Sent to me by RW
Is it worth sacrificing 10,000 loyal and trusting customers in order to remain in the good books of greedy Wall Street "investment" banks ?
Instead of fighting for the rights of 10,000 individuals with limited resources, why are we still defending the "mighty" investment banks shamefully bailed out with Billions, actually, Trillions of taxpayer funds all over the world, and yet, some commentators are saying these 10,000 victims should receive nothing ( except for a few "wayang" vulnerable cases ) ?
Is trying to compete to be THE financial hub, when the financial industry is in ruins, causing untold pain on individuals and pension funds, perpetrated by these discredited "investment" banks, holding back the authorities from acting, when in the US, law enforcement agencies have compelled these "investment" banks to COMPLETELY return all money to victims ?
Would moral hazard be NOT an issue anymore as no one in the right mind will touch any financial product ever again ?
Recipe for a toxic financial product ?
Buy cheap sub-prime mortagages. Chop them up. Toss in junk bonds. Blend together for 10 minutes. Chop the mess into smaller, digestable lots. Mix with some respectable names. Ask the Ratings Agencies to dress them up with AAA+ grade. Give them "high" sounding names, like mini-"Bonds" ( Lehman ), "Pinnacles" ( Morgan Stanley ), "High" Notes ( DBS ), "Jubilee" ( Merill Lynch ), etc from "trusted" institutions.
Why have US Law Enforcement Agencies ( FBI, SEC, US Attorneys for Manhattan, Brooklyn and New York State Attorney General , etc ) successfully prosecuted and are presently prosecuting Wall Street investment banks and their ex-top executives, and compel the COMPLETE return of all victims' money ?
RW
http://www.nytimes.com/2008/02/02/business/02legal.html?scp=1&sq=Massachusetts%20+%20Merrill%20Lynch&st=cse
By ERIC DASHPublished: August 21, 2008
Three major investment banks — Merrill Lynch, Goldman Sachs and Deutsche Bank — will soon buy back at least $12.5 billion in auction-rate securities and pay $162.5 million in fines as part of separate settlements reached Thursday with state regulators.
In earlier settlements, Citigroup, JPMorgan Chase, Morgan Stanley, UBS and Wachovia agreed to buy back $35 billion of the securities and pay more than $360 million in fines. Several other firms, including Bank of America, are negotiating deals.
Monday, November 3, 2008
Market Discipline and Caveat Emptor
Read the message
http://www.mas.gov.sg/news_room/statements/2002/Address_by_DPM_at_MAS_Staff_Seminar_2002__29_Oct_2002.html
Address by Deputy Prime Minister Lee Hsien Loong,
Chairman, MAS
At MAS Staff Seminar
29 October 2002
Market Discipline and Caveat Emptor
22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.
23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.
24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.
25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
http://www.mas.gov.sg/news_room/statements/2002/Address_by_DPM_at_MAS_Staff_Seminar_2002__29_Oct_2002.html
Address by Deputy Prime Minister Lee Hsien Loong,
Chairman, MAS
At MAS Staff Seminar
29 October 2002
Market Discipline and Caveat Emptor
22. Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a merit-based supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices.
23. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble.
24. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests. We also need a pool of knowledgeable analysts and journalists who will shine the spotlight on any obscure fine print that the lay investor fails to notice. A more informed and sophisticated investor base will reinforce market discipline and form the basis for a more vibrant and mature financial sector. In all these respects, we have a long way to go.
25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
Open Forum with OCBC Bank/Securities
MESSAGE
We would like to invite all investors who have invested in the Lehman Brothers Minibonds, Merrill Lynch Jubilee and Morgan Stanley Pinnacle Notes through OCBC Bank/Securities, to participate in an open forum with OCBC.
This invitation is open to investors regardless of whether you have or have not attended an interview with OCBC. We are going to request for Mr Hwang Soo Jin, the independent party appointed by the Monetary Authority of Singapore to oversee OCBC complaints process, to be present at the forum, as we are keen to share our concerns with him.
