Thursday, October 30, 2008

Toxic Towns

News about the Lehman bonds never ends, it seems. Now, it has been reported that PAP-controlled Town Councils are exposed to the Lehman bonds. The officials, people of the PAP government are trying to make light of this fact, saying that the exposure is not significant, that "only a small percentage of their total investments were spent on those affected products" (Yahoo News). Words such as "minimal", "no fear that....the funds will be wiped out...", "guarantees the principal amount..." are being trotted out to control the damage from this situation. On the other hand, Potong Pasir and Hougang, whose Town Councils are under Opposition control, reports that their investments are safe from these toxic investments, as they are either in government bonds or fixed deposits. A very wise, prudent and truly conservative approach to investing the people's money.

Now, if the situation were the other way around, wouldn't the PAP government hammer the Opposition for being irresponsible, reckless, nonchalant, financial fools, etc? Yet the fact is that it is the PAP-controlled TCs that are the ones deserving of these words. They are right - the TC sinking funds belong to the people in the town they manage. But they are wrong when they seem to imply that the losses are insignificant, for, to every citizen, every cent must be accounted for. Perhaps it is timely for these TCs who have invested and lost in the Lehman products to account for the investment in full - how much were purchased, what is the extent of their exposure, and what they potentially have lost. I suppose that TCs do not fall in the bracket of the old (i.e. > 62 years old) nor the ignorant, that instead, the banks will consider them as 'savvy' investors. Which means that they stand to lose the entire investment.

It is necesssary for the affected TCs to give a clear account and not sweep the losses under sweet words.

Image source: Author: Gracey

Tuesday, October 28, 2008

Dicey Business

The other day, I had lunch with a friend. We don't meet up often, but when we do, we have lots to say. In this case, the first order of conversation was the doom and gloom in the markets and the likely effects of the recession. You see, both of us studied Economics when we were in the University together many years ago. Naturally, the conversation steered its way to the recent Lehman Minibond debacle, occasioned by the collapse of Lehman Brothers in the US.

In his opinion, everyone, from the old and ignorant to the savvy investor who may have several degrees, should be compensated in full because these structured investments were mis-sold to one and all. Why so? Because when a person with a PhD (not in Finance, though in Business and Information System) could make a little sense of these financial products and write about it, he still expressed a caveat - he couldn't be sure that what he understood and wrote about the Lehman structured products was complete or correct. (in Singapore's Sunday Times, 26 Oct 08).

Did the Customer Relationship people understand the products they were selling? Absolutely not. Did their managers understand what they were instructing their subordinates to sell? Highly unlikely. They weren't academics who would want to understand the products. They were just salesmen. Did the senior management understand the products they undertook to retail? Perhaps, but if they did, they are no less culpable. Why? Because they knowingly sold toxic assets. How can anyone sell poison, like the toxic milk powder from China, and yet remain blameless?

Well, ok, I am not being fair. The senior management probably understood the risks underlying these products. But never in their wildest dreams did they see the collapse of Lehman Brothers, the venerable Investment Bank that started life in the 1840s. But were the risks adequately explained to the investor, young, old or savvy? I doubt so. And if it wasn't, then there has been a mis-selling of the product, so insisted my friend. Therefore, the banks must compensate one and all without reserve. I said that that is very unlikely, but he remained adamant.

Such are the emotions that inevitably follows the possession or dis-possession of wealth. My mother, who is past 80, was worried that a sum of money she was coaxed into investing several years ago may have been the Lehman bonds. She couldn't sleep well for 2 days and only upon further enquiries could she be assured that it had nothing to do with the now dirty word "Lehman". And the takeaway lesson? When you don't have money, you worry. When you have money, especially when it is a lifetime of savings, you worry more. Truly King Solomon was right when he wrote, 'Vanity of vanities, all is vanity! What is the profit to a man in all his labor which he labors under the sun? " (Ecclesiastes 1:2-3)

P.S. I suppose it has dawned on everyone that the Financial industry in the last few years, those that dealt with sophisticated products in particular, was no less than a worldwide betting syndicate involving sophisticated high-rollers and your mom-and-pop 'gamblers' betting on higly sophisticated financial products. The only difference is, it is legal, highly respectable (till recently, that is), and, more importantly, clueless to many. They just didn't understand what they were putting their money on. Why then do we need a casino, and two at that?

