Corporate Responsibility

Some call it Corporate Social Responsibility - CSR for short. Corporations see it as good PR to be seen to be generous towards non-profit purposes, for the good of the community, such as acts of donations to charities, organising meaningly charitable events at their expense, and etc.

Great Eastern Life just did that - not in the usual way we associate it with CSR, but it is CSR at its best. Why? Because its payback is not immediate nor guaranteed while it swallows, on behalf of its investors, the losses that have fallen on its GreatLink Choice investment products. My mother made a startling remark about 5 months ago - that bankers have become professional fraudsters. For all her life, she has kept her money faithfully in a bank, not under the bed, nor in the drawer. And she got us all to keep our monies in the bank too, for the interest that it would earn. So can you blame her when she put a substantial amount of that money in what a relationship manager called a high-yield structured investment product? She had wanted to open a fixed deposit account with the cash, actually. After all, she has been trusted banks with her cash for over 40 years. Structured or not, the banks are selling it and they must have evaluated the product's risk. They said it was low-risk high-yield. What's more, they also threw in the principal guaranteed / principal protected words. Little did we know that banks' definition of 'guaranteed' and 'protected' can be so convoluted that it would take a couple of lawyers to untangle it, or make it more confusing, depending on who you spoke to.

So, 'Thank you', Great Eastern Life and OCBC Bank (the parent), for taking what must be a difficult decision to return all the money that people have invested in structured products with you, knowing that their values have plunged 40-80% today. That's good 'ol banking - honouring people's trust and keeping their money safe, like it has always been, until recently.

Worth of Words

I am disturbed. I really am. What is the source of my discomfort, you ask? Well, a Director of our Monetary Authority of Singapore (MAS) has written to the press, in reply to a reader's question, that "Insurance companies are expected to have clear policies...", that "MAS expects the board and senior management to ensure that these policies and procedures are implemented consistently". She was writing in response to a reader's letter questioning the security of having one's personal data stored on insurance agents’ laptops. Some other readers have gone on to question the wider practice of providing photocopied ICs for all kinds of applications, depositing ICs with the security guard, etc.

While MAS may not have oversight over the latter, its reply concerning the former certainly gives no comfort to the person considering an insurance policy. If governance can be executed through expecting that people and organisations will do the right thing, then the frauds that have been surfacing over the last few years, from Enron to Satyam, would not have occurred. But it is precisely because these things do happen, and that even after auditing firms have done their jobs (or not) in conducting periodic statutory reviews. What is alarming in many cases is that fraud can take place with the most respectable people (e.g. Bernard Madoff - described as a long-standing leader in the financial services industry), that something more cries out to be done. I am not suggesting that we stifle the industry with more government rules thereby imposing onerous bureaucratic procedures on businesses that are struggling in these times. But its current 'hands-off' approach is surely too optimistic of human nature.

Might Singapore be waiting for its next Enron, or Satyam or, worse, its Bernard Madoff to make MAS' Communications Director's words come back to haunt her? We have had Leeson-Barings under our belt, but we certainly don't need another.

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.

Warranteed

I find it rather ludicrous that the Housing and Development Board (HDB) needs to give warranties on the public apartments it builds. In this case, they are giving warranties on apartments (flats) built not too long ago. Most Singaporeans know that the HDB has been in this building public housing business for more than 30 years - and are proud of this fact. It has, over the years housed a great many Singaporean families, upward of 80% if I am not wrong.

Yet in all these 30 years, it has not learned to build apartments where the walls and ceilings do not leak water. I remember the first apartment that my parents moved into in the late 1970s. There was spalling concrete at the toilet ceiling. We wondered if we would not be dumped with various types of 'soil' as we squated while doing our business. Those whose apartment were located at the end of a block also suffered from leaking walls, when it rained, ruining the paintwork and raising worries about how secure their homes were. I remember the senior engineer trooping into our apartment with a bunch of trainees in tow, pointing out the spalling concrete problem. I assume the purpose of that was to train them not to do build houses with this problem in future.

That was more than 30 years ago. Yet many public apartments still report spalling concrete problems as late as a few years ago. And my private apartment wall was leaking water during a heavy downpour earlier this year. Was nothing learnt by civil engineers all these many years?