We have set an agenda for the forum and are extending this invitation to gather as many investors as possible. We believe that with more investors attending this forum, OCBC cannot ignore our request and will consider more seriously the appeal of all affected investors.
Please submit your name (with some proof that you have invested in one of the above-mentioned notes through OCBC Bank/Securities), your email address and contact number to Miss WM , OSPLmailbox@gmail.com by 7 November 2008.
The date for this forum is not yet confirmed, as we have to arrange this with OCBC. You will be advised when this arrangement is finalised.
Melvin
On behalf of the
OCBC Bank/Securities Investors' Group
We would like to invite all investors who have invested in the Lehman Brothers Minibonds, Merrill Lynch Jubilee and Morgan Stanley Pinnacle Notes through OCBC Bank/Securities, to participate in an open forum with OCBC.
This invitation is open to investors regardless of whether you have or have not attended an interview with OCBC. We are going to request for Mr Hwang Soo Jin, the independent party appointed by the Monetary Authority of Singapore to oversee OCBC complaints process, to be present at the forum, as we are keen to share our concerns with him.
We have set an agenda for the forum and are extending this invitation to gather as many investors as possible. We believe that with more investors attending this forum, OCBC cannot ignore our request and will consider more seriously the appeal of all affected investors.
Please submit your name (with some proof that you have invested in one of the above-mentioned notes through OCBC Bank/Securities), your email address and contact number to Miss WM , OSPLmailbox@gmail.com by 7 November 2008.
The date for this forum is not yet confirmed, as we have to arrange this with OCBC. You will be advised when this arrangement is finalised.
Melvin
On behalf of the
OCBC Bank/Securities Investors' Group
Should financial markets be more strongly regulated?
This debate is conducted by the Economist magazine. 59% of readers are in of stronger regulation. Read the arguments:
http://www.economist.com/debate/days/view/225/print
Prof Joseph Stiglitz of Columbia University (who obtained 59% support) said,
Part of a new regualtory system must be a financial products safety commission, to make sure that no products bought or sold by commercial banks or pension funds are "unsafe for human consumption". Ideally, such a commission would try to encourage the kind of innovation that would protect homeowners and make our economy more efficient.
Prof Stiglitz was referring to subprime mortgages. His remarks can also apply to mini-bonds and credit linked notes.
http://www.economist.com/debate/days/view/225/print
Prof Joseph Stiglitz of Columbia University (who obtained 59% support) said,
Part of a new regualtory system must be a financial products safety commission, to make sure that no products bought or sold by commercial banks or pension funds are "unsafe for human consumption". Ideally, such a commission would try to encourage the kind of innovation that would protect homeowners and make our economy more efficient.
Prof Stiglitz was referring to subprime mortgages. His remarks can also apply to mini-bonds and credit linked notes.
MAS has the power to investigate and bring a court action
Posting #68 in
http://theonlinecitizen.com/2008/11/1017-hav-signed-fourth-petition-to-mas/#comment-29561
Statement by Mr. Lee Hsien Loong in 2006
25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
In the first Petition signed by 983 investors, there was a call for MAS or CAD to investigate into any wrong doing by the financial institutions that created or marketed the product. So far, there is no news on this matter.
I hope that they will "investigate and bring a court action for market misconduct".
http://theonlinecitizen.com/2008/11/1017-hav-signed-fourth-petition-to-mas/#comment-29561
Statement by Mr. Lee Hsien Loong in 2006
25. Market discipline also requires an effective enforcement regime. To preserve investor confidence, penalties for transgressions must be swift and appropriate. MAS now has the power to investigate and bring a court action for market misconduct under the new civil penalty regime. This will complement the existing criminal penalty regime administered by CAD.”
In the first Petition signed by 983 investors, there was a call for MAS or CAD to investigate into any wrong doing by the financial institutions that created or marketed the product. So far, there is no news on this matter.
I hope that they will "investigate and bring a court action for market misconduct".