Image source: Author: Jane M Sawyer

Tuesday, October 21, 2008

10,000 duds?

I never cease to wonder at the optimism that Singapore, or more precisely, the people who are in the tourism business seem to display, even in these recessionary times. Mr George Tanasijevich, GM and VP of Singapore Development, Marina Bay Sands Resort (aka the Marina Integrated Resort), wants 10,000 line workers (see also Today Online) to staff his brand new Resort, which is slated to be opened in late 2009. This has given a boost to the morale of the Singapore workforce, and even the Singapore government in these bad economic times. Minister Lim Hng Kiang even went so far as to say that the economy will see recovery in 2 years' time when the IRs are ready. That's a fantastic instance of crystal-ball gazing, but I guess the government has an army of analysts who can make such predictions, and more importantly, realise them. They have both prophets and Gods on their side. How wrong can they be?

I hope that he is right. I am not so optimistic, though. There seems to be an underlying assumption, even at the highest levels of government, that "if we build it, they will come". I am of course referring to the Marina and Sentosa IRs. With the world slipping into the worst recession in 70 years (someone made the calculation back to the Great Depression of the 1930s and early 40s), and with the worldwide stock markets losing near half of their values at their peak, many people's income and investments have taken a direct hit. Coupled with inflation, everybody, except the poor, have become substantially poorer. (You see, the poor have nothing to lose, so they cannot become poorer). Even business travel is going the budget route, via low-cost airlines rather than the full-service ones. Businesses are reluctant to expand, as banks become more guarded in lending. I would have thought that in such an environment, the first businesses that will be hit are the leisure and entertainment business. Businesses may continue to organise events and conferences (hey, you need to drum up businesses when there is none, right?), but the extra expenses, extra stays, the leisure and entertainment part will likely be cut back drastically. You'd probably witness more fly swatting than finger massages. How long this state of affairs will continue no one is predicting exactly nor can do so with any sense of reality. Many are already saying that it will be a long winter. Some are still in dreamland.

So I wonder if the rosy predictions about the tourism in 2 years' time is warranted at all. Why exactly 2 years? Because that's when the 2 IRs will have become fully operationalised - assuming that the Marina IR and LV Sands haven't folded by then. Already, we are getting not-so-rosy news out of Las Vegas that LV Sands may be facing a credit crunch. Its resort and gambling businesses in Macau have also reported poorer results.

On the other hand, some smart people are arguing that the Marina and Sentosa IR will not be allowed to fail because they are Singapore government initiatives. What does this mean? That the government will be forced to throw good money, taxpayers' money no less, into bad investments, like what the US has done? We are talking S$5billion or more here. I hope we do not end up with white elephants again, the last of which were spotted near an MRT station in the North-east of Singapore. If it is does appear, it will be far larger than the ones we have seen.

The thought makes me shudder.

Image source:

Monday, October 20, 2008

How the Markets really work

Someone passed me this Youtube video that explained in plain man's English (ok, it souds like the Queen's English) what happened in the world of high finance in 2007.

It says a lot about how we ended up where we are today. When there are no good news, we just have to swallow the bitter pill, laugh at the taste and promise not to trust anyone with the title, MBA (Finance/Investments/Risks), after their names anymore, particularly if the word 'bank' appears somewhere as well.

