem? At the end, no agency take responsibility and the problem remains unsolved.
Finger pointing is now so prevalent that it now becomes a Singapore culture to avoid responsibility. If the people at the top behave in this manner, why should the people lower down do differently?
Many scams and cheating are not investigated, even if complaints are lodged. The Government officer ask the complainant to "provide evidence" before they will act. It is difficult for the ordinary people to provide hard evidence, as they can only be carried out by the Police with the powers and resources to carry out investigation into suspected crimes.
Quite often, the complaints are usually just filed away and investigation is not carried out. Our Government officers prefer to sit behind the desk to write papers, rather than go out to investigate.
This has developed into a habit for the past 15 years and has led to an increase in cheating cases, not only with motor insurance claims but also in investments and other areas.
Tan Kin Lian
Friday, September 04, 2009
Duty of the Government
Someone posted an anonymous comment, "people should look after their interest, instead of depending on the authority to take care of them. "
This is only half true. It is the duty of the Government to ensure that thieves and crooks do not go around cheating people. It is so easy for these crooks to create financial scams. If complaints are made, the authority should investigate and take action to bring these culprits to court.
These dishonest people should not be allowed to operate freely, by advertising their dubious products, holding sales seminars and sending sales people to push them to the unsuspecting public.
We now have a sad state of affairs. Complaints of cheating are not investigated by the authorities. People who are cheated are asked to take legal action against the culprits.
This is only half true. It is the duty of the Government to ensure that thieves and crooks do not go around cheating people. It is so easy for these crooks to create financial scams. If complaints are made, the authority should investigate and take action to bring these culprits to court.
These dishonest people should not be allowed to operate freely, by advertising their dubious products, holding sales seminars and sending sales people to push them to the unsuspecting public.
We now have a sad state of affairs. Complaints of cheating are not investigated by the authorities. People who are cheated are asked to take legal action against the culprits.
Wasteful marketing materials
I find it wasteful for credit card companies to be sending the marketing materials. I believe that most customers hardly pay attention to them. It is costly to print and mail them.
The bank recover these cost through high interest charges and fees. If they look after the welfare of their customers, they should avoid these wastage and reduce their charges.
The bank recover these cost through high interest charges and fees. If they look after the welfare of their customers, they should avoid these wastage and reduce their charges.
Values that define my character
I wish to share with you the following values that guide my character:
a. honesty
b. fairness
c. courage
d. be positive
e. work for benefit of society
I wish to encourage others to adopt these values. They will create a better society.
a. honesty
b. fairness
c. courage
d. be positive
e. work for benefit of society
I wish to encourage others to adopt these values. They will create a better society.
Yield of 0% for 21 years of premium
Hi Kin Lian,
I have been following with great interest comments concerning the need for the insurers to be more transparent about the participating bonuses and surrender values and other related matters made by you and other distinguished professionals and the insurers themselves.
My wife is personally involved with her own policy as she was considering cashing out
her policy and using the money for other modes of investment. We were disappointed that the insurer would not bother to explain how they derived at the surrender value even though the offer is at odds with the documents that their office furnished my wife earlier.
Their financial planner (sales person really) briefly said that the difference between what we should be entitled as per the document and what we have been offered is due to the underlying value in their investments that have been impaired caused by the global financial crisis.
We would be agreeable for you or another person to use our case as an example of the lack of transparency in the industry, if indeed this is the case here.
SUMMARY OF KEY FIGURES
Annual premium for whole life policy $2,013
Duration of policy: 21 years
Cash value: $54,070
Yield over 21 years: 2.2% p.a.
Total premiums paid, inclusive of rider premium: $54,074 (yield 0.0%)
After paying premiums for 21 years, the policyholder just obtained the total premiums back. The yield is 0%. If the rider premiums are excluded, the yield is 2.2% p.a.
I have been following with great interest comments concerning the need for the insurers to be more transparent about the participating bonuses and surrender values and other related matters made by you and other distinguished professionals and the insurers themselves.
My wife is personally involved with her own policy as she was considering cashing out
her policy and using the money for other modes of investment. We were disappointed that the insurer would not bother to explain how they derived at the surrender value even though the offer is at odds with the documents that their office furnished my wife earlier.
Their financial planner (sales person really) briefly said that the difference between what we should be entitled as per the document and what we have been offered is due to the underlying value in their investments that have been impaired caused by the global financial crisis.
We would be agreeable for you or another person to use our case as an example of the lack of transparency in the industry, if indeed this is the case here.
SUMMARY OF KEY FIGURES
Annual premium for whole life policy $2,013
Duration of policy: 21 years
Cash value: $54,070
Yield over 21 years: 2.2% p.a.
Total premiums paid, inclusive of rider premium: $54,074 (yield 0.0%)
After paying premiums for 21 years, the policyholder just obtained the total premiums back. The yield is 0%. If the rider premiums are excluded, the yield is 2.2% p.a.
Account of Gathering of 22 Aug 2009
Total donation received: $1301
-----
Expenses
Printing of placards $380
Hire of portable speaker $100
Plain water $15
total $495
------
Balance donated to FISCA $806
UK: Director of Land Banking Company Gets Seven Year Ban
Read this article. It shows the possible wrong doings that can be committed by a land banking company, such as:
a) mis-representing the product
b) no proper accounting of the investment funds
c) repeated sales of the same plots
If this wrong doings are committed by a land banking company operating in Singapore, which Government authority is responsible to take action? Is it MAS, Commercial Affairs Department or some other body? If the investor makes a complaint, will the relevant authority make an investigation?
Does land banking come under Collective Investment Scheme?
I met with four people who were sold to invest in a land banking scheme. The promoter gave them a guarantee (in the form of an option) to buy back their investment at the end of 12 months for a full refund of their principal plus a guaranteed return.
These investors have now submitted their redemption request, but the promoter refused to honor the agreement and gave some unsatisfactory and unclear explanations.
One investor made a complaint with MAS and were told by the MAS official that land banking did not come under MAS. In my view, unless I am mistaken, land banking should fall under the scope of a collective investment scheme, which is administered by MAS. There are controls under the law on collective investment scheme to prevent the misappropriate of the funds collected from investors. This risk applies to land banking as well.
I will appreciate if a practising lawyer can clarify if land banking comes under the collective investment scheme?
Tan Kin Lian
These investors have now submitted their redemption request, but the promoter refused to honor the agreement and gave some unsatisfactory and unclear explanations.
One investor made a complaint with MAS and were told by the MAS official that land banking did not come under MAS. In my view, unless I am mistaken, land banking should fall under the scope of a collective investment scheme, which is administered by MAS. There are controls under the law on collective investment scheme to prevent the misappropriate of the funds collected from investors. This risk applies to land banking as well.
I will appreciate if a practising lawyer can clarify if land banking comes under the collective investment scheme?
Tan Kin Lian
Lower cost of living - the good old days
30 years ago, Singapore had a good economic model, based on a lower cost of living. The price of HDB flats were affordable (at 10% of today's prices). The HDB shops and stalls were rented at inexpensive rates. It was possible for the merchants and stall holders to offer their products and food at affordable prices. The cost of living was low.
80% of the population lived in HDB estates and were able to get by on modest wages. There was less stress. People who proud to be Singaporeans and to enjoy a good quality of life.
This economic model changed after 1985. Under the "asset enhancement" strategy, the prices of property was allowed to inflate to high levels. This was supposed to create more wealth. It produced the opposite and negative effect and enslaved the future generation to a high cost of living and high debts. Life was stressful. The sever decline in birth rates occurred during these past two decades.
There is still the chance for us to get back to the good old days. But we need to have leaders that think a different way.
Tan Kin Lian
80% of the population lived in HDB estates and were able to get by on modest wages. There was less stress. People who proud to be Singaporeans and to enjoy a good quality of life.
This economic model changed after 1985. Under the "asset enhancement" strategy, the prices of property was allowed to inflate to high levels. This was supposed to create more wealth. It produced the opposite and negative effect and enslaved the future generation to a high cost of living and high debts. Life was stressful. The sever decline in birth rates occurred during these past two decades.
There is still the chance for us to get back to the good old days. But we need to have leaders that think a different way.
Tan Kin Lian
A generous donor
One investor donated $500 towards the expenses of the Gathering on 22 August. As the actual expense was quite low, and the total donation exceeded the expenses, I wanted to return back $400 to the donor.
He replied that he wish the money to be donated to FISCA. He is generous. I hope that more Singaporeans can learn to be generous (and not selfish), and to think about the welfare of others.
A new society (2) - Distribution of work
We need a fair way to distribute the work among the people in a society, so that every person has the right to work at a suitable occupation for a fair wage, that is sufficient to meet their basic needs.
Based on the size of the population and the output of the essential services and products, it is possible to determine the number of people to be engaged in each occupation. The workers can bid for these jobs. A right quantum of work should be allocated to each person, to ensure a fair distribution of the work.
The rate for each job can be determined by supply and demand, almost like the bidding system. If there are more people willing to do a certain occupation at a specified rate per hour, the rate has to be adjusted downwards to reach a market balance. If there are less people interested, the rate has to be adjusted upwards. This rate can apply for a period of six or twelve months.
Under this system, it may be possible for a doctor to earn (say) $30 an hour and an office worker to earn $10 per hour. This will reflect the market conditions and the training needed for the occupation.
A doctor can earn 3 times of an office worker, but not 30 times or 300 times. Each qualified doctor is confident of being able to earn a certain number of hours of work each day, based on the way that the work has been allocated.
It is possible to introduce fair competition in this system. For example, the consumers know that standard rate for a doctor is $30 an hour. An individual doctor may charge a higher or lower rate than the standard rate, but this has to be disclosed to the patients. The patient can decide whether to go for the standard or the special rate.
The doctor can work more or less than the standard hours, but if there is a fair balance between supply and demand, there is no need for excessive or predatory competition. There is enough work to be shared among the doctors.
The same concept can apply to other occupations.
Tan Kin Lian
Based on the size of the population and the output of the essential services and products, it is possible to determine the number of people to be engaged in each occupation. The workers can bid for these jobs. A right quantum of work should be allocated to each person, to ensure a fair distribution of the work.
The rate for each job can be determined by supply and demand, almost like the bidding system. If there are more people willing to do a certain occupation at a specified rate per hour, the rate has to be adjusted downwards to reach a market balance. If there are less people interested, the rate has to be adjusted upwards. This rate can apply for a period of six or twelve months.
Under this system, it may be possible for a doctor to earn (say) $30 an hour and an office worker to earn $10 per hour. This will reflect the market conditions and the training needed for the occupation.
A doctor can earn 3 times of an office worker, but not 30 times or 300 times. Each qualified doctor is confident of being able to earn a certain number of hours of work each day, based on the way that the work has been allocated.
It is possible to introduce fair competition in this system. For example, the consumers know that standard rate for a doctor is $30 an hour. An individual doctor may charge a higher or lower rate than the standard rate, but this has to be disclosed to the patients. The patient can decide whether to go for the standard or the special rate.
The doctor can work more or less than the standard hours, but if there is a fair balance between supply and demand, there is no need for excessive or predatory competition. There is enough work to be shared among the doctors.
The same concept can apply to other occupations.
Tan Kin Lian
Thursday, September 03, 2009
Will the PM or MAS agree to a meeting?
Dear Mr. Tan,
Do you seriously expect the Prime Minister or the MAS to agree to your request for a meeting (on the credit linked notes)?
REPLY
My opinion on this matter is irrelevant. It is more important for the public to know the PM or MAS agree to this request, or just ignore it.
Do you seriously expect the Prime Minister or the MAS to agree to your request for a meeting (on the credit linked notes)?
REPLY
My opinion on this matter is irrelevant. It is more important for the public to know the PM or MAS agree to this request, or just ignore it.
Quote: The worst is not behind us
Quote: Thanks to the radical actions of the G-7 and others, the risk of a total systemic financial meltdown has been reduced. But unfortunately, the worst is not behind us. This will be a painful year. Only very aggressive, coordinated, and effective action by policymakers will ensure that 2010 will not be even worse than 2009 is likely to be.
Nouriel Roubini is professor of economics at New York University’s Stern School of Business.
Nouriel Roubini is professor of economics at New York University’s Stern School of Business.
MAS defends the interest of financial institutions
COMMENT POSTED IN MY BLOG
Now every body understand how bold our MAS in defending the interest of the FIs under the instruction of our top learders.They openly said the HK accross the board method is not acceptable. You think HK people are all stupid and we are smarter? The whole world thinks otherwise.