Flaws in financial planning industry
Lehman-linked structured products tragedy exposes persistent flaws in our financial planning industry
http://www.sgpolitics.net/?p=1004
http://www.sgpolitics.net/?p=1004
Presence of disclaimers in prospectus
Presence of disclaimers on Lehman-linked structured products prospectuses are a poor excuse at absolving financial institutions from blame
Written by Ng E-Jay
03 November 2008
Some discussion has been going around that the disclaimers on the prospectuses of the Lehman-linked structured products legally protect the financial institutions from blame, since those disclaimers clearly state that there is a chance that investors might lose some or all of their money in the event that certain unfortunate circumstances materialize.
For example, a statement on first page of the DBS High Notes 5 pricing statement reads: "If a Credit Event or a Constellation Event occurs before the Maturity Date, investors may lose their entire investment and may not receive any principal amount on the Notes." This statement was printed in bold.
A similar warning was printed on the cover of the pricing statement of Lehman Minibond Series 3: "There will be no guarantee from any entity to you that you will recover any amount payable under the Notes and you could lose all or a substantial part of your investment in the Notes."
And on page three of the same document, it said: "… the Notes are not principal protected nor capital guaranteed".
Is it true that such statements legally protect the financial institutions from blame? Perhaps so. If a collective lawsuit by investors materialize, this point may be challenged in court, and who knows, the ruling might be made in favour of investors.
My contention is that those statements and disclaimers do not morally protect them from blame, even if they do so legally. In other words, the financial institutions have committed a breach of ethics even if they have not committed a breach of law. The presence of disclaimers on Lehman-linked structured products prospectuses are a poor excuse at absolving financial institutions from blame, especially moral blame.
First and foremost, how many investors took these disclaimers seriously, even if they had read them on the first few pages of the prospectuses and they were printed in bold? Most would assume that the financial institutions were merely stating worst case scenarios for the mere sake of legally protecting themselves should the unthinkable happen. It is likely that most investors thought that such extreme scenarios had negligible probability. Did the sales representatives take special effort to mention that such extreme scenarios were not in fact impossible, but could actually occur, and in fact did occur many times throughout financial markets history?
How many sales representatives took the effort to emphasize the potential risks and pitfalls of these products to investors? How many of them made sure that investors knew there was a chance that all their money could be lost, that in financial markets history many banks had indeed failed when a crisis hit? I suspect not many. Most of them were probably too caught up in trying to make the sale that they downplayed the potential risks. Some investors say that the risk of the worst case scenario happening was played down by relationship managers who genuinely believed at the point of sale that the possibility of a credit event was close to zero.
Many retirees were offered the Lehman products even although the products were clearly not suitable for their investment horizon and risk profile. Even if a disclaimer was present in the prospectus that the investor could lose all his/her money, that fact that the product was even offered in the first place to an inappropriate investor itself constitutes mis-selling. This is a violation of the Financial Adviser's Act. This mis-selling is further compounded by the fact that some investors put all their life savings into a single product, in stark contravention of the principle of diversification, which the sales representative should have clearly advised.
However, even if we were to ignore the Financial Adviser's Act, the fact remains that bank sales personnel and financial advisers' representatives are to a large extent held in esteem by retirees and people who are not very well educated, because they are often assumed to be conversant in and knowledgeable about financial products. Some investors have said that they trusted their relationships managers so much that they simply went with whatever was recommended and did not bother to read the documentation.
To offer such a high risk product to these groups of investors and at the same time pay inadequate attention to the potential risks therein constitutes a breach of faith and trust on the part of sales representatives. Worse still, it has been shown that many of the sales representatives themselves do not know the mechanics about how these products actually work, when people actually assume them to posses adequate knowledge and training.
Finally, the strongest reason I submit why the sales of these Lehman products constitute a breach of ethics and morality is because these products are manifestly not suitable for retail investors to begin with, regardless of the risk tolerance of the individual investor. Only institutions and hedge funds should dabble in such volatile instruments like Credit Default Swaps, or invest in such potentially toxic products like Collateralized Debt Obligations with investors' money using large amounts of leverage.
The Financial Adviser's Act does not really address the issue of when an investment product is unsuitable for a particular investor, or for all individual investors. It only covers aspects like proper documentation of a client's financial status and what constitutes due diligence. I call on MAS to expand the scope of the Financial Adviser's Act to address such issues concerning complex financial instruments and structured products, and to enforce much more stringent audits and checks on financial institutions to ensure that due diligence and fair selling occurs at all times.