Incredibly, in today's ultra-modern HDB apartments in Punggol, the HDB found it fit to issue warranties against spalling concrete and leaking walls - but only for 5 years for external wall leakages and ceiling leakages in the toilets and kitchen. It would appear that they are not all that confident to extend that warranty period to 10 years, which, admittedly, they have done for spalling concrete. My point is, when you build a house that costs upward of $200,000 (which is heavily subsidised, we are told), a 5 or even 10-year warranty seem to say very little about the confidence that they have in what they have built. Though they lease the entire apartment to its customers for 99 years, the longest warranties they are confident in extending is only a tenth of the lease period. That's really incredibly uninspiring show of confidence. I can understand if a TV set breaks down, or a washing mahine in 5 years, but have you heard of a house falling apart except in a category 3 - 5 storm or earthquake - the former of which is unheard of in Singapore?

Frankly, I would hesitate to hang up such warranties (which were given to the house owner all framed up) for fear that visitors to the house might take their leave earlier than expected after they learn that it has been occupied for ten years. Well, ok, its just the ceiling in the kitchen and toilet and the external walls. Nobody said that the whole apartment would collapse. But in kiasu Singapore, it wouldn't be surprising that people would behave that way.

What is the lesson in all this? When you own a house in Singapore, you need to buy insurance for it. But then nowdays insurance companies themselves are known to collapse too....sigh. Are there no certainties in this world anymore, except death and taxes?

Image source: morgueFile.com. Author: Kenn W. Kiser

To force or not to force?

OK, my straw poll results are in:

To the statement, "Buying an annuity should be voluntary"

A majority 85% (23 pax) preferred a voluntary annuity (aka longevity insurance).

An insignificant 7% (2 pax) would rather it be forced on them.

An insignificant 7% (2 pax) don't know either way. In which case, can they give me their CPF savings since they are so confused?

Total respondents is 27. Level of Confidence: Very.

Shifting Track

Well, you must give the government credit. In spite of PM Lee Hsien Loong's very public pronouncement that all Singaporeans under 50 years of age MUST buy an annuity to tide over the rest of their life's needs, the government has backed down. In Parliament yesterday, the Manpower Minister, Mr Ng Eng Hen, said something to the effect that this annuity thing may not be compulsory after all. Yes, people have different needs and different people have different means. You just can't treat everyone the same and say everyone MUST buy into the annuity plan structured by the government. Yes, the government wanted to achieve mass participation so that the cost of the annuity will be low enough to be affordable, yet the yields are high enough to satisfy. But I suppose the people in charge of aging issues were not listening to their colleagues over at the Education Ministry.

The people in charge of education have been saying for some time now that people have different abilities and interests, that we shouldn't treat everyone with a cookie-cutter. Some are more artistic, others are more analytical. Some learn slower, others faster. Some are better with their hands, others are good with their minds. So education has taken a much more diverse offering in recognition of these differences. This, if nothing else, is an enlightened piece of thinking.

Yet, the people at the government's old folks department insist on using the cookie-cutter which the education people have very wisely discarded. What happened to the careful deliberation process, which the Singapore government is well known for, on this issue? It seems that someone or some people just pushed out a half-baked cake for the PM to sell at a very public occasion, which caused a lot of indigestion. Is the nation beginning to be short-changed by some very costly scholars in the civil service who cannot figure out what the man in the street takes a second to do so - that a compulsory annuity takes away PEOPLE's OWN hard earned money without the certainty that they will benefit from it at all. Well, yes, you may say that Singaporean's give generously to charity, but that's all voluntary.

The proposed forced annuity is but another form of deferred taxation, is it not? And worst, it is regressive in nature, like the GST. Poorer people pay proportionately more than do the well off. The premiums paid are effectively redistributed in favour of those who live longer - possibly the more well off because they can better afford life-sustaining medical care.

A committee will now be formed to consider the matter in greater depth. Its seems that the original people/committee that were/was considering this matter in depth (in the PM's department, no less) didn't do that thorough a job. Let's hope the new committee does better.