MAS said FIs are not using legalistic approach. I wonder what approach they are using? MAS is blind or twists the fact that FIs are forcing investors to take action becuse investors have no alterlative. How dirty was these tactics adopted by MAS.
Do you think you will have a fair hearing in FiDREC? Every FI can send 2 legally trained officers as defenders, and the RM, who mis-sell and mis-rpresent the products to us, will stand as witness. You are alone to fight against them.
Do you find the arrangement by FiDREC is rediculous?
The fight is over. The winner--FIs. Score--100 to 0.
Now every body understand how bold our MAS in defending the interest of the FIs under the instruction of our top learders.They openly said the HK accross the board method is not acceptable. You think HK people are all stupid and we are smarter? The whole world thinks otherwise.
MAS said FIs are not using legalistic approach. I wonder what approach they are using? MAS is blind or twists the fact that FIs are forcing investors to take action becuse investors have no alterlative. How dirty was these tactics adopted by MAS.
Do you think you will have a fair hearing in FiDREC? Every FI can send 2 legally trained officers as defenders, and the RM, who mis-sell and mis-rpresent the products to us, will stand as witness. You are alone to fight against them.
Do you find the arrangement by FiDREC is rediculous?
The fight is over. The winner--FIs. Score--100 to 0.
Petition to Prime Minister - Reply by MAS
The Petition, signed by 777 people was sent to the Prime Minister on 26 August. The Prime Minister's office forwarded it to the Monetary Authority of Singapore. Here is the reply (31 August 2009) from Andrew Khoo, Director, Capital Markets of MAS.
The reply is disappointing, as expected. I have asked Andrew Khoo for a meeting for me and a few representatives of the signatories to meet with him. I have also asked the Prime Minister's Office for a similar meeting. I have not received a reply from both parties.
The reply is disappointing, as expected. I have asked Andrew Khoo for a meeting for me and a few representatives of the signatories to meet with him. I have also asked the Prime Minister's Office for a similar meeting. I have not received a reply from both parties.
Tan Kin Lian
Investors of Pinnacle Notes can get news from Lion Investors
Hi Mr Tan
Sometimes, investors just do not know which direction to head, hence i would like to share what i discover after joining FISCA.
FISCA has lead me to articles in www.lioninvestor.com. Under "Pinnacle", there was a "Pinnacle Notes Default". The discussions there is active. Pinnacle Action Group entry on 11 jun 2009 mention a class action.
I do not know if it will be helpful to others who visit your Blog but i was very happy to know i can get some info there.
Sometimes, investors just do not know which direction to head, hence i would like to share what i discover after joining FISCA.
FISCA has lead me to articles in www.lioninvestor.com. Under "Pinnacle", there was a "Pinnacle Notes Default". The discussions there is active. Pinnacle Action Group entry on 11 jun 2009 mention a class action.
I do not know if it will be helpful to others who visit your Blog but i was very happy to know i can get some info there.
Survey: Lehman bonds
Dear Mr Tan
I have been following your commendable efforts to help those stuck with Lehman's Mini bonds et al.
Do you know of people stuck with Lehman Brothers Holdings' bonds and who now have to file proofs of claim?
In early 2008, I bought $250,000 of Lehman Brothers Holdings Inc. 4.20% 5-year Fixed Rate Notes Due 2013 from OCBC who is the Joint Lead Manager and Bookrunners (together with Lehman Bros S'pore Pte Ltd) .
I need help to file the claim by Sept 22 2009 and have contacted OCBC but they apparently are not very sure themselves what is happening.
Do you know of anybody else in the same predicament? Perhaps you could circulate this note to help find out how many others are similarly stuck and how we could get together to organise something for mutual help.
Thank you for your time and assistance.
FOR THOSE WHO ARE STUCK WITH LEHMAN BONDS, PLEASE GIVE YOUR PARTICULARS IN THIS SURVEY.
I have been following your commendable efforts to help those stuck with Lehman's Mini bonds et al.
Do you know of people stuck with Lehman Brothers Holdings' bonds and who now have to file proofs of claim?
In early 2008, I bought $250,000 of Lehman Brothers Holdings Inc. 4.20% 5-year Fixed Rate Notes Due 2013 from OCBC who is the Joint Lead Manager and Bookrunners (together with Lehman Bros S'pore Pte Ltd) .
I need help to file the claim by Sept 22 2009 and have contacted OCBC but they apparently are not very sure themselves what is happening.
Do you know of anybody else in the same predicament? Perhaps you could circulate this note to help find out how many others are similarly stuck and how we could get together to organise something for mutual help.
Thank you for your time and assistance.
FOR THOSE WHO ARE STUCK WITH LEHMAN BONDS, PLEASE GIVE YOUR PARTICULARS IN THIS SURVEY.
A new society (1) - Right to a job on fair terms
I make a rough guess that 50% of the working population will be sufficient to produce the goods to meet the basic needs of the population for food, shelter, clothing, health and education, including the manufacturing industries that are needed to support the basic industries.
If the work is shared fairly among the working population, it is possible (based on my guess) for each person to work 4 hours a day to contribute their share of the work and to receive an income that is sufficient for a decent standard of life.
In this environment, there is no need for a person to worry about inability to find a job. There is no need for them to work more than is needed, and in the process deprive another person of their right to a job.
It is possible for people to work longer than the minimum hours, so that they can accumulate savings for the future, or additional income to raise a family or to engage in leisure, social or religious activities. These are optional activities that come after the person has the security of a job.
It is possible for society to mandate a wider scope of the basic needs, to include raising a family or involved in culture or religion. The cost of these activities can be borne by society collectively, and expand the pool of work that needs to be done.
My ideas are influenced by the need for social justice and the need for society to set the norms for its future (instead of the "me first" attitude of individualism). However, my concept still relies on the mechanics of the market to ensure that the people can choose the suitable work based on their interest and skill and that the remuneration can be based on supply and demand, but determined holistically.
Tan Kin Lian
If the work is shared fairly among the working population, it is possible (based on my guess) for each person to work 4 hours a day to contribute their share of the work and to receive an income that is sufficient for a decent standard of life.
In this environment, there is no need for a person to worry about inability to find a job. There is no need for them to work more than is needed, and in the process deprive another person of their right to a job.
It is possible for people to work longer than the minimum hours, so that they can accumulate savings for the future, or additional income to raise a family or to engage in leisure, social or religious activities. These are optional activities that come after the person has the security of a job.
It is possible for society to mandate a wider scope of the basic needs, to include raising a family or involved in culture or religion. The cost of these activities can be borne by society collectively, and expand the pool of work that needs to be done.
My ideas are influenced by the need for social justice and the need for society to set the norms for its future (instead of the "me first" attitude of individualism). However, my concept still relies on the mechanics of the market to ensure that the people can choose the suitable work based on their interest and skill and that the remuneration can be based on supply and demand, but determined holistically.
Tan Kin Lian
A fairer distribution of work
Many young people are worried about their ability to find a job on graduation. If they are unemployed, how can they repay their study loan and meet their daily expenses, especially if their parents are not well off.
Some people with jobs work long hours, so that they can keep their jobs. In the process, they are depriving other people of the chance to work.
This is a bad capitalist system. It exploits the weak so that the strong can get richer. It creases stress and economic insecurity. It leads to a declining population as many people decide that they cannot afford to raise children.
Is there a better and fairer system? Yes, but we have to think out of the box. To provide the basic needs of every person on earth, there is a certain volume of work to be done. If this volume of work is shared fairly among all the working people, there is no need for anyone to be unemployed or for others to be overworked.
Maybe, each person needs to work only a few hours each day and will have more time for leisure and socialising. They will also have more time to raise a family. If there are more children, there will be more work to take care of and educate the children.
There are advantages for a fairer system of distributing work and rewards - a better quality of life, less stress, more children, happier people. I am describing a more socialist society.
Tan Kin Lian
Some people with jobs work long hours, so that they can keep their jobs. In the process, they are depriving other people of the chance to work.
This is a bad capitalist system. It exploits the weak so that the strong can get richer. It creases stress and economic insecurity. It leads to a declining population as many people decide that they cannot afford to raise children.
Is there a better and fairer system? Yes, but we have to think out of the box. To provide the basic needs of every person on earth, there is a certain volume of work to be done. If this volume of work is shared fairly among all the working people, there is no need for anyone to be unemployed or for others to be overworked.
Maybe, each person needs to work only a few hours each day and will have more time for leisure and socialising. They will also have more time to raise a family. If there are more children, there will be more work to take care of and educate the children.
There are advantages for a fairer system of distributing work and rewards - a better quality of life, less stress, more children, happier people. I am describing a more socialist society.
Tan Kin Lian
Morgan Stanley, Moody,S&P must defend fraud claims
NEW YORK (Reuters) - A U.S. federal judge has ruled that Morgan Stanley and two credit rating agencies must defend part of a class-action lawsuit over losses on a fund that collapsed during the credit crisis.
U.S. District Judge Shira Scheindlin on Wednesday rejected efforts by Morgan Stanley, Moody's Corp's Moody's Investors Service and McGraw-Hill Cos' Standard & Poor's to dismiss fraud claims brought by the plaintiffs, Abu Dhabi Commercial Bank and King County in Washington state.
She dismissed the remaining claims against those entities, as well as all claims against Bank of New York Mellon Corp. The judge will allow the plaintiffs to amend their complaint, and set an Oct 1 status conference.
The lawsuit accused the defendants of marketing a complex instrument, the Cheyne Structured Investment Vehicle, as a high-quality investment, but masked the risks.
SIVs once held some $350 billion in assets, but many collapsed. According to its complaint, the Abu Dhabi bank lost its entire investment in the Cheyne vehicle.
The case is Abu Dhabi Commercial Bank v. Morgan Stanley, U.S. District Court, Southern District of New York (Manhattan), No. 08-7508.
U.S. District Judge Shira Scheindlin on Wednesday rejected efforts by Morgan Stanley, Moody's Corp's
She dismissed the remaining claims against those entities, as well as all claims against Bank of New York Mellon Corp
The lawsuit accused the defendants of marketing a complex instrument, the Cheyne Structured Investment Vehicle, as a high-quality investment, but masked the risks.
SIVs once held some $350 billion in assets, but many collapsed. According to its complaint, the Abu Dhabi bank lost its entire investment in the Cheyne vehicle.
The case is Abu Dhabi Commercial Bank v. Morgan Stanley, U.S. District Court, Southern District of New York (Manhattan), No. 08-7508.
Wednesday, September 02, 2009
Cut in bonus
Dear Mr. Tan,
Recently, I received my annual bonus statement on my life policy. I was disappointed with their cut in my bonus from 1.5% to 0.75% (50%).
From what I understand, the premiums are been pooled together in a participating fund and the investment allocation is considered conservative type. When I see this 50% cut,I am wondering am I aboard on a roller coster?
I have received my bonus statements from other companies, but some did not cut my bonuses at all and for others, it was only a minor deduction.
May I know is there anything I can do?
REPLY
You can write to the newspaper or lodge a complaint with MAS. MAS should realise that their governance framework is producing this type of outcome.
Recently, I received my annual bonus statement on my life policy. I was disappointed with their cut in my bonus from 1.5% to 0.75% (50%).
From what I understand, the premiums are been pooled together in a participating fund and the investment allocation is considered conservative type. When I see this 50% cut,I am wondering am I aboard on a roller coster?
I have received my bonus statements from other companies, but some did not cut my bonuses at all and for others, it was only a minor deduction.
May I know is there anything I can do?
REPLY
You can write to the newspaper or lodge a complaint with MAS. MAS should realise that their governance framework is producing this type of outcome.
Rejection from FIDREC
Every few days, I get an email from a credit note investor who asked for my advice and help, after receiving a rejection letter from FIDREC.
Earlier on, there were many opportunities for the investor to get in touch with other investors, to get legal help, to join the class action, to sign the Petition and to attend the Hong Lim gathering. Many of these investors prefer not to be engaged in these activities.
Now, after receiving a rejection letter, they turn to me for help. I am not able to help them at this late stage. There is nothing that can be done now.
I had spent a lot of effort to organise the Petition and the Hong Lim Gathering. I had posted many updates in my blog. I also sent an email to remind the 700 signatories about the Gathering. Only 300 people turned up, which was below expectation and insufficient to create the impact.
Earlier on, there were many opportunities for the investor to get in touch with other investors, to get legal help, to join the class action, to sign the Petition and to attend the Hong Lim gathering. Many of these investors prefer not to be engaged in these activities.