Written by Ng E-Jay
03 November 2008
Some discussion has been going around that the disclaimers on the prospectuses of the Lehman-linked structured products legally protect the financial institutions from blame, since those disclaimers clearly state that there is a chance that investors might lose some or all of their money in the event that certain unfortunate circumstances materialize.
For example, a statement on first page of the DBS High Notes 5 pricing statement reads: "If a Credit Event or a Constellation Event occurs before the Maturity Date, investors may lose their entire investment and may not receive any principal amount on the Notes." This statement was printed in bold.
A similar warning was printed on the cover of the pricing statement of Lehman Minibond Series 3: "There will be no guarantee from any entity to you that you will recover any amount payable under the Notes and you could lose all or a substantial part of your investment in the Notes."
And on page three of the same document, it said: "… the Notes are not principal protected nor capital guaranteed".
Is it true that such statements legally protect the financial institutions from blame? Perhaps so. If a collective lawsuit by investors materialize, this point may be challenged in court, and who knows, the ruling might be made in favour of investors.
My contention is that those statements and disclaimers do not morally protect them from blame, even if they do so legally. In other words, the financial institutions have committed a breach of ethics even if they have not committed a breach of law. The presence of disclaimers on Lehman-linked structured products prospectuses are a poor excuse at absolving financial institutions from blame, especially moral blame.
First and foremost, how many investors took these disclaimers seriously, even if they had read them on the first few pages of the prospectuses and they were printed in bold? Most would assume that the financial institutions were merely stating worst case scenarios for the mere sake of legally protecting themselves should the unthinkable happen. It is likely that most investors thought that such extreme scenarios had negligible probability. Did the sales representatives take special effort to mention that such extreme scenarios were not in fact impossible, but could actually occur, and in fact did occur many times throughout financial markets history?
How many sales representatives took the effort to emphasize the potential risks and pitfalls of these products to investors? How many of them made sure that investors knew there was a chance that all their money could be lost, that in financial markets history many banks had indeed failed when a crisis hit? I suspect not many. Most of them were probably too caught up in trying to make the sale that they downplayed the potential risks. Some investors say that the risk of the worst case scenario happening was played down by relationship managers who genuinely believed at the point of sale that the possibility of a credit event was close to zero.
Many retirees were offered the Lehman products even although the products were clearly not suitable for their investment horizon and risk profile. Even if a disclaimer was present in the prospectus that the investor could lose all his/her money, that fact that the product was even offered in the first place to an inappropriate investor itself constitutes mis-selling. This is a violation of the Financial Adviser's Act. This mis-selling is further compounded by the fact that some investors put all their life savings into a single product, in stark contravention of the principle of diversification, which the sales representative should have clearly advised.
However, even if we were to ignore the Financial Adviser's Act, the fact remains that bank sales personnel and financial advisers' representatives are to a large extent held in esteem by retirees and people who are not very well educated, because they are often assumed to be conversant in and knowledgeable about financial products. Some investors have said that they trusted their relationships managers so much that they simply went with whatever was recommended and did not bother to read the documentation.
To offer such a high risk product to these groups of investors and at the same time pay inadequate attention to the potential risks therein constitutes a breach of faith and trust on the part of sales representatives. Worse still, it has been shown that many of the sales representatives themselves do not know the mechanics about how these products actually work, when people actually assume them to posses adequate knowledge and training.
Finally, the strongest reason I submit why the sales of these Lehman products constitute a breach of ethics and morality is because these products are manifestly not suitable for retail investors to begin with, regardless of the risk tolerance of the individual investor. Only institutions and hedge funds should dabble in such volatile instruments like Credit Default Swaps, or invest in such potentially toxic products like Collateralized Debt Obligations with investors' money using large amounts of leverage.