Sunday, October 19, 2008

Toxic times

These are trying times in Singapore for some 10,000 people. I am not sure that all of them are Singaporeans. It may very well be. These 10k people are looking into a hole so big and wide, and bottomless, that I suppose you'd understand that some would want to jump into it. Fortunately, so far, we haven't heard of any superman acts in our tall tall buildings (some soon to rise to 50 floors!) nor our above-ground subway stations. It would appear that the SMRT cannot erect barriers at its stations soon enough to prevent people using its platforms as launching pads into...I don't know where anyone wants to go by jumping in front of oncoming trains...

Well, by now, you would have guessed that I am referring to the 10,000 people who potentially have lost all their investments (and life-long savings for some) in the mini-bond saga that resulted from the collapse of Lehman Brothers in the US. All investments linked to this Investment Bank are in jeopardy now. It is hardrending when you read of senior citizens losing their entire life-savings in this ONE investment. But on the other hand, you cannot but feel how foolish they are for putting all their eggs in one basket. Has half a century of life and living, which probably included several recessions, not taught them about anything? Yes, many of the Relationship Managers (RM) that the bank employed should bear the blame for pushing otherwise risky products down the throats of aged investors who know nothing, or are not interested to know about the complexity of the product beyond the amount of money they are putting down and the interest they will earn.

Indeed, I have heard of young RMs gloating about the $20,000 they earn per month doing what they did, relieving old and maybe not-so-old but cash-rich people of their life-savings to put into 'principal-protected' and/or high-interest-yielding structured investment products. In retrospect, I am sure neither the RM, nor the investor, understood the nature of the mechanisms underlying these investment products. This calls to mind the true story of the wildly successful mortgage bond traders at Saloman Brothers (SB), before it collapsed in the 1980s, who weren't even trained in finance. (As told in Michael Lewis' Liar's Poker) It will be farfetched to equate SB's young and hot-blooded mortgage traders with today's RMs or the products they sold, but the role they played is not all that different, in retrospect.

In retrospect too, 'principle-protected' means nothing, and even plain vanilla savings deposits for that matter, if the bank that helms the investments and deposits goes bankrupt. We always see better after the fact. Our vision suddenly improves to 20-20. Truly the prophet is without honour in the free-wheeling world of leveraged investments. Who would have thought, much less predicted, that Lehman Brothers would collapse, or for that matter, AIG? Certainly not DBS Bank, and others whose error was to retail toxic investments and not see them for what they were, much like ignorantly selling melamine-tained milk powder. If the investments people in these banks, who probably have a ton of MBAs, cannot see a toxic financial product for what it is early, how much more the man in the street? (Interestingly, Lewis claimed that Salomon Brothers crumbled when it started to rely more on educated professional financial people rather than on people with raw trading skills but had otherwise no financial training).

For the rest of the 10,000, and more, caught in the repercussion of bank failures in the US, it is cold comfort. All have lost money, though none as spectacular as those that bought into the Lehman Brothers' mini-bonds and related funds. And all shouldn't expect the government to bail them out. Whatever money the government has belongs to the taxpayers. Surely you do not expect a lowly paid bloke like me who never dabbles in investments beyond FDs to foot the bill of others' failed investments? Where is the fairness in it? Would these same people who, if they had made money from these investments, share them with me?

So I think that the MAS is doing the right thing now. Investigate the matter, and if the Financial Institutions have breached any laws through the conduct of its RMs or others, or have been manifestly negligent, get them to 'do the right thing', as MAS' Managing Director, Mr Heng Swee Keat is reported to have said. There is no question that the Singapore government SHOULD NOT buy up these toxic assets with taxpayers' money so that the same investors who have lost a bundle get to invest another day in financial products that nobody understands. The lesson is a hard one, but we must be fair in the whole thing, particularly to those who have had no hand, not even a finger, on these financial toxins.

Even if the FI's buy back all the toxic Lehman bonds, like what the Hong Kong FI's have done, it'll hit the bank's shareholders. Oh well, in these stressful times, almost nobody will get away scot-free.