Now, after receiving a rejection letter, they turn to me for help. I am not able to help them at this late stage. There is nothing that can be done now.
I had spent a lot of effort to organise the Petition and the Hong Lim Gathering. I had posted many updates in my blog. I also sent an email to remind the 700 signatories about the Gathering. Only 300 people turned up, which was below expectation and insufficient to create the impact.
Earthquake tremors in Jakarta
I was at an insurance company office in Jakarta. We discussed the underwriting loss for a branch. What was the reason?
The technical director said "earthquake, earthquake". I asked, "which earthquake and how did it caused the loss".
He said, "Can you see the office shaking? There is an earthquake now". We all decided to vacate the office and run down to the ground floor and outside the building.
This was the first time that I experienced an earthquake in my life We learned later that there was an earthquake in West Java, about 250 km from Jakarta, measuring 7.5 richter scale. This caused the tremor to be felt in Jakarta.
The technical director said "earthquake, earthquake". I asked, "which earthquake and how did it caused the loss".
He said, "Can you see the office shaking? There is an earthquake now". We all decided to vacate the office and run down to the ground floor and outside the building.
This was the first time that I experienced an earthquake in my life We learned later that there was an earthquake in West Java, about 250 km from Jakarta, measuring 7.5 richter scale. This caused the tremor to be felt in Jakarta.
An open mind
Many Singaporeans have a closed mind. If they see a suggestion for a change, they will evaluate it and find many reasons why the new way will not work. With this mindset, it is difficult to make any change.
There are some Singaporeans who have an open mind, but this tends to be a minority. To have an open mind, it is necessary to observe the following:
a) Identify and understand the problem. Accept that there is a problem and the need to make a change.
b) Recognise that there are many ways to make a change. Some will not work, but other ways may work.
c) Do not decide based on theory. It is better to try it out and see the results. Even if there are problems, they can be overcomed.
I hope that more people will adopt a positive approach and be ready to make a change, working for a better outcome.
Tan Kin Lian
There are some Singaporeans who have an open mind, but this tends to be a minority. To have an open mind, it is necessary to observe the following:
a) Identify and understand the problem. Accept that there is a problem and the need to make a change.
b) Recognise that there are many ways to make a change. Some will not work, but other ways may work.
c) Do not decide based on theory. It is better to try it out and see the results. Even if there are problems, they can be overcomed.
I hope that more people will adopt a positive approach and be ready to make a change, working for a better outcome.
Tan Kin Lian
Unexpected difficulty in connecting a flight
I faced an unexpected difficulty in connecting a flight from Riyadh to Jeddah. There are some lessons to be learned to avoid this type of problem in the future. Read here.
Population of Jeddah
I asked the hotel staff in Jeddah about the population of the city. They did not know. Most of them were "foreign talents". One told me a figure of 3 million, which seemed rather high.
I checked Google and found the answer here. It is one and a half million. It is the second largest city after Riyadh. Jeddah is on the coast of the Red Sea which separates Arabia from Africa.
I checked Google and found the answer here. It is one and a half million. It is the second largest city after Riyadh. Jeddah is on the coast of the Red Sea which separates Arabia from Africa.
The free market in Singapore
I was given a cake on a low cost flight to Jakarta. The airline probably paid less than $0.50 for this cake. To get the business, the confectionery shop probably had to sell the cake based on the cost of ingredients, labour, rental and (hopefully) a small margin of profit. It must be a lot of effort to make a profit of $0.05 on a cake.
My bank wants to charge me $40 to remit some money to another country. Their real cost is probably $2. The rest is profit for the bank. This is why the bank is able to make a profit of $2 billion a year.
This is the "free market" as is operated in Singapore.
My bank wants to charge me $40 to remit some money to another country. Their real cost is probably $2. The rest is profit for the bank. This is why the bank is able to make a profit of $2 billion a year.
This is the "free market" as is operated in Singapore.
Defamatory messages
One person continues to post defamatory and insulting messages against the agents and current CEO of NTUC Income in this blog. I have blocked a few dozen of these messages, but might have allowed some to go through by mistake. I like to ask this person to stop posting these messages, as it is a burden on me to moderate them.
In the process of rejecting these messages, I have made a mistake in rejecting a few unrelated messages that were intended to be passed. I apologise to their writers for this mistake.
In the process of rejecting these messages, I have made a mistake in rejecting a few unrelated messages that were intended to be passed. I apologise to their writers for this mistake.
Really, who is highfalutin?
Someone used the word "highfalutin" to describe a speech by Mr. Viswa Sadasivan. I have never come across this word before, so I checked the dictionary. It means "pompous or bombastic".
I found nothing bombastic about the speech by Mr. Sadasivan. Guess who is "highfalutin" in choosing to use this unfamiliar word?
I found nothing bombastic about the speech by Mr. Sadasivan. Guess who is "highfalutin" in choosing to use this unfamiliar word?
Tuesday, September 01, 2009
Running the country
Someone criticized me for not providing an alternative solution to the current practice of relying on scholars to run our nation.
I like the system adopted in America. The citizens elect the President based on the platform of policies presented by the candidate to the people. After taking office, the President appoints suitable people to manage the various departments and agencies of the government. These appointees have to be approved by the Congress – whose members were also elected by the people.
This system allows the Present to choose the most suitable candidates from the political, business, community and academic establishments. There is no shortage of talents. The appointees are people who share the President’s visions and strategies, which were also chosen by the people. Most of them are leaders in their own right and are likely to have wide knowledge and experience of their fields.
Critics may argue that the American system does not produce the economic success that is achieved by other models, such as Singapore or China. These critics overlook the fact that economic performance is not the only factor, although it is an important factor, that determines the election of the leaders. This factor has to be balanced against other factors, such as the social policies, quality of life and America’s role in providing security and leadership to the world.
The democratic nature of the American system gets the right balance of policies, that are suitable for the challenges of the time. They are even able to elect an African American to be the President!
A negative factor for the American system is the power of the business lobby. It has led to the wide gap in income and wealth – a factor shared by the Singapore system. I hope that under President Obama and the Democratic control of both houses of Congress, the situation will be changed over the next few years – for the better of America and the world.
The lament of the shortage of talents in Singapore is a product of our Singapore model. We reap what we sow.
There is a workable alternative to the Singapore model of using scholars to run the nation. We should examine if the American system can be adopted here. The small size of Singapore actually makes it easier for the country to be managed. We only need to have an open mind and explore other models.
Tan Kin Lian
I like the system adopted in America. The citizens elect the President based on the platform of policies presented by the candidate to the people. After taking office, the President appoints suitable people to manage the various departments and agencies of the government. These appointees have to be approved by the Congress – whose members were also elected by the people.
This system allows the Present to choose the most suitable candidates from the political, business, community and academic establishments. There is no shortage of talents. The appointees are people who share the President’s visions and strategies, which were also chosen by the people. Most of them are leaders in their own right and are likely to have wide knowledge and experience of their fields.
Critics may argue that the American system does not produce the economic success that is achieved by other models, such as Singapore or China. These critics overlook the fact that economic performance is not the only factor, although it is an important factor, that determines the election of the leaders. This factor has to be balanced against other factors, such as the social policies, quality of life and America’s role in providing security and leadership to the world.
The democratic nature of the American system gets the right balance of policies, that are suitable for the challenges of the time. They are even able to elect an African American to be the President!
A negative factor for the American system is the power of the business lobby. It has led to the wide gap in income and wealth – a factor shared by the Singapore system. I hope that under President Obama and the Democratic control of both houses of Congress, the situation will be changed over the next few years – for the better of America and the world.
The lament of the shortage of talents in Singapore is a product of our Singapore model. We reap what we sow.
There is a workable alternative to the Singapore model of using scholars to run the nation. We should examine if the American system can be adopted here. The small size of Singapore actually makes it easier for the country to be managed. We only need to have an open mind and explore other models.
Tan Kin Lian
Incidents at Changi Airport
I shared two stories about the security clearance at Changi Airport. The multi-million dollar automated system failed this morning. Read here.
Monday, August 31, 2009
Survey results - blogs of political parties
Here are the survey results, based on 33 replies. This is too small, and tends to be biased towards the opposition parties.
Survey: SMU Risk Management & Insurance
I have taught three terms of Risk Management & Insurance (about 100 students). Many of them have graduated and do not use their SMU email address. I like to get in touch with these students. If you were my student, please update your particulars here.
If you are in touch with other students in my past years' classes, please ask them to update their particulars also. Pass the word around.
Negative return from endowment policies
Dear Mr Tan,
Thank you for all your effort at this site and FiSCA (I just became a member). I really appreciate all that you are doing for us consumers.
Recently I have decided to give up 4 endowment policies. I have not actually terminate them but I have informed my agent of my desire. I have held them for 10 years and have another 10-15 years more to go. The current cash value is very low. I would only get back half of what I put in if I were to give them up now. Two policies were meant for my son's education and the other two are for my own savings.
I am thinking of cashing them out now and putting them in other forms of investment that would hopefully give me a better return by the time my son enters college. He is 14 now. I do not have a lot of time left as you can see. What is the best way to grow the money to meet that goal? The policies will only mature when he is 24 and 25. Are the policies worth keeping or are there better options?
I really hope to hear your advise on this.
REPLY
Please read this FAQ. I hope that it will help you to make a better decision.
Thank you for all your effort at this site and FiSCA (I just became a member). I really appreciate all that you are doing for us consumers.
Recently I have decided to give up 4 endowment policies. I have not actually terminate them but I have informed my agent of my desire. I have held them for 10 years and have another 10-15 years more to go. The current cash value is very low. I would only get back half of what I put in if I were to give them up now. Two policies were meant for my son's education and the other two are for my own savings.
I am thinking of cashing them out now and putting them in other forms of investment that would hopefully give me a better return by the time my son enters college. He is 14 now. I do not have a lot of time left as you can see. What is the best way to grow the money to meet that goal? The policies will only mature when he is 24 and 25. Are the policies worth keeping or are there better options?
I really hope to hear your advise on this.
REPLY
Please read this FAQ. I hope that it will help you to make a better decision.
You can also read other FAQs here.
High prices in Singapore
Dear Mr TAN
The prices of electrical and electronic engineering products and falling by the day reflecting the advent of sciences and technology, increasing scale of economy, reducing labour cost from cheap foreign labour, falling cost of capital, intensive competition and the substitution of labour with automation.
But the prices of financial services are rising significantly by the day, despite the advent of information technology, ATM humanless banking, increasing scale of economy, reducing labour cost from cheap foreign labour, falling cost of capital, intensive competition and e-documentation.
Is it NOT cheaper NOW to issue and process a bank draft or money order?
Is it NOT cheaper NOW to issue and maintain an insurance policy?
Also, there is a significant management failure in the efficacy, efficiency, economy of distribution cost in Singapore.
Examples: The exact same box of Nestle ice cream is sold in JB supermart at RM5.05 but it is sold in Singapore supermart at S$5.05. The exact same bottle of Narcissus rice wine is sold in Shenzhen China at RMB5.00 but it is sold in Singapore supermart at S$5.00.
Same Air, Train and Bus return trip tickets are sold in Malaysia at RM but in Singapore at S$.
Why are hawker stores NOT restricted to owner operators and instead, there is an intermediary sub-store landlord to increase the cost of operations. Please advise WHAT and WHERE distribution management had gone WRONG.
Thanks & regards
T E O
The prices of electrical and electronic engineering products and falling by the day reflecting the advent of sciences and technology, increasing scale of economy, reducing labour cost from cheap foreign labour, falling cost of capital, intensive competition and the substitution of labour with automation.
But the prices of financial services are rising significantly by the day, despite the advent of information technology, ATM humanless banking, increasing scale of economy, reducing labour cost from cheap foreign labour, falling cost of capital, intensive competition and e-documentation.
Is it NOT cheaper NOW to issue and process a bank draft or money order?
Is it NOT cheaper NOW to issue and maintain an insurance policy?
Also, there is a significant management failure in the efficacy, efficiency, economy of distribution cost in Singapore.
Examples: The exact same box of Nestle ice cream is sold in JB supermart at RM5.05 but it is sold in Singapore supermart at S$5.05. The exact same bottle of Narcissus rice wine is sold in Shenzhen China at RMB5.00 but it is sold in Singapore supermart at S$5.00.
Same Air, Train and Bus return trip tickets are sold in Malaysia at RM but in Singapore at S$.