The Financial Adviser's Act does not really address the issue of when an investment product is unsuitable for a particular investor, or for all individual investors. It only covers aspects like proper documentation of a client's financial status and what constitutes due diligence. I call on MAS to expand the scope of the Financial Adviser's Act to address such issues concerning complex financial instruments and structured products, and to enforce much more stringent audits and checks on financial institutions to ensure that due diligence and fair selling occurs at all times.
Indicate price of Pinnacle Notes as at 20-10-08
Prices as of 20 OCT 08 - quoted by OCBC Securities
The prices are very low. Most of the notes (except series 3) have lost more than 90% of their value
USD SGD
Pinnacle Series 1 5.60% 5.61%
Pinnacle Series 2 5.42% 5.95%
Pinnacle Series 3 16.24% 16.13%
Pinnacle Series 5 8.82% 8.86%
Pinnacle Series 6 5.90% 5.43%
Pinnacle Series 7 5.65% 5.59%
The prices are very low. Most of the notes (except series 3) have lost more than 90% of their value
Spain Lets Jobless Postpone Half of Mortgage Payments
Nov. 3 (Bloomberg) -- Spain will allow unemployed workers to put off paying half their monthly mortgage payments for two years, Prime Minister Jose Luis Rodriguez Zapatero said today, part of a series of measures aimed at softening the impact of a shrinking economy.
The postponed payments, up to a maximum of 500 euros ($640) a month, will be repaid from January 2011 in installments, Zapatero told a news conference in Madrid today. The measure, which applies to mortgages under 170,000 euros ($218,000), could be used by more than 500,000 people, he said.
While the government will guarantee the payments due from 2011, the banks will bear the cost of the two-year postponement, said a spokeswoman at the Finance Ministry, who declined to be identified in line with policy.
The postponed payments, up to a maximum of 500 euros ($640) a month, will be repaid from January 2011 in installments, Zapatero told a news conference in Madrid today. The measure, which applies to mortgages under 170,000 euros ($218,000), could be used by more than 500,000 people, he said.
While the government will guarantee the payments due from 2011, the banks will bear the cost of the two-year postponement, said a spokeswoman at the Finance Ministry, who declined to be identified in line with policy.
Mis-selling of Lehman structured notes
http://www.bloomberg.com/apps/news?pid=20601109&sid=aBJ_0ULSgrjY&refer=home
Lehman Good-for-Retirement Notes Worth Pennies for UBS Clients
By Bradley Keoun and David Scheer
Nov. 3 (Bloomberg) -- UBS AG, Switzerland's largest bank, faces dozens of claims in the U.S. from clients who bought ``100 percent principal protected notes'' issued by Lehman Brothers Holdings Inc. that are now almost worthless.
Six attorneys hired to represent clients in the cases say UBS brokers touted the so-called structured notes as low-risk investments and failed to emphasize they were unsecured obligations of Lehman, which filed for bankruptcy in September. State regulators are fielding so many calls about Lehman's notes they're considering a task force to investigate the sales, said Rex Staples, general counsel for the North American Securities Administrators Association Inc., a group of 67 state and provincial regulators based in Washington.
``The sales pitches were that it's good for retirement accounts, and good for the safe, fixed-income part of people's portfolios as an alternative to owning stocks, because it's less risky,'' said Seth Lipner, a lawyer in Garden City, New York, hired by two holders of Lehman notes sold by UBS, including a 65- year-old accountant who says he lost $1.4 million in retirement savings. ``Of course, it turned out to be more risky.''
Any awards for investors would add to the financial industry's burgeoning costs for compensating individuals who bought supposedly safe investments that crumbled in the credit crunch.
Banks and securities firms, including Zurich-based UBS, Citigroup Inc. and Merrill Lynch & Co., already have had to swallow more than $3.6 billion in fines and market losses on auction-rate securities they had to buy back from clients under orders from the U.S. Securities and Exchange Commission and regulators in New York, Massachusetts and other states.
Lehman Good-for-Retirement Notes Worth Pennies for UBS Clients
By Bradley Keoun and David Scheer
Nov. 3 (Bloomberg) -- UBS AG, Switzerland's largest bank, faces dozens of claims in the U.S. from clients who bought ``100 percent principal protected notes'' issued by Lehman Brothers Holdings Inc. that are now almost worthless.