Disclaimer: I am not a financial consultant. Anything written here are my personal opinion. The reader should consult a professionally qualified person for advice on matters relating to investments and risk. However, it appears you can't trust anybody nowadays. You'd want to take with a pinch of salt what any finance person, qualified or not, would tell you nowadays, except the very helpful Mr Tan Kin Lian, who perhaps should stand for election for Parliament in the next General Election, seeing as By-Elections have lost its favour with the sitting government.

Picture shows the attractive but poisonous berries of the Yew tree.

Image source: Author: Mike

Wednesday, October 15, 2008

Excuse me Thank you

I don't know if it is the signs of the times, but people are getting less patient with each other. Just last week, I was taking the MRT to work. This was on the East-West line. As usual, the train was packed to the brim and I was standing in front of a seated man, who was as fair size but I wouldn't describe as fat. He made a motion to rise, and when the train stopped, he rose and walked towards the door.

Then I heard somebody say 'stupid', and the man who had reached the door shot back with the 'stupid' word also. Curious, I looked around and discovered the source of these utterances. Apparently, the man, in rising and walking off, had dislodged one of the woman's slip-on medium-height-heel shoe. The woman looked a bit flustered and was visibily irritated. She had uttered the first 'stupid' word. Hmmm...I thought that the man should have apologised even though it wasn't done on purpose. And I thought the woman should just have taken it as accidental and kept her counsel. Apparently, this wouldn't be my only encounter.

Today, as I was riding on the crowded East-West MRT line, a woman barked out, "Excuse me!" behind me. I appeared to be an obstruction and tried as best I could to move a little forward, mindful of not walking into the seated women in front of me. Not that I was expecting any expression of appreciation, like, "Thank you", which often follows cooperation after an 'excuse me'. This woman just glanced over at me as she reached the door, silent and expressionless.

Maybe I am getting a bit too sensitive, or maybe I am expecting too much. "Thank you" seem to have fallen off people's vocabulary as we go into a recession, technical or not. And analysts are saying that this recession is likely to be a prolonged one, so I am not expecting too many "Thank you's" from now onwards. It appears that graciousness is one of the victims of bad economic times. I just hope 'stupid' does not become the 'word' of the times. A packed train can do with less moronic creatures, real or imagined.

Image source: Author: Morten Flaten

Thursday, October 09, 2008

Messing up

It just won't work. I wish it would and look forward to the day that it becomes a part of our lives. But it wouldn't work in today's Singapore. It could have worked perhaps 20, 30 years ago when social behaviour was highly prescribed, tightly controlled and vigourously enforced. Not today. We are more enlightened, grown up and can make our own decision and choices. Ironically, that also means that we can choose not to return or clear our food utensils and trays after a meal in a cooked food centre, variously referred to also as a Hawker Centre, Eating House and Foodcourt. Fastfood Restaurants such as McDonalds, KFC and Long John Silvers are no exceptions.

But this is exactly what Straits Times editor, Mr Han Fook Kwang, wishes to see - a more gracious Singapore where people clean up after themselves - not just in the loo, though that is something that needs working at - but at the tables in these food centres. Anyone who arrives at these eating establishments hopes to find an empty table which they can plonk down on and start ordering their meals immediately. Nobody wants to have to wait for the tables to be cleared of the debris left over from the last occupier of the table, and less so if the last occupier was a messy diner. Nobody wants to clear the mess themselve either. They simply choose a cleaner table or worse, walk away to another more inviting eating place. Right now, all of these eating places engage cleaners who walk around the place the whole day cleaning up after every diner, and I mean every diner. That is because even if one doesn't mind doing the cleanup, we'd leave it to the cleaners who can do a better job, really.

You see, it has become established practice that tables are to be cleared by paid cleaners, as much as our household trash is to be carted away by the trashman in their trash-trucks. The reasoning is that the cost of the meal already includes this service, so it would be nothing short of moronic to do what you have already paid someone else to do. But removing these cleaners will not do either because the trash on tables will begin piling up and, given the cost of food nowadays, no diner will volunteer their cleaning services. That's why paid cleaners came into the picture in the first place. It has become a circular thing, no?