Why are hawker stores NOT restricted to owner operators and instead, there is an intermediary sub-store landlord to increase the cost of operations. Please advise WHAT and WHERE distribution management had gone WRONG.
Thanks & regards
T E O
FISCA - Choosing the people
I do not choose the people to join the FISCA committee. They will be elected by the members.
For the protem committee, I only managed to get sufficient people to sign to get FISCA started. Some of them may not wish to be in the limelight.
The FISCA committee will be elected by the members. They will not be chosen by Tan Kin Lian. But I will do my best to encourage people of integrity to step forward. It is difficult to know if someone has integrity, unless one works with that person. More importantly, we should set certain principles for people to abide by.
I hope that members of FISCA knows that they can play a part in building an organisation that is strong, and run by people of integrity. Do not expert other people to carry this burden for you. This burden has to be shared.
For the protem committee, I only managed to get sufficient people to sign to get FISCA started. Some of them may not wish to be in the limelight.
The FISCA committee will be elected by the members. They will not be chosen by Tan Kin Lian. But I will do my best to encourage people of integrity to step forward. It is difficult to know if someone has integrity, unless one works with that person. More importantly, we should set certain principles for people to abide by.
I hope that members of FISCA knows that they can play a part in building an organisation that is strong, and run by people of integrity. Do not expert other people to carry this burden for you. This burden has to be shared.
Sunday, August 30, 2009
Future for cloud companies
Read this report about how work will be done in the future, made possible by the impact of technology.
Telecommuting is a trend for the future
More people are working from home, i.e. telecommuting. It has positive and negative aspects. Find out more here.
Mecca - for Muslims only
I wanted to visit Mecca. My friend said that this not possible. Mecca can only be visited by Muslims. This is posted in large signs along the road to Mecca.
I have a guide book that explains the rites of Hajj, Umrah, Ihram, Tawaf, Sai, etc. It was quite educational.
I have a guide book that explains the rites of Hajj, Umrah, Ihram, Tawaf, Sai, etc. It was quite educational.
Shopping in Jeddah at midnight
I went to the Balad (old town) at midnight. The roads are congested. Many people travelled at night in Jeddah. Night becomes like day in the hot summer.
The streets at Balad is busy and crowded. I enjoyed the architecture of the old buildings. The windows are constructed with thin strips of wood allowing the women to look out into the streets, without being seen. My friend said that the roads in Cairo Egypt also have similar structures.
I left the souk (market) close to 2 AM. That is the time that most shops close in Jeddah during Ramadan.
The streets at Balad is busy and crowded. I enjoyed the architecture of the old buildings. The windows are constructed with thin strips of wood allowing the women to look out into the streets, without being seen. My friend said that the roads in Cairo Egypt also have similar structures.
I left the souk (market) close to 2 AM. That is the time that most shops close in Jeddah during Ramadan.
FISCA Committee
Someone expressed the concern that the FISCA committee may include people working for the banks. He had his money burnt through the Mini-bond and does not trust people anymore (including FISCA).
There is no need for this worry. The people from the banks will not be interested to sit in the FISCA committee. Even if they personally support the aims of FISCA, they will not dare to be involved (for the sake of their jobs). Similarly, most financial advisers are not likely to support or be involved with FISCA.
At present, we only have a protem committee in FISCA, and some of these members do not wish to be in the limelight. This is a temporary situation. FISCA will have to call an election. The profile of the elected Committee members will be put up in the website after the election.
FISCA will have the other challenge. How to get the financial experts to be involved in the work. Do not think that all this information can drop easily from the sky. Consumers should support FISCA now, if they do not wish to see their money burnt again in the future.
Tan Kin Lian
There is no need for this worry. The people from the banks will not be interested to sit in the FISCA committee. Even if they personally support the aims of FISCA, they will not dare to be involved (for the sake of their jobs). Similarly, most financial advisers are not likely to support or be involved with FISCA.
At present, we only have a protem committee in FISCA, and some of these members do not wish to be in the limelight. This is a temporary situation. FISCA will have to call an election. The profile of the elected Committee members will be put up in the website after the election.
FISCA will have the other challenge. How to get the financial experts to be involved in the work. Do not think that all this information can drop easily from the sky. Consumers should support FISCA now, if they do not wish to see their money burnt again in the future.
Tan Kin Lian
Saturday, August 29, 2009
A nation run by scholars
Two senior persons, a company director and a businessman, expressed a similar view. They are concerned that Singapore is now run by scholars who do not have experience about the business environment and try to solve the problems by writing papers.
The handling of the mini-bond crisis is an example. Although the initial response of the authority was appropriate, the subsequent events (especially after the Hong Kong settlement) needed a new response. But, the scholars were not able to handle this type of situation.
There were incidences of cheating in motor insurance claims. The situation is getting worse over the years. Reports made to the authority were not followed up or investigated, but were pushed aside. The insurance companies were asked to solve this problem, but they do not have the regulatory power.
Many foreign workers reported that they had to pay a large sum of money (USD 9,000) to get a permit to work in Singapore. There were a suspicion that a large part of this money goes to the pocket of the employer who held the work permits.
A minister was reported to have said that as the payment was made in a foreign country, it falls outside the jurisdiction of Singapore. Surely, an investigation can be done in Singapore to see if the employer had received some payments?
This lack of practical experience applies not only to the senior levels of the civil service, but higher up in the chain of command. We have to move away from writing papers to the real issues faced by the people in Singapore.
Tan Kin Lian
The handling of the mini-bond crisis is an example. Although the initial response of the authority was appropriate, the subsequent events (especially after the Hong Kong settlement) needed a new response. But, the scholars were not able to handle this type of situation.
There were incidences of cheating in motor insurance claims. The situation is getting worse over the years. Reports made to the authority were not followed up or investigated, but were pushed aside. The insurance companies were asked to solve this problem, but they do not have the regulatory power.
Many foreign workers reported that they had to pay a large sum of money (USD 9,000) to get a permit to work in Singapore. There were a suspicion that a large part of this money goes to the pocket of the employer who held the work permits.
A minister was reported to have said that as the payment was made in a foreign country, it falls outside the jurisdiction of Singapore. Surely, an investigation can be done in Singapore to see if the employer had received some payments?
This lack of practical experience applies not only to the senior levels of the civil service, but higher up in the chain of command. We have to move away from writing papers to the real issues faced by the people in Singapore.
Tan Kin Lian
Jeddah - shopping during Ramadan
The shopping mall next to the hotel opened in the afternoon. I went into the supermarket to buy a few drinks and snacks. There was no staff at the checkout counters. Some customers, who had done their shopping, were waiting at the counter.
I learned that the counters were closed for 15 minutes, while the staff went for their prayers. They returned back later, and it became busy again. The customer told me that this would happen three times each day (even outside of Ramadan).
I learned that the counters were closed for 15 minutes, while the staff went for their prayers. They returned back later, and it became busy again. The customer told me that this would happen three times each day (even outside of Ramadan).
Opponent of US health reform yield fear weapon
Read this report.
* Fear motivates people more than facts
* Study shows people will seek facts to support beliefs
* Positive emotional appeals can counter the effect
* Fear motivates people more than facts
* Study shows people will seek facts to support beliefs
* Positive emotional appeals can counter the effect
Friday, August 28, 2009
Jeddah during Ramadan
I am now in Jeddah, Saudi Arabia. It is the month of Ramandan. The city is quiet and many business activities are scaled down. The fitness center in the hotel opens only at 9.30 am. The hotel coffee house is closed. Breakfast has to be taken through room service.
Regular update of bank deposit rates
A FISCA volunteer updates the bank interest rate on a regular basis. The latest update is shown here. I hope that you find it useful.
Asset share of your life insurance policy
The Monetary Authority of Singapore has stated that insurance companies are required to compute the asset share for each cohort of participating policies and that the insurer needs to have a "governance framework" to ensure that the bonuses are distributed fairly to policyholders. They also declared that the law has stated that all the assets in the participating funds belong to the policyholders and that there is no "orphaned money".
This approach has a fundamental weakness. It is possible for the insurer to under-declare the bonus or to pay less than a fair value to the policyholder of a terminated policy, and to accumulate the "surplus" (although known as the "estate" or "orphaned money") in the life insurance fund. This has been the practice over the past decades, prior to the introduction of the concept of "asset share".
The MAS approach relies on a "governance framework" involving the appointed actuary and the board of directors, who are made responsible for the "fair treatment of policyholders". There is no independent party representing the interest of the policyholders in this arrangement. Some people refer to this arrangement as appointing the fox to guard the hen house.
The regulator in Malaysia has adopted the concept of "asset share" in a simple and fair way. The key elements are:
a) The asset share has to be computed for each policy, taking the actual premium and investment income and deducting the actual expenses, based on the actual experience of the policy.
b) The insurer is free to declare the bonus in any appropriate manner, to ensure its future solvency.
c) The asset share has to be paid to the policyholder on the termination of the policy after a certain number of years, and on maturity.
I hope that MAS will adopt the approach used in Malaysia. It can be done quite easily and will produce fair results that do not rely on the honesty of the "governance framework".
Tan Kin Lian
This approach has a fundamental weakness. It is possible for the insurer to under-declare the bonus or to pay less than a fair value to the policyholder of a terminated policy, and to accumulate the "surplus" (although known as the "estate" or "orphaned money") in the life insurance fund. This has been the practice over the past decades, prior to the introduction of the concept of "asset share".
The MAS approach relies on a "governance framework" involving the appointed actuary and the board of directors, who are made responsible for the "fair treatment of policyholders". There is no independent party representing the interest of the policyholders in this arrangement. Some people refer to this arrangement as appointing the fox to guard the hen house.
The regulator in Malaysia has adopted the concept of "asset share" in a simple and fair way. The key elements are:
a) The asset share has to be computed for each policy, taking the actual premium and investment income and deducting the actual expenses, based on the actual experience of the policy.
b) The insurer is free to declare the bonus in any appropriate manner, to ensure its future solvency.
c) The asset share has to be paid to the policyholder on the termination of the policy after a certain number of years, and on maturity.
I hope that MAS will adopt the approach used in Malaysia. It can be done quite easily and will produce fair results that do not rely on the honesty of the "governance framework".
Tan Kin Lian
Whistleblower tells of America's hidden nightmare for its sick poor
Thursday, August 27, 2009
Travel to Jeddah, Saudi Arabia
I will be in Jeddah in Saudi Arabia over the next four days. Jeddah is a city quite close to Mecca, where millions of Muslims visit each year on the pilgrimage.
On the banks of the Red Sea, Jeddah is a key port in Saudi Arabia and the world’s largest open-air art gallery. Landscaped with natural art depicting Arabic culture, the city is decorated with sculpture throughout the city.
Although I will be away for the next few days, I have created several postings which will appear in my blog on the days that I am away. I shall also log in at convenient times to moderate the comments in my blog.
On the banks of the Red Sea, Jeddah is a key port in Saudi Arabia and the world’s largest open-air art gallery. Landscaped with natural art depicting Arabic culture, the city is decorated with sculpture throughout the city.
Although I will be away for the next few days, I have created several postings which will appear in my blog on the days that I am away. I shall also log in at convenient times to moderate the comments in my blog.
Join FISCA
I like to ask all visitors to my blog to join FISCA. Please give your support to this new association.
FISCA website
FISCA application
FISCA website
FISCA application
Low wages and purchasing power in Singapore
Read this article.
Conclusion
The high cost of living coupled with low wages and domestic purchasing power condemns the average Singapore worker to an ignonimous, monotonus and stressful working life. Singapore workers have to work harder to earn the same amount of money and save for a longer period to purchase the same product.
In 1991, then Prime Minister Goh Chok Tong promised Singaporeans that we will be able to achieve the “Swiss standard of living” within a decade. Ten years later, we have a living standard which is closer to Russia than Switzerland.
Like Singapore, the Russians has a low wage and domestic purchasing power and Russia, especially the city of Moscow, has one of the highest cost of living in the world.
Conclusion
The high cost of living coupled with low wages and domestic purchasing power condemns the average Singapore worker to an ignonimous, monotonus and stressful working life. Singapore workers have to work harder to earn the same amount of money and save for a longer period to purchase the same product.
In 1991, then Prime Minister Goh Chok Tong promised Singaporeans that we will be able to achieve the “Swiss standard of living” within a decade. Ten years later, we have a living standard which is closer to Russia than Switzerland.
Like Singapore, the Russians has a low wage and domestic purchasing power and Russia, especially the city of Moscow, has one of the highest cost of living in the world.