Six attorneys hired to represent clients in the cases say UBS brokers touted the so-called structured notes as low-risk investments and failed to emphasize they were unsecured obligations of Lehman, which filed for bankruptcy in September. State regulators are fielding so many calls about Lehman's notes they're considering a task force to investigate the sales, said Rex Staples, general counsel for the North American Securities Administrators Association Inc., a group of 67 state and provincial regulators based in Washington.
``The sales pitches were that it's good for retirement accounts, and good for the safe, fixed-income part of people's portfolios as an alternative to owning stocks, because it's less risky,'' said Seth Lipner, a lawyer in Garden City, New York, hired by two holders of Lehman notes sold by UBS, including a 65- year-old accountant who says he lost $1.4 million in retirement savings. ``Of course, it turned out to be more risky.''
Any awards for investors would add to the financial industry's burgeoning costs for compensating individuals who bought supposedly safe investments that crumbled in the credit crunch.
Banks and securities firms, including Zurich-based UBS, Citigroup Inc. and Merrill Lynch & Co., already have had to swallow more than $3.6 billion in fines and market losses on auction-rate securities they had to buy back from clients under orders from the U.S. Securities and Exchange Commission and regulators in New York, Massachusetts and other states.
Million Dollar Round Table (MDRT)
Dear Mr. Tan
I am JC from Malaysia. I am currently only doing Unit trust. Can my Unit trust sales performance be used to obtain the MDRT status?
REPLY
I suggest that you ask the MDRT organisation. I think that the qualification is based on first year commission from the sale of any financial product. So, the answer is likely to be "yes".
But it does not matter if you are not MDRT status. It is more important for you to give good advice for the financial well-being of your clients, and still an adequate, though modest income.
I am JC from Malaysia. I am currently only doing Unit trust. Can my Unit trust sales performance be used to obtain the MDRT status?
REPLY
I suggest that you ask the MDRT organisation. I think that the qualification is based on first year commission from the sale of any financial product. So, the answer is likely to be "yes".
But it does not matter if you are not MDRT status. It is more important for you to give good advice for the financial well-being of your clients, and still an adequate, though modest income.
Clarification from Dr Lan Luh Luh
Dear Mr Tan,
With regard to my comments on "Structured Products: Let's not forget about personal responsibility" in TODAY on 2008/10/30, I would like to clarify that I was asked to express my views on our PM's statement on the two approaches the government can take after the debacle on structured products and the general duty of investors themselves. I was not asked to comment on whether there was any alleged mis-sellings or misrepresentations by the banks or their agents nor whether the banks had covered themselves adequately, which are separate issues altogether.
In addition, for the investors, I was talking about the normal investors and not our senior citizens whom I even mentioned to the reporter that the government can consider imposing a total ban or at least some form of restriction on the selling of such complex structured products to them. These senior folks will never understand the complex intricacies of these products no matter how many times you explain to them. It was also in that context that I mentioned that I never invest in things I don't understand, because many of these structured products are really, really very complex and they vary from one to another and no two products are the same (well, this part was omitted from the report:-).
As for whether I agree with PM's statement on the two approaches our government can take after this debacle, one which is essentially going for more regulation and back to the paternalistic or merit-based regime or the other which is the current disclosure-based and less regulation regime, my comment was that I do not think that a general increase in regulations is the way to go and I would advocate for the current regime to remain as this is the only way we can move forward. More regulation will only make us less competitive in comparison to HK and other developed markets.
However, there can be regulation on a need basis esp. on the protection of the older folks who may not be financial literate. That said, in order for a disclosure-based regime to be effective, the government has the duty to ensure that there are more enforceable laws on disclosure such that there is increase transparency and more information flow to the public. In addition, banks and the financial industry have the duty to educate the general public as to the products they are selling. The key points I emphasised are disclosure and education.
I also mentioned that there should be more stringent requirements as to the qualifications of these financial managers -- from the Lehman episode, it can be seen that quite a number of them did not even understand the products that they were selling (which was what I found out as well when I talked to some of them on many previous occasions).