Some have been inspired to suggest that you should make the students in Primary, Secondary and Tertiary institutions do this first - i.e. clear the tables themselves after a meal. The logic is that once these students have imbibed the habit, they will naturally carry over this habit outside of school. I am not that optimistic about this approach for the reasons already stated earlier. Further, these new adults do not want to appear kiddy to others by bucking the adult practice of returning trays in public eating places. In fact, not returning trays can be seen to be an 'adult' thing. Its just like saying the National Pledge and singing Majulah Singapura. You don't do that everyday after leaving school. Some even do not want to be seen doing that. So it wouldn't work.

Let's have a compromise. The one thing that irritates me more than anything in an eating place is when diners leave behind a table that looks as if a rat has rummaged through the leftover food. It looks like a hell of a mess with fish bones, curry, used tissue paper, etc. lying all over the table. I don't understand how and why people eat like that. Granted you can't ask them to swallow the bones and lick the curry off the tables and pocket their soiled tissue paper for disposal elsewhere, but they could have started by practising considerate clean eating habits. Get an empty bowl/plate to desposit the leftovers, or if non is available, use a tissue paper or two which is always available, if nothing, to 'chop' seats, from your own pocket. If you spill curry on the table, wipe it off with the paper and deposit it in the empty bowl, plate or cup which you have eaten or drank from.

This way, it makes it easy for yourself or anyone who comes after, to clear the table without the help of a professional cleaner. Yes, the cleaner will lose his job, but if this is what we want as a gracious society, then too bad. I did mention that is is a compromise solution, right?

Image source: Author:
Anita Patterson Peppers

Friday, October 03, 2008

In Memoriam Event

In memoriam
Mr JB Jeyaretnam
Speakers Corner
Saturday, October 4,
6.30pm - 10pm
Bring flowers & candles
Wear black
No speeches
(Clark Quay MRT Station, Exit A)
Please help pass the word
Facebook: In Memory of JB Jeyaretnam

Wednesday, October 01, 2008

The Circus and the Clown

Ferrari's President, Luca di Montezemolo, has called Singapore's F1 Grand Prix track as a circus track, and spoke of the humiliation suffered by his team in this Grand Prix event. Well, one can understand that because non of its drivers, neither Felipe Massa nor Kimi Raikkonen, scored a single point from the race. Is it a case of sour grapes, I wonder, or a case of bad sportsmanship, or both?

Well, Mr Montezemolo should remember that by characterising the Singapore F1 race and track a 'circus', it makes his drivers look like incompetent monkeys and his Ferrari team a bunch of 'goondu' gorillas who cannot refuel a car properly. Now who should take the blame for this? Yes, that 'stupid' Singapore F1 race which should never have been held at all, if Mr M had his way. But then, any race where his cars do not finish with a point is probably not worth racing in anyway, according to this sore loser and sour grapes of a man. Hey if you can't lose gracefully, then don't race at all - period. Take your prancing horse out to pasture. They'd probably be more comfortable and happy there, or the circus for that matter.

All of a sudden, I am not at all keen about team Ferrari anymore. It is highly likely that McLaren-Mercedes' Lewis Hamilton will walk away the Champion F1 driver for 2008, and I hope they take home the constructors' title too.

Singapore is not saying that everything is perfect with the track and all. Singaporeans themselves (especially those who drive to work or have businesses around the vicinity of the race tracks) are still cursing and swearing that they have been mightily inconvenienced by a 'rich man's' race and robbed of businesses over the weekend. The Singapore approach is to recognise problems for what they are - problems, try to resolve these problems and do better the next time around. You can't ask for more, can you?

If Team Ferrari shows up again next year to race, they should consider adorning their prancing horse with a ribbon or two, or something that befits a circus horse, for after all, by their boss' admission, they will be taking part in a circus.

Image source: Author: Rich DuBose