Petition to the Prime Minister (2)
Some people were disappointed that the hard work in organising the Petition had been wasted, if the Prime Minister does not care and just passes the Petition to the Monetary Authority of Singapore.
We should look at this matter from a different angle. 777 people have studied the issue and signed the Petition. These people now know the issue more clearly. Other people who did not sign the Petiton (because they were not directly involved) also understand the issue better.
We should be patient and continue to find ways to put our views across. We should not expect miracle results. The bigger goal should be to change how things are run in Singapore. Every situation, such as this, add to the process of change.
Tan Kin Lian
Petition.
We should look at this matter from a different angle. 777 people have studied the issue and signed the Petition. These people now know the issue more clearly. Other people who did not sign the Petiton (because they were not directly involved) also understand the issue better.
We should be patient and continue to find ways to put our views across. We should not expect miracle results. The bigger goal should be to change how things are run in Singapore. Every situation, such as this, add to the process of change.
Tan Kin Lian
Petition.
Review of National Service
This letter was sent to the Straits Times Forum on 11 August, and placed under consideration for over 2 weeks (pehaps waiting for clearance from somewhere up there). I assume that it has been rejected, although there was no formal reply.
Editor
I refer to the letter by Xiao Fuchen entitled “NS for adult new citizens not practical” (ST 11 Aug).
I agree with Xiao Fuchen from another angle. If this is made mandatory, very few foreigners will want to take up citizenship, precisely for the reason that it will disrupt their careers and earning power. This is a burden that is now being shouldered by male Singaporeans, who are not given any choice on this matter.
After 44 years of independence and prosperity, I hope that it is time to review the role of national service. Perhaps we should now have a professional army to defend our nation. Already, we are spending a large budget on the purchase of military hardware. The current budget could be re-allocated to allow payment of competitive salaries to career soldiers. Modern defence does not require a large number of infantry soldiers anyway.
If there is still the need to continue with a citizen army, I argue that the citizens serving full time National Service should be paid an adequate allowance, similar to what they would earn in the private sector. They should not be required to shoulder an unfair burden to defend the nation, when citizenships are offered to foreigners without a similar responsibility.
If this increases the defence budget, I suggest that the Government considers adopting the Swiss model which requires residents exempt from the compulsory military service to pay a 3% additional annual income tax, popularly known as the “defence tax”, until the age of 30.
Tan Kin Lian
Editor
Straits Times
I refer to the letter by Xiao Fuchen entitled “NS for adult new citizens not practical” (ST 11 Aug).
I agree with Xiao Fuchen from another angle. If this is made mandatory, very few foreigners will want to take up citizenship, precisely for the reason that it will disrupt their careers and earning power. This is a burden that is now being shouldered by male Singaporeans, who are not given any choice on this matter.
After 44 years of independence and prosperity, I hope that it is time to review the role of national service. Perhaps we should now have a professional army to defend our nation. Already, we are spending a large budget on the purchase of military hardware. The current budget could be re-allocated to allow payment of competitive salaries to career soldiers. Modern defence does not require a large number of infantry soldiers anyway.
If there is still the need to continue with a citizen army, I argue that the citizens serving full time National Service should be paid an adequate allowance, similar to what they would earn in the private sector. They should not be required to shoulder an unfair burden to defend the nation, when citizenships are offered to foreigners without a similar responsibility.
If this increases the defence budget, I suggest that the Government considers adopting the Swiss model which requires residents exempt from the compulsory military service to pay a 3% additional annual income tax, popularly known as the “defence tax”, until the age of 30.
Tan Kin Lian
Challenges for the Free Market
The English Premium League (EPL) likes the telcos to compete for the rights to their shows, as the competition will increase the fees payable to them. SingTel and Starhub had been competing against each other for the rights, leading to higher charges payable by the viewing public.
There is some suggest that SingTel and Starhub will work together to submit a joint bid. EPL will object and may reject it. More importantly, is this a monopoly in reverse, where the combined buying power will bring down the price?
A similar situation has happened in the pricing of iron ore and other mineral products. China is a big buyer of these products. Two companies in Australia are big producers. There has been some dispute on the pricing of these products.
These are examples of the failure of the free market to determine the correct prices. When certain producers or buyers have a dominant share of the market, they can exercise pricing power to the detriment of the other party.
It is quite dangerous to rely on the free market for pricing, when it can be subject to many practical challenges. There must be some other ways to ensure a fair price, rather than depending on the free market blindly. The new approach requires the people in charge to exercise their judgement, using a more transparent process where all the affected parties are able to present their views.
There are many aspects of life in Singapore, where the reliance on the free market to determine prices has not worked well. They are in the public transport, power, water, health care and financial services. I hope that a new approach can be taken on these matters.
Tan Kin Lian
There is some suggest that SingTel and Starhub will work together to submit a joint bid. EPL will object and may reject it. More importantly, is this a monopoly in reverse, where the combined buying power will bring down the price?
A similar situation has happened in the pricing of iron ore and other mineral products. China is a big buyer of these products. Two companies in Australia are big producers. There has been some dispute on the pricing of these products.
These are examples of the failure of the free market to determine the correct prices. When certain producers or buyers have a dominant share of the market, they can exercise pricing power to the detriment of the other party.
It is quite dangerous to rely on the free market for pricing, when it can be subject to many practical challenges. There must be some other ways to ensure a fair price, rather than depending on the free market blindly. The new approach requires the people in charge to exercise their judgement, using a more transparent process where all the affected parties are able to present their views.
There are many aspects of life in Singapore, where the reliance on the free market to determine prices has not worked well. They are in the public transport, power, water, health care and financial services. I hope that a new approach can be taken on these matters.
Tan Kin Lian
Wednesday, August 26, 2009
End of life issues need to be addressed
What is the difference between:
a) suicide
b) euthanasia
c) prolong life
d) prolong death?
Read this article.
Petition to the Prime Minister
I have sent the Petition to the Prime Minister. It is dated 26 August and contained 777 signatures. The Prime Minister's Office has acknowledged the letter and sent it to the Monetary Authority of Singapore. I hope that they will pay attention to the Prime Minister's request.
Petition.
Petition.
St Times: Tan Kin Lian launches new consumer body
A NEW consumer body that aims to help educate retail investors and keep close tabs on financial institutions was launched yesterday.
Formed by former NTUC Income chief executive Tan Kin Lian, the Financial Services Consumers Association (Fisca) is an independent not-for-profit organisation.
Mr Tan, who has come out of retirement to act as president of Fisca, said the new association will focus on researching financial and investment products that are distributed here, and educating the public about saving and investing.
'The key aims of Fisca are to educate consumers on financial matters and to help them select financial products that give good value for their savings and investments,' said Mr Tan.
Fisca's formation comes after thousands of local investors lost millions of dollars from complex structured products that were linked to collapsed United States investment bank Lehman Brothers. These included DBS High Notes 5, Minibonds, Jubilee Linkearner and Pinnacle Notes.
Mr Tan said Fisca's aim will be to drive investor attention away from such glamourous products and encourage them to understand diversification, low-cost investing and the merits of looking for long-term returns.
The association, however, will not guide investors in their selection of stock or in their timing decisions, but instead will provide access to educational resources via its website and through workshops or short courses.
Fisca also plans to produce a white-list of financial products that have low charges, are well diversified and suitable for long-term investment.
'Our strategy is to educate consumers on the practical questions that face them every day like: How much should they save? Where should they put their money? Which are the safe and fair products?' added Mr Tan.
To join Fisca, individuals will have to pay an annual membership fee of $36 that will allow them to access the association's online resources and take part in the programmes.
A recent Fisca survey found that investors wanted a truly independent consumer watchdog that was not funded by any financial institution so as to avoid conflicts of interests.
To maintain its impartiality, Fisca will not seek funding from financial organisations and hopes instead to raise money from like-minded government agencies and philanthropic organisations.
The Fisca president said that the association, now run by a group of 12 volunteers, would need about 100 paying members to remain viable.
He added that Fisca plans to engage graduate volunteers and train them to become Fisca facilitators to help run upcoming financial literacy programmes.
Noting that Singapore already has a number of consumer bodies for investors such as the Consumers Association of Singapore and Securities Investors Association of Singapore, Mr Tan said he hopes to work with all of them in the future.
'We recognise that the needs of consumers are diverse and that the combined effort of all these bodies may still be insufficient to meet these needs,' he added.
franchan@sph.com.sg
Formed by former NTUC Income chief executive Tan Kin Lian, the Financial Services Consumers Association (Fisca) is an independent not-for-profit organisation.
Mr Tan, who has come out of retirement to act as president of Fisca, said the new association will focus on researching financial and investment products that are distributed here, and educating the public about saving and investing.
'The key aims of Fisca are to educate consumers on financial matters and to help them select financial products that give good value for their savings and investments,' said Mr Tan.
Fisca's formation comes after thousands of local investors lost millions of dollars from complex structured products that were linked to collapsed United States investment bank Lehman Brothers. These included DBS High Notes 5, Minibonds, Jubilee Linkearner and Pinnacle Notes.
Mr Tan said Fisca's aim will be to drive investor attention away from such glamourous products and encourage them to understand diversification, low-cost investing and the merits of looking for long-term returns.
The association, however, will not guide investors in their selection of stock or in their timing decisions, but instead will provide access to educational resources via its website and through workshops or short courses.
Fisca also plans to produce a white-list of financial products that have low charges, are well diversified and suitable for long-term investment.
'Our strategy is to educate consumers on the practical questions that face them every day like: How much should they save? Where should they put their money? Which are the safe and fair products?' added Mr Tan.
To join Fisca, individuals will have to pay an annual membership fee of $36 that will allow them to access the association's online resources and take part in the programmes.
A recent Fisca survey found that investors wanted a truly independent consumer watchdog that was not funded by any financial institution so as to avoid conflicts of interests.
To maintain its impartiality, Fisca will not seek funding from financial organisations and hopes instead to raise money from like-minded government agencies and philanthropic organisations.
The Fisca president said that the association, now run by a group of 12 volunteers, would need about 100 paying members to remain viable.
He added that Fisca plans to engage graduate volunteers and train them to become Fisca facilitators to help run upcoming financial literacy programmes.
Noting that Singapore already has a number of consumer bodies for investors such as the Consumers Association of Singapore and Securities Investors Association of Singapore, Mr Tan said he hopes to work with all of them in the future.
'We recognise that the needs of consumers are diverse and that the combined effort of all these bodies may still be insufficient to meet these needs,' he added.
franchan@sph.com.sg
FISCA website: www.fisca.sg
Survey: Political Party Blogs
You can read the blogs of the political parties using the links on the right panel. Please give your views about these blogs. Survey.
Tuesday, August 25, 2009
Orphan money at NTUC Income
Someone, posting anonymously, has attacked me a few times for my views on the treatment of orphaned money. He asked if there were orphaned money in NTUC Income during the time that I was the CEO.
During my time, we adopted a different approach. We distributed a high rate of reversionary bonus to each class of policy that could be supported by the actual long term investment yield of the fund. We kept a portion of the surplus to be paid as special bonus on the maturity or termination of the policy.
More importantly, we were able to distribute to the policyholders an attractive rate of return, which is now used by the new management in their advertisement. This attractive return was possible due to low expenses and a high payout to policyholders, i.e. not retained as orphaned money.
I became alarmed when NTUC Income decided to cut the reversionary bonus recently. Under the new structure, it is difficult for a policyholder to know if he or she is getting a fair payout on the maturity or termination of the policy. It now becomes important for an asset share should be calculated for each policy, to guide the final payout.
I decided to study the concept of asset share in more detail. I like the approach adopted in Malaysia. It requires an asset share to be calculated for each policy based on the actual experience of the fund. It credits the premiums paid and investment income earned and deducts the actual expenses and other charges. The regulator requires that the full asset share should be paid to the policyholder on the termination of the policy, after it has been in-force for a certain number of years.
This method is simple, transparent and fair. I hope that MAS will adopt this approach in Singapore.
During my time, we adopted a different approach. We distributed a high rate of reversionary bonus to each class of policy that could be supported by the actual long term investment yield of the fund. We kept a portion of the surplus to be paid as special bonus on the maturity or termination of the policy.
More importantly, we were able to distribute to the policyholders an attractive rate of return, which is now used by the new management in their advertisement. This attractive return was possible due to low expenses and a high payout to policyholders, i.e. not retained as orphaned money.