I told the reporter that for the selling of highly sophisticated engineering or medical equipments, we general require trained engineers or qualified medical personnel to sell them. It should therefore be the same for sophisticated financial products. Bank and financial institutions should only hire business or accounting graduates or at least graduates who have the requisite financial literacy rather than fresh graduates from disciples with no prior financial education to sell these products.
Although I understand that many of these financial managers are required to go through related financial courses and tests (and that these tests are not necessary easy to clear), the fact that there can be so many alleged mis-selling incidents may indicate that some of these people themselves might not have been adequately trained.
Under these circumstances, the normal investors who are supposed to be savvy and understood the products they bought cannot complain subsequently when the products turn bad. In Lehman's case, actually many might know about the risk (i.e. they may stand to lose all if the banks collapse), but who would have heard of 6 months ago that any American bank, esp. one as strong as 158-year old Lehman, would go into liquidation? This is generally the worst risk -- almost like an unthinkable apocalypse -- and in this case, it materialized. So barring all the talks about misselling etc., people who knew the risk but just thought that it would never materialized cannot complain.
Warmest regards,
Luh Luh
With regard to my comments on "Structured Products: Let's not forget about personal responsibility" in TODAY on 2008/10/30, I would like to clarify that I was asked to express my views on our PM's statement on the two approaches the government can take after the debacle on structured products and the general duty of investors themselves. I was not asked to comment on whether there was any alleged mis-sellings or misrepresentations by the banks or their agents nor whether the banks had covered themselves adequately, which are separate issues altogether.
In addition, for the investors, I was talking about the normal investors and not our senior citizens whom I even mentioned to the reporter that the government can consider imposing a total ban or at least some form of restriction on the selling of such complex structured products to them. These senior folks will never understand the complex intricacies of these products no matter how many times you explain to them. It was also in that context that I mentioned that I never invest in things I don't understand, because many of these structured products are really, really very complex and they vary from one to another and no two products are the same (well, this part was omitted from the report:-).
As for whether I agree with PM's statement on the two approaches our government can take after this debacle, one which is essentially going for more regulation and back to the paternalistic or merit-based regime or the other which is the current disclosure-based and less regulation regime, my comment was that I do not think that a general increase in regulations is the way to go and I would advocate for the current regime to remain as this is the only way we can move forward. More regulation will only make us less competitive in comparison to HK and other developed markets.
However, there can be regulation on a need basis esp. on the protection of the older folks who may not be financial literate. That said, in order for a disclosure-based regime to be effective, the government has the duty to ensure that there are more enforceable laws on disclosure such that there is increase transparency and more information flow to the public. In addition, banks and the financial industry have the duty to educate the general public as to the products they are selling. The key points I emphasised are disclosure and education.
I also mentioned that there should be more stringent requirements as to the qualifications of these financial managers -- from the Lehman episode, it can be seen that quite a number of them did not even understand the products that they were selling (which was what I found out as well when I talked to some of them on many previous occasions).
I told the reporter that for the selling of highly sophisticated engineering or medical equipments, we general require trained engineers or qualified medical personnel to sell them. It should therefore be the same for sophisticated financial products. Bank and financial institutions should only hire business or accounting graduates or at least graduates who have the requisite financial literacy rather than fresh graduates from disciples with no prior financial education to sell these products.
Although I understand that many of these financial managers are required to go through related financial courses and tests (and that these tests are not necessary easy to clear), the fact that there can be so many alleged mis-selling incidents may indicate that some of these people themselves might not have been adequately trained.
Under these circumstances, the normal investors who are supposed to be savvy and understood the products they bought cannot complain subsequently when the products turn bad. In Lehman's case, actually many might know about the risk (i.e. they may stand to lose all if the banks collapse), but who would have heard of 6 months ago that any American bank, esp. one as strong as 158-year old Lehman, would go into liquidation? This is generally the worst risk -- almost like an unthinkable apocalypse -- and in this case, it materialized. So barring all the talks about misselling etc., people who knew the risk but just thought that it would never materialized cannot complain.
Warmest regards,
Luh Luh
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