I became alarmed when NTUC Income decided to cut the reversionary bonus recently. Under the new structure, it is difficult for a policyholder to know if he or she is getting a fair payout on the maturity or termination of the policy. It now becomes important for an asset share should be calculated for each policy, to guide the final payout.
I decided to study the concept of asset share in more detail. I like the approach adopted in Malaysia. It requires an asset share to be calculated for each policy based on the actual experience of the fund. It credits the premiums paid and investment income earned and deducts the actual expenses and other charges. The regulator requires that the full asset share should be paid to the policyholder on the termination of the policy, after it has been in-force for a certain number of years.
This method is simple, transparent and fair. I hope that MAS will adopt this approach in Singapore.
Analogy - there are no poor people in Singapore
There is a debate in the Straits Times Forum about the existence of "orphaned money" in the participating fund of a life insurance company.
In my letter, I gave an example of a life insurance fund with assets of $15 billion and liabilities of $13 million (calculated from the individual liabilities of all individual policies), leaving "orphaned money" of $2 billion.
The reply of the Monetary Authority of Singapore, Life Insurance Association and Singapore Actuarial Society, is that under the law, all money in the participating fund belongs to the participating policyholders, hence the question of "orphaned money" does not arise.
This is similar to the argument that as Singapore is a wealthy nation, and as all the wealth of the state belongs to the people, there are no poor people in Singapore. Tell that to the people who cannot pay their electricity bill or buy food.
Orphaned money in Life Insurance Fund
There is some debate in the Straits Times Forum about "orphaned money" in the participating fund of a life insurance company.
The Monetary Authority of Singapore has stated that the insurance companies are required to use the concept of asset shares in the distribution of bonuses on participating policies and to follow an approved "governance framework" involving the appointed actuary and the top management.
I hope that the MAS can clarify how this arrangement works, and how the interest of the policyholders are protected under this framework. If the life insurance companies pays less than the asset share on the termination of the policy, what recourse does the policyholder have? Does the policyholder even know about this fact, as the asset share is not disclosed to him (i.e. lack of transparency).
Some jurisdiction requires the asset share to be calculated for each policyholder and for the full asset share to be paid to the policyholder on termination of the policy after it has been in force for a certain number of years. I suggest that Singapore should adopt this approach.
The Monetary Authority of Singapore, Life Insurance Association and the Singapore Actuarial Society have stated that under the law, all money in the participating fund belongs to the participating policyholders and, therefore, the existence of orphaned money does not arise.
I am not able to follow this reasoning. We know that there are orphans in Singapore. These are children whose parents are no longer around. Can we say that as these orphans are being cared for by the state, they are no longer "orphans"?
I am inclined to follow Larry Haverkamp's reasoning that money in the participating fund that is taken from the asset share of terminated policies should be termed as "orphan money". In actuarial literature, the term used is the "estate".
However, I wish to raise the following fundamental issues:
a) Currently, there is no legal requirement that the asset share attributed to an individual policy should be paid to the policyholder on the termination of the policy, even on maturity. It is possible for a policyholder, on maturity, to receive less than the asset share, on the reasoning that the money is required to "smooth" the bonus for the remaining participating policyholders?
b) Why is there a need to penalise the policyholder of a surrendered policy by paying less than the asset share, when the high expenses and other charges have already been deducted from the asset share of the policy? Already, the asset share for a policy in the early years may be less than half of the total premiums paid.
I hope that the Monetary Authority of Singapore will address these fundamental issues that affects the long term savings of over one million policyholders and their families.
Tan Kin Lian
Watchdog thinks $20m is in bag for Lehman fund
Phila Siu
Tuesday, August 25, 2009
The Consumer Council is confident it will get HK$20 million from the government to beef up its litigation fund as it prepares to take its first Lehman Brothers minibond case to court. The extra cash will increase its litigation fund to HK$35 million.
Chief executive Connie Lau Yin- hing said the Consumer Legal Action Fund will also be used for other litigation.
The first minibond case seeks to recover HK$500,000, but the council declined to name the bank involved and would not provide any information about the investor.
The council has received 11,919 minibond complaints so far and resolved 1,169 cases.
Lau said 20 cases were originally ready to proceed to litigation, but were settled out of court. She said the extra HK$20 million is needed because more cases will emerge if the test case is satisfactory. "Feedback from the government about the application is very positive. We are waiting for the approval," Lau said.
She said looking for a suitable lawyer took some time because many have connections with the big banks, and were not willing to represent the minibond investors.
The first case to go to court had to be carefully chosen because it has to be representative of most cases.
She also said staff have been working around the clock because getting the required documents from banks took a long time. "There are constraints, we cannot force the banks to give us the documents and information we need," she said.
But legislator Kam Nai-wai did not accept Lau's reason for the delay. He said the council's slow reaction has given the public the impression that the council is a toothless tiger.
"The council should have applied for funds long ago. It should have known Chief Executive Donald Tsang Yam- kuen has promised the government will do everything it can to help the minibond investors," Kam said. But he said he knew getting the documents from banks can be a headache as he had dealt with many angry investors.
Tuesday, August 25, 2009
The Consumer Council is confident it will get HK$20 million from the government to beef up its litigation fund as it prepares to take its first Lehman Brothers minibond case to court. The extra cash will increase its litigation fund to HK$35 million.
Chief executive Connie Lau Yin- hing said the Consumer Legal Action Fund will also be used for other litigation.
The first minibond case seeks to recover HK$500,000, but the council declined to name the bank involved and would not provide any information about the investor.
The council has received 11,919 minibond complaints so far and resolved 1,169 cases.
Lau said 20 cases were originally ready to proceed to litigation, but were settled out of court. She said the extra HK$20 million is needed because more cases will emerge if the test case is satisfactory. "Feedback from the government about the application is very positive. We are waiting for the approval," Lau said.
She said looking for a suitable lawyer took some time because many have connections with the big banks, and were not willing to represent the minibond investors.
The first case to go to court had to be carefully chosen because it has to be representative of most cases.
She also said staff have been working around the clock because getting the required documents from banks took a long time. "There are constraints, we cannot force the banks to give us the documents and information we need," she said.
But legislator Kam Nai-wai did not accept Lau's reason for the delay. He said the council's slow reaction has given the public the impression that the council is a toothless tiger.
"The council should have applied for funds long ago. It should have known Chief Executive Donald Tsang Yam- kuen has promised the government will do everything it can to help the minibond investors," Kam said. But he said he knew getting the documents from banks can be a headache as he had dealt with many angry investors.
Monday, August 24, 2009
Letter to MAS - Asset Share
Ms. Angelina Fernandez
Monetary Authority of Singapore
I refer to your reply that is published in the Straits Times today (24 August). I need to follow up with a few clarifications:
1. Can you confirm that the insurance company has specified an asset share for each individual participating policy
2. That the total of these individual liabilities equal to the total assets of the participating fund?
3. Is the insurance company required to pay out the full individual liability on the termination of a policy?
4. If the insurance company is allowed to pay less than the asset share, how is the money allocated to the remaining policyholders?
In my earlier letter, I stated that if the total of the individual liability is $13 billion and the total assets is $15 billion, the difference of $2 billion is "orphaned money". I do not get a clear explanation from your latest reply to this point.
Please call me at 81685485 if you wish to seek clarification to my question.
Tan Kin Lian
Monetary Authority of Singapore
I refer to your reply that is published in the Straits Times today (24 August). I need to follow up with a few clarifications:
1. Can you confirm that the insurance company has specified an asset share for each individual participating policy
2. That the total of these individual liabilities equal to the total assets of the participating fund?
3. Is the insurance company required to pay out the full individual liability on the termination of a policy?
4. If the insurance company is allowed to pay less than the asset share, how is the money allocated to the remaining policyholders?
In my earlier letter, I stated that if the total of the individual liability is $13 billion and the total assets is $15 billion, the difference of $2 billion is "orphaned money". I do not get a clear explanation from your latest reply to this point.
Please call me at 81685485 if you wish to seek clarification to my question.
Tan Kin Lian
A Sense of Duty
We need to re-install in each person a sense of duty.
If you are a doctor, it is your duty to treat and cure the patient. If you are a teacher, it is your duty to teach the students well. You receive a salary or fee for your service. When you accept the job, you accept the terms of your engagement and undertake to carry out your duty to the best of your ability.
In a corrupt society, government officials need to be bribed to do their duty. They may be bribed to break the rules in favour of the briber or just to carry out their duty according to the rules or what is expected of them.
Singapore is fortunate to have stayed clear of corruption and to have a public administration that is largely free of bribery. The few cases of bribery are prosecuted.
However, in recent years, there is a worrying trend. The sense of duty seems to have been eroded. Many people now expect to be incentivised to do a job well.
Corporate executives, who already earn a high remuneration, are now given incentives (through profit sharing or stock options) to increase their company’s profits. If they want to, they can increase the profits in unethical ways, such as over-charging or cheating the customers, delivering a lower quality of product or exploiting the workers.
Financial advisers rush to sell financial products to earn an attractive commission. Many forget that it is their duty to understand the product and ensure its suitability for customers. The lure of earning the attractive commission overcomes the sense of duty. Many neglected their duty and unknowingly mis-represented the product. Some knew but joined the bandwagon anyway. A similar situation applies to the property market.
There has been a serious decline in the standard of protection for consumers and workers. The government authorities are now less active in prosecuting cases of public interest and prefer to leave these matters to be sorted out by free market.
Consumers are asked to take legal action to seek redress. But consumers do not have the financial means to take legal action against large businesses who have access to the best lawyers anyway.
Local workers are also affected by depressed wages due to the influx of foreign workers and are not protected by a minimum wage policy. Many have to accept wage rates that are inadequate to provide a decent standard of living and have to work long hours to make up.
In this pro-business environment, where consumers and workers are not adequately protected, it is not surprising that businesses can rake up high profits, giving million dollar income to their top executives. Successful professionals, such as lawyers and doctors, can also earn million dollar incomes.
It is rather sad that the remunerations of our government leaders are now benchmark against the earnings of these top business executives and professionals. If the leaders are chasing the top dollars, who will look after the interest of the ordinary workers, the consumers and the other weak people in our society?
Tan Kin Lian
If you are a doctor, it is your duty to treat and cure the patient. If you are a teacher, it is your duty to teach the students well. You receive a salary or fee for your service. When you accept the job, you accept the terms of your engagement and undertake to carry out your duty to the best of your ability.
In a corrupt society, government officials need to be bribed to do their duty. They may be bribed to break the rules in favour of the briber or just to carry out their duty according to the rules or what is expected of them.
Singapore is fortunate to have stayed clear of corruption and to have a public administration that is largely free of bribery. The few cases of bribery are prosecuted.
However, in recent years, there is a worrying trend. The sense of duty seems to have been eroded. Many people now expect to be incentivised to do a job well.
Corporate executives, who already earn a high remuneration, are now given incentives (through profit sharing or stock options) to increase their company’s profits. If they want to, they can increase the profits in unethical ways, such as over-charging or cheating the customers, delivering a lower quality of product or exploiting the workers.
Financial advisers rush to sell financial products to earn an attractive commission. Many forget that it is their duty to understand the product and ensure its suitability for customers. The lure of earning the attractive commission overcomes the sense of duty. Many neglected their duty and unknowingly mis-represented the product. Some knew but joined the bandwagon anyway. A similar situation applies to the property market.
There has been a serious decline in the standard of protection for consumers and workers. The government authorities are now less active in prosecuting cases of public interest and prefer to leave these matters to be sorted out by free market.
Consumers are asked to take legal action to seek redress. But consumers do not have the financial means to take legal action against large businesses who have access to the best lawyers anyway.
Local workers are also affected by depressed wages due to the influx of foreign workers and are not protected by a minimum wage policy. Many have to accept wage rates that are inadequate to provide a decent standard of living and have to work long hours to make up.
In this pro-business environment, where consumers and workers are not adequately protected, it is not surprising that businesses can rake up high profits, giving million dollar income to their top executives. Successful professionals, such as lawyers and doctors, can also earn million dollar incomes.
It is rather sad that the remunerations of our government leaders are now benchmark against the earnings of these top business executives and professionals. If the leaders are chasing the top dollars, who will look after the interest of the ordinary workers, the consumers and the other weak people in our society?
Tan Kin Lian
Sunday, August 23, 2009
Protecting citizens
Mr Tan, I signed the online petition and was there yestderday. I want to thank you for taking your time and lead in our cause.
The Government can continue to ignore us and pay lip-service. But I am sure that a big group of people who vote otherwise in the next general election.
This whole saga has open my eyes - a hard-core supporter of the current government. I am no longer convince that the current government is best when it comes to protecting citizens.
Though my financial position has improve tremendously compare to the lowest point in the crisis, I will never forget how our elected establishment chose to side-step and ignore the very fact that the FIs had indeed sold some very complicated/toxic product that few, perhaps including the FIs, could understand.
The very fact that HK and Taiwan FIs settle the toxic products is a clear testimony and yet our financial regulator continues the wayang!
Let the coming General Election do the talking.
The Government can continue to ignore us and pay lip-service. But I am sure that a big group of people who vote otherwise in the next general election.
This whole saga has open my eyes - a hard-core supporter of the current government. I am no longer convince that the current government is best when it comes to protecting citizens.
Though my financial position has improve tremendously compare to the lowest point in the crisis, I will never forget how our elected establishment chose to side-step and ignore the very fact that the FIs had indeed sold some very complicated/toxic product that few, perhaps including the FIs, could understand.
The very fact that HK and Taiwan FIs settle the toxic products is a clear testimony and yet our financial regulator continues the wayang!
Let the coming General Election do the talking.
Burden of National Service
Someone expressed surprise that Tan Kin Lian considers National Service to be a burden. Lest I be accused of being disloyal to Singapore, I wish to state my position.
A burden is defined as a heavy weight that is difficult to carry. It is a burden when a task is made compulsory; it is not a burden when it is performed voluntarily. Similarly, it is a burden to pay taxes. Like taxes, compulsory military service may be necessary, but it is still a burden anyway.
Any burden has to be shouldered fairly and equally by all parties who benefit from the outcome. It should not be shouldered only by only a segment of the population (i.e. male citizens) while other segments (i.e. females and non-citizens) are exempted. The burden becomes heavier when the burdened people (who are set back by two years or more) have to compete against the exempted people for the same jobs.
The burden can be lightened by reducing the period of compulsory military service or by giving the NS men an adequate pay, allowance or grant (call it what you will) for the duration that they have spent on National Service. Alternatively, the exempted parties can be required to carry out non-combat or community service for the same duration.
The disadvantage suffered by our male citizens have been aggravated in recent years through the large influx of foreign workers and professionals, who are allowed to work in Singapore to compete against them.
National defence is important for the security and prosperity of Singapore. This responsibility has to be shared fairly by all residents. By imposing this responsibility on only on some people and putting them at a disadvantage compared with other people, we face the risk that the people whom we rely to defend our nation will not carry out their duty (due to their feeling of injustice) at the time of need.
A recent survey carried out by me among people who had completed National Service indicated that 72% would not volunteer for this duty, 91% were unhappy with the current arrangement and that 57% would not fight to defend Singapore at the time of war. This are worrying findings, even though the survey may not reflect a representative sample.
I have been writing on this matter for more than twenty years. I have asked for the burden of National Service to be shared more equally or fairly. My suggestions had been rebutted and ignored. I will continue to voice them. I hope that they will be heard and heeded one day.
Tan Kin Lian
A burden is defined as a heavy weight that is difficult to carry. It is a burden when a task is made compulsory; it is not a burden when it is performed voluntarily. Similarly, it is a burden to pay taxes. Like taxes, compulsory military service may be necessary, but it is still a burden anyway.
Any burden has to be shouldered fairly and equally by all parties who benefit from the outcome. It should not be shouldered only by only a segment of the population (i.e. male citizens) while other segments (i.e. females and non-citizens) are exempted. The burden becomes heavier when the burdened people (who are set back by two years or more) have to compete against the exempted people for the same jobs.
The burden can be lightened by reducing the period of compulsory military service or by giving the NS men an adequate pay, allowance or grant (call it what you will) for the duration that they have spent on National Service. Alternatively, the exempted parties can be required to carry out non-combat or community service for the same duration.
The disadvantage suffered by our male citizens have been aggravated in recent years through the large influx of foreign workers and professionals, who are allowed to work in Singapore to compete against them.
National defence is important for the security and prosperity of Singapore. This responsibility has to be shared fairly by all residents. By imposing this responsibility on only on some people and putting them at a disadvantage compared with other people, we face the risk that the people whom we rely to defend our nation will not carry out their duty (due to their feeling of injustice) at the time of need.
A recent survey carried out by me among people who had completed National Service indicated that 72% would not volunteer for this duty, 91% were unhappy with the current arrangement and that 57% would not fight to defend Singapore at the time of war. This are worrying findings, even though the survey may not reflect a representative sample.
I have been writing on this matter for more than twenty years. I have asked for the burden of National Service to be shared more equally or fairly. My suggestions had been rebutted and ignored. I will continue to voice them. I hope that they will be heard and heeded one day.
Tan Kin Lian
Saturday, August 22, 2009
Turnout at 22 August Gathering
An estimated 200 people turned up at the Gathering in Hong Lim Park. This was somewhat smaller that I had expected. Someone observed that the camera at Hong Lim Park was responsible for the low attendance.
We were blessed with good weather. BBC and CNBC were present. The major newspapers and Channel NewsAsia did not cover the event, in spite of two letters of invitation.
Petition to PM on credit linked notes (9)
Petition.
Signatures as at 15 August: 734
This is the countdown to the Gathering on 22 August.
I hope that all those who signed the Petition will attend the Gathering, and encourage other people to attend as well.
Date of Gathering: 22 August 2009
Place: Speaker's Corner, Hong Lim Park
Signatures as at 15 August: 734
This is the countdown to the Gathering on 22 August.
I hope that all those who signed the Petition will attend the Gathering, and encourage other people to attend as well.
Date of Gathering: 22 August 2009
Place: Speaker's Corner, Hong Lim Park
Time: 5.00 pm
Activities:
Activities:
1. Recital of National Pledge
2. Speech by Tan Kin Lian
3. Hold placards with messages
4. Sign Petition (for those who did not sign online)
5. Talk to other investors at the Gathering
2. Speech by Tan Kin Lian
3. Hold placards with messages
4. Sign Petition (for those who did not sign online)
5. Talk to other investors at the Gathering
SCMP:Three in eight minibond buyershave taken banks' buy-back offer
22 Aug 2009
Three in eight buyers of Lehman Brothers minibonds have accepted an offer by 16 banks to buy them back in the two weeks since the offer opened, the Hong Kong Monetary Authority said yesterday. Peter Chan Kwong-yue, chairman of a group of aggrieved investors, is not surprised.
It is 11 months since the US investment bank collapsed amid the global credit crisis and many of the investors wanted a resolution, Mr Chan said. "It makes sense that the Hong Kong Monetary Authority wants to put pressure on the remaining investors to quickly take up the offer as well."
A spokesman for the authority said investors needed to "consider carefully the terms of the offer and his or her personal circumstances" in deciding whether or not to accept the offer.
The 9,219 investors who have agreed to sell their minibonds to the banks from which they bought them will get back 60 to 70 per cent of their initial investment depending on their age, and may get more depending on the residual value of the assets underlying the minibonds.
Despite their name, minibonds are not corporate bonds but complex, credit-linked derivatives whose value depends on the performance of their underlying assets.
Investors claim banks marketed them as proxy investments in well-known companies and failed to explain the investment risk.
"The HKMA is just using the fact that so many people accepted the offer to get the rest of us to accept and swiftly close the whole issue. It's outrageous," he said.
More than 20,000 investors complained about the vendor banks and brokerages to the Monetary Authority and the Securities and Futures Commission, which have begun taking action. Of 21,635 complaints the authority has received, it has dismissed 1,851, is seeking more information on 11,853 and is currently investigating 6,346.
The SFC has won a court order for Lehman Brothers Asia to hand over 17 internal documents as part of its investigations. Lehman Brothers Asia is in liquidation.
The commission issued a notice to the investment bank on October 31 requiring the surrender of the documents. But the bank refused, claiming the documents involved confidential information about dealings between lawyers and clients.
Three in eight buyers of Lehman Brothers minibonds have accepted an offer by 16 banks to buy them back in the two weeks since the offer opened, the Hong Kong Monetary Authority said yesterday. Peter Chan Kwong-yue, chairman of a group of aggrieved investors, is not surprised.
It is 11 months since the US investment bank collapsed amid the global credit crisis and many of the investors wanted a resolution, Mr Chan said. "It makes sense that the Hong Kong Monetary Authority wants to put pressure on the remaining investors to quickly take up the offer as well."
A spokesman for the authority said investors needed to "consider carefully the terms of the offer and his or her personal circumstances" in deciding whether or not to accept the offer.
The 9,219 investors who have agreed to sell their minibonds to the banks from which they bought them will get back 60 to 70 per cent of their initial investment depending on their age, and may get more depending on the residual value of the assets underlying the minibonds.
Despite their name, minibonds are not corporate bonds but complex, credit-linked derivatives whose value depends on the performance of their underlying assets.
Investors claim banks marketed them as proxy investments in well-known companies and failed to explain the investment risk.
"The HKMA is just using the fact that so many people accepted the offer to get the rest of us to accept and swiftly close the whole issue. It's outrageous," he said.
More than 20,000 investors complained about the vendor banks and brokerages to the Monetary Authority and the Securities and Futures Commission, which have begun taking action. Of 21,635 complaints the authority has received, it has dismissed 1,851, is seeking more information on 11,853 and is currently investigating 6,346.
The SFC has won a court order for Lehman Brothers Asia to hand over 17 internal documents as part of its investigations. Lehman Brothers Asia is in liquidation.
The commission issued a notice to the investment bank on October 31 requiring the surrender of the documents. But the bank refused, claiming the documents involved confidential information about dealings between lawyers and clients.
Kyodo News:H.K. regulator wins legal backing on Lehman Brothers documents
21 Aug 2009
HONG KONG, Aug. 21 -- Hong Kong's securities regulator said Friday it won a court ruling that forces Lehman Brothers Asia Ltd., a subsidiary in liquidation of the now-defunct U.S. financial firm, to hand over minibond-related documents that it had deemed ''too privileged'' for disclosure.
Some 30,000 local investors claim they were scammed into buying the Lehman Brothers financial product, believing it had a low-risk nature and some invested their life savings.
The Securities and Futures Commission has been investigating the matter and as part of the investigation it has sought documents from Lehman's liquidator since last year that it said are related to the assessment of the minibonds.
The High Court handed down a ruling Wednesday ordering Lehman to hand over the documents in question because they ''were not subject to valid claims of privilege,'' according to a statement issued by the commission.
''It is unfortunate that the SFC would not have obtained any of these documents without having to take these proceedings against Lehman Brothers,'' said Mark Steward, the commission's executive director of enforcement.
A spokesman for the commission declined to say if it has received the documents from Lehman's liquidator yet.
Along with another regulator, the Hong Kong Exchanges and Clearing Ltd., the commission has been criticized by the minibond investors for acting too slowly in the investigation.
Sixteen banks responsible for selling the minibonds agreed last month to a settlement arrangement that will buy back at least 60 percent of the product's worth from eligible investors.
The outstanding value of the minibonds was estimated at about HK$12.6 billion ($1.61 billion).
U.S. securities firm Lehman Brothers Holdings Inc. filed for bankruptcy protection last September.
HONG KONG, Aug. 21 -- Hong Kong's securities regulator said Friday it won a court ruling that forces Lehman Brothers Asia Ltd., a subsidiary in liquidation of the now-defunct U.S. financial firm, to hand over minibond-related documents that it had deemed ''too privileged'' for disclosure.
Some 30,000 local investors claim they were scammed into buying the Lehman Brothers financial product, believing it had a low-risk nature and some invested their life savings.
The Securities and Futures Commission has been investigating the matter and as part of the investigation it has sought documents from Lehman's liquidator since last year that it said are related to the assessment of the minibonds.
The High Court handed down a ruling Wednesday ordering Lehman to hand over the documents in question because they ''were not subject to valid claims of privilege,'' according to a statement issued by the commission.
''It is unfortunate that the SFC would not have obtained any of these documents without having to take these proceedings against Lehman Brothers,'' said Mark Steward, the commission's executive director of enforcement.
A spokesman for the commission declined to say if it has received the documents from Lehman's liquidator yet.
Along with another regulator, the Hong Kong Exchanges and Clearing Ltd., the commission has been criticized by the minibond investors for acting too slowly in the investigation.
Sixteen banks responsible for selling the minibonds agreed last month to a settlement arrangement that will buy back at least 60 percent of the product's worth from eligible investors.
The outstanding value of the minibonds was estimated at about HK$12.6 billion ($1.61 billion).
U.S. securities firm Lehman Brothers Holdings Inc. filed for bankruptcy protection last September.
Friday, August 21, 2009
Compare Canada and Singapore (2)
Here is the reply from Wing Lee Cheong to Eric Brooke's letter printed in the Straits Times.
When insurance is far from assured
Advantages of a public option for health insurance in USA. Read this article.
Gathering at Hong Lim Park - National Pledge
We will start off the Gathering with a recitation of the National Pledge (not Aspiration). It is a Pledge that has bonded Singaporeans for 44 years. Note: We will keep to the wordings of the National Pledge involving the citizens.
We the citizens of Singapore
Pledge ourselves as one united people
Regardless of race, language or religion
To build a democratic society
Based on justice and equality
So as to achieve
Peace, progress and happiness
For our nation.
The National Pledge was recited on our National Day exactly at 8:22 p.m. We will be reciting the National Pledge again at 8:22, i.e. August 22, at Hong Lim Park. This is a good omen.
Remember: our struggle to get fair compensation is based on justice, which is a key value in our National Pledge.
Tan Kin Lian
Hundi Banking system
Watch this video about the misery of migrant workers, who are exploited by the Hundi system.
Health insurance exchange: the fine print
The article explains the working of the proposed health insurance exchange. It will have impact on how insurance will be sold in the future. I hope that the idea can spread to Singapore.
High Bank Charges
I have to make a remittance of USD 2,000 to a factory in Shenzhen. A check with several banks showed the bank charge to be SGD 40 or more. I find it to be quite high. The actual cost to the bank of making this remittance should be small. They are over-charging customers to make a big profit. What happen to competition in bringing down cost?
US Immigration Form - Moral Turpitude
If you wish to enter the USA, you have to complete a form that includes the question, "Have you ever been convicted of an offence involving moral turpitude?"
What is "moral turpitude"? How do you answer this question? Read a tip here.
Thursday, August 20, 2009
RED website
I have received several favourable comments about the RED website (Real Estate Data).
* easy to navigate
* layout very neat and clear
* useful information
* useful to show similar projects in the same zone
* give the potential buyer an idea of the prices being transacted for the specific or nearby condo
I do not have the photos and videos yet, and will encourage the owners to upload them into the website. If accepted by me, the owner will get $5 for each set of materials.
Go to www.easysearch.sg (Real Estate Data).
Transparency in insurance
Published in Straits Times Forum page
I REFER to last Thursday's reply by the Monetary Authority of Singapore (MAS), 'Interests of policyholders protected: MAS', in which MAS stated that my letter ('Transparency in insurance: Policyholders underpaid', Aug 6) suggested that insurers have built up 'orphaned money' by under-declaring bonuses to participating policyholders.
I never suggested that. In fact, I said orphaned money comes from a different source: policyholders who leave the fund early, before their policy matures.
Life insurers acknowledge that early surrenders receive less than their full asset share. The underpayments accumulate and form a slush fund commonly known as 'orphaned money'.
MAS claims I believe life insurers under-declare bonuses in order to build up orphaned money, but this would be difficult and I doubt it happens.
Bonuses are cut only in downturns, when the policyholders' fund has suffered losses. They would need to be cut in good times for the bonuses to add to orphaned money. This has probably never occurred.
Whether orphaned money exists depends on just one thing: Do life insurers pay less than the proportionate ownership - called asset share - to policyholders who leave the fund before their policy matures? To give a frame of reference, it would be like a unit trust paying less than the net asset value when investors sell.
If MAS or the life insurers say, 'We pay early surrenders their full asset share and always have', then that is the end of it. I have made an error, orphaned money does not now exist, it never has and I apologise.
The MAS reply, however, talks about the 90:10 insurance rule and the risk-based capital regime. These do not address the question of whether the full asset share is paid to policyholders when they exit the fund. That is the only way to know if orphaned money exists.
It would be easy for MAS or life insurers to disclose if they pay the full asset share. They are the only ones who can answer the question as they are the only ones with the data.
If orphaned money exists, then we can move on to the second step of determining how much it is and where it is held since - at present - no Singapore life insurer carries an account labelled, 'orphaned money'.
Larry Haverkamp
Concept of asset share is fairer to policyholders
Published in Straits Times Forum Page
IN LAST Thursday's reply, 'Interests of policyholders protected', the Monetary Authority of Singapore (MAS) stated that insurers in Singapore are required to record the total amount of assets held in the participating fund as backing liabilities to participating policyholders. It also said the issue of 'orphaned money' does not arise.
I am unable to follow its reasoning. Take, for example, a participating fund with assets of $15 billion and total individual liabilities of participating policies of $13 billion. This leaves orphaned money amounting to $2 billion.
Although this orphaned money is supposed to belong to the policyholders, it is not distributed to any individual policyholder who leaves the fund on termination of his policy.
This is not fair to policyholders who have unwittingly contributed to the orphaned money by receiving lower bonuses than they are entitled to. This has contributed to the poor return received by policyholders on the savings in their life insurance policies made over a lifetime.
The orphaned money is usually used by the insurance company to pay the high marketing expenses to acquire new policyholders and introduce new products. This benefits shareholders.
The recent practice of many insurance companies in reducing their bonus rates will aggravate this problem.
I have terminated most of my participating policies as I felt uneasy with the practice that is now adopted by the insurance company.
Several countries have addressed this problem by mandating that the 'asset share' should be computed for each individual policy. This is the amount that is attributable to each individual policy based on the premiums paid, the investment income earned on these premiums, less the charges for insurance protection and expenses.
There is also a requirement that the full asset share should be given to the policyholder on termination of the policy, after it has been in force for a certain period.
It is timely for Singapore to explore the use of this concept of asset share, to ensure that the interest of the policyholders is truly protected and that they receive a fair return for a lifetime of savings. It will also prevent the accumulation of a large orphaned fund, at the expense of the participating policyholders.
Tan Kin Lian
Bonus cut by 45% in 5 years
Dear Mr Tan
I had insured three 5-year policies taken with X since 2004. They reduced the bonus in April 2009 and reduced the maturity proceeds for my three policies by a substantial sum of $ 12,751 (projected yield at maturity reduced from 2.81% reduced to 1.59%). The maturity returns was cut by almost 45% over the 5-year period.
My appeal case was reviewed twice by X but they were unable to offer the higher maturity values. X stated that the bonus revision is within the policy contract and only the non-guaranteed portion is adjusted.
The poor returns affect my retirement saving. I would like to seek your advice - should I put forward my case to FIDReC for a third partly iassessment in order to get a fairy satisfactory returns.
REPLY
FIDREC is likely to side with X, so there is no point in asking them to adjudicate.
I had insured three 5-year policies taken with X since 2004. They reduced the bonus in April 2009 and reduced the maturity proceeds for my three policies by a substantial sum of $ 12,751 (projected yield at maturity reduced from 2.81% reduced to 1.59%). The maturity returns was cut by almost 45% over the 5-year period.
My appeal case was reviewed twice by X but they were unable to offer the higher maturity values. X stated that the bonus revision is within the policy contract and only the non-guaranteed portion is adjusted.
The poor returns affect my retirement saving. I would like to seek your advice - should I put forward my case to FIDReC for a third partly iassessment in order to get a fairy satisfactory returns.
REPLY
FIDREC is likely to side with X, so there is no point in asking them to adjudicate.
It is unfair for X to cut the bonus by so much, especially as the stockmarket has recovered substantially from since April. I suggest that you write to the newspapers and make a complaint.
Plain English is the best policy
Read this article. It explains why insurance policies have to be written in a form that consumers can understand.
US: Consumers to benefit as credit card law debuts
By Juan Lagorio
NEW YORK (Reuters) - U.S. consumers will see on Thursday the first signs of the biggest overhaul of the credit card industry in at least two decades, as companies will be forced to provide customers with more time to pay their bills and be required to give more warning of contractual changes.
From August 20, credit card issuers will have to give clients at least 21 calendar days to pay monthly bills and will have to warn consumers 45 days in advance of major changes in conditions, under provisions of a law signed in May by President Barack Obama.
Now, credit card issuers have to mail bills at least 14 days in advance and provide a 15-day notice of changes in terms.
Consumers will also be able to reject the changes set by credit cards, and arrange a plan to cancel the debt and close the credit card account.
"It evens the amount of power between consumers and credit card companies, but it doesn't prevent credit card companies from charging really significant interest rates if they can find a reason to do it," said Jamie Court, president of consumer advocate group Consumer Watchdog.
Some of the biggest changes to the credit card industry look to limit the ability of companies to impose fees, raise interest rates or sell credit card to students, but those will not go into effect until February.
"Those are the ones the card issuers are trying to grapple with to see how to keep the business profitable," said Jason Arnold, an analyst at RBC Capital Markets.
Credit card firms enjoyed hefty profits earlier in the decade, as cheap money ignited a lending boom. American Express Co, usually considered a credit card company for wealthy consumers, became the fastest-growing firm by expanding among less affluent clients.
Other companies grew aggressively by offering no fees and adjusting interest rates according to customers' performance.
However, the housing slump and the financial crisis sent default rates to record highs in the last year. Since then, credit card companies have been closing accounts and trimming credit lines to cushion losses.
Public anger against credit card companies grew as the same banks that were penalizing customers for late payments started receiving billions of dollars of taxpayer money in federal bailouts.
"If Uncle Sam is giving free money to banks who have already received at least tens of billions of dollars from the federal government as bailouts, then the American taxpayers should know that there is a national cap on how much they can be charged," Court said.
"It is definitely a step in the right direction, but only because we were so far gone in the other direction."
The companies have anticipated that the restrictions of the new law will force them to slash credit lines and raise interest rates, or set annual fees.
Moshe Orenbuch, an analyst at Credit Suisse, estimated available credit lines could be cut by about 20 percent, or $1.2 trillion, as banks adjust to comply with the new credit card law.
American Express, Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc, Capital One Financial Corp, and Discover Financial Services make up around 80 percent of the credit card industry.
(Reporting by Juan Lagorio, editing by Gerald E. McCormick)
NEW YORK (Reuters) - U.S. consumers will see on Thursday the first signs of the biggest overhaul of the credit card industry in at least two decades, as companies will be forced to provide customers with more time to pay their bills and be required to give more warning of contractual changes.
From August 20, credit card issuers will have to give clients at least 21 calendar days to pay monthly bills and will have to warn consumers 45 days in advance of major changes in conditions, under provisions of a law signed in May by President Barack Obama.
Now, credit card issuers have to mail bills at least 14 days in advance and provide a 15-day notice of changes in terms.
Consumers will also be able to reject the changes set by credit cards, and arrange a plan to cancel the debt and close the credit card account.
"It evens the amount of power between consumers and credit card companies, but it doesn't prevent credit card companies from charging really significant interest rates if they can find a reason to do it," said Jamie Court, president of consumer advocate group Consumer Watchdog.
Some of the biggest changes to the credit card industry look to limit the ability of companies to impose fees, raise interest rates or sell credit card to students, but those will not go into effect until February.
"Those are the ones the card issuers are trying to grapple with to see how to keep the business profitable," said Jason Arnold, an analyst at RBC Capital Markets.
Credit card firms enjoyed hefty profits earlier in the decade, as cheap money ignited a lending boom. American Express Co, usually considered a credit card company for wealthy consumers, became the fastest-growing firm by expanding among less affluent clients.
Other companies grew aggressively by offering no fees and adjusting interest rates according to customers' performance.
However, the housing slump and the financial crisis sent default rates to record highs in the last year. Since then, credit card companies have been closing accounts and trimming credit lines to cushion losses.
Public anger against credit card companies grew as the same banks that were penalizing customers for late payments started receiving billions of dollars of taxpayer money in federal bailouts.
"If Uncle Sam is giving free money to banks who have already received at least tens of billions of dollars from the federal government as bailouts, then the American taxpayers should know that there is a national cap on how much they can be charged," Court said.
"It is definitely a step in the right direction, but only because we were so far gone in the other direction."
The companies have anticipated that the restrictions of the new law will force them to slash credit lines and raise interest rates, or set annual fees.
Moshe Orenbuch, an analyst at Credit Suisse, estimated available credit lines could be cut by about 20 percent, or $1.2 trillion, as banks adjust to comply with the new credit card law.
American Express, Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc, Capital One Financial Corp, and Discover Financial Services make up around 80 percent of the credit card industry.
(Reporting by Juan Lagorio, editing by Gerald E. McCormick)
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