Some people said that I "siezed the opportunity" to represent the misled investors. This statement has a negative connotation. It does not fairly reflect my intent.
I hope that the Government can help to find a fair collective solution for all investors who have been misled into these investments, regardless of their age or education level (provided that the independent investigation shows that they were misled).
I do not enjoy being the target of personal attacks and cynicism, and to take the burden of attending to so many aggrieved persons asking for assistance. I wish to have a more tranquil life.
Wednesday, November 19, 2008
Explanation on CDS - Vanguard's Bogle
http://www.iddmagazine.com/issues/2008_44/187499-1.html?partner=dealbook&page=1
Suppose you have a house and you insure it against fire for $200,000. Now, suppose that you have 130 neighbors, 65 of whom are betting that it will burn down and 65 of whom are betting that it won't. And, that's approximately the ratio we have got here.
It's supposed to be about $2 trillion debt instruments covered by CDS and $62 [trillion] or $65 trillion of credit default swaps. Half of them are in one side and half of them are in the other. So, you could say "well what's the matter with having your neighbors insuring or betting your house will burn down or betting it won't burn down?"
What's the matter is you have to keep a close eye out for arsonists. So, we have arsonists out there playing the CDS market, to sink your firm, make money for themselves and their hedge funds. They want those premiums to go way up and playing games like that
Suppose you have a house and you insure it against fire for $200,000. Now, suppose that you have 130 neighbors, 65 of whom are betting that it will burn down and 65 of whom are betting that it won't. And, that's approximately the ratio we have got here.
It's supposed to be about $2 trillion debt instruments covered by CDS and $62 [trillion] or $65 trillion of credit default swaps. Half of them are in one side and half of them are in the other. So, you could say "well what's the matter with having your neighbors insuring or betting your house will burn down or betting it won't burn down?"
What's the matter is you have to keep a close eye out for arsonists. So, we have arsonists out there playing the CDS market, to sink your firm, make money for themselves and their hedge funds. They want those premiums to go way up and playing games like that
Personal values and characters
I wish to share some of my personal values that define my character:
> work for the benefit of all, and not for self-interest
> respect other people, including the poor and weak
> be fair
> be honest
> be courageous
I hope that more Singaporeans can share these values, for the good of the people of Singapore.
AFTERNOTE:
I wish to thank Everlearning for the following additional values (which I agree with):
> be humble
> be kind-hearted (or thoughtful or considerate)
> work for the benefit of all, and not for self-interest
> respect other people, including the poor and weak
> be fair
> be honest
> be courageous
I hope that more Singaporeans can share these values, for the good of the people of Singapore.
AFTERNOTE:
I wish to thank Everlearning for the following additional values (which I agree with):
> be humble
> be kind-hearted (or thoughtful or considerate)
Our Continued Fascination with wall street bankers leading to our Downfall ?
Contributed by LA
1) Die die must have wall street bankers here ( somehow, more wall street bankers here = top financial hub )
2) Die die must have wall street bankers advise us.
3) Die die must have wall street bankers to better run our own banks here.
4) Die die must have wall street bankers to better run our sovereign funds. http://asiasentinel.com/index.php?option=com_content&task=view&id=1549&Itemid=233
5) Die die must have wall street bankers sell us ( Town Councils included ) poisonous "investment" products.
Afterwards, ….. we all die ?
P.S. maybe we are all fascinated by their obscene buddy-buddy compensation – how would you like to receive US$25 Million for being a Merrill Lynch banker for just 4 months ?
http://www.fool.com/investing/dividends-income/2008/10/22/another-insane-wall-street-pay-story.aspx
how would you like to crash big name banks and still receive tens of millions dollars - no prior experience required ?
http://whatilearnd.com/post/52449126/golden-parachutes
And we are told off we are greedy for 5% return, and deserve our pain and suffering !
LA
1) Die die must have wall street bankers here ( somehow, more wall street bankers here = top financial hub )
2) Die die must have wall street bankers advise us.
3) Die die must have wall street bankers to better run our own banks here.
4) Die die must have wall street bankers to better run our sovereign funds. http://asiasentinel.com/index.php?option=com_content&task=view&id=1549&Itemid=233
5) Die die must have wall street bankers sell us ( Town Councils included ) poisonous "investment" products.
Afterwards, ….. we all die ?
P.S. maybe we are all fascinated by their obscene buddy-buddy compensation – how would you like to receive US$25 Million for being a Merrill Lynch banker for just 4 months ?
http://www.fool.com/investing/dividends-income/2008/10/22/another-insane-wall-street-pay-story.aspx
how would you like to crash big name banks and still receive tens of millions dollars - no prior experience required ?
http://whatilearnd.com/post/52449126/golden-parachutes
And we are told off we are greedy for 5% return, and deserve our pain and suffering !
LA
A tsunami of hope or terror
http://www.businessspectator.com.au/bs.nsf/Article/A-tsunami-of-hope-or-terror-LHRJP?OpenDocument&src=spb
Here's how it works: a bank will set up a shelf company in Cayman Islands or somewhere with $2 of capital and shareholders other than the bank itself. They are usually charities that could use a little cash, and when some nice banker in a suit shows up and offers them money to sign some documents, they do.
That allows the so-called special purpose vehicle (SPV) to have "deniability", as in "it's nothing to do with us" – an idea the banks would have picked up from the Godfather movies.
The bank then creates a CDS between itself and the SPV. Usually credit default swaps reference a single third party, but for the purpose of the synthetic CDOs, they reference at least 100 companies.
The CDS contracts between the SPV can be $US500 million to $US1 billion, or sometimes more. They have a variety of twists and turns, but it usually goes something like this: if seven of the 100 reference entities default, the SPV has to pay the bank a third of the money; if eight default, it's two-thirds; and if nine default, the whole amount is repayable.
For this, the bank agrees to pay the SPV 1 or 2 per cent per annum of the contracted sum.
Finally the SPV is taken along to Moody's, Standard and Poor's and Fitch's and the ratings agencies sprinkle AAA magic dust upon it, and transform it from a pumpkin into a splendid coach.
The bank's sales people then hit the road to sell this SPV to investors. It's presented as the bank's product, and the sales staff pretend that the bank is fully behind it, but of course it's actually a $2 Cayman Islands company with one or two unknowing charities as shareholders.
It offers a highly-rated, investment-grade, fixed-interest product paying a 1 or 2 per cent premium. Those investors who bother to read the fine print will see that they will lose some or all of their money if seven, eight or nine of a long list of apparently strong global corporations go broke. In 2004-2006 it seemed money for jam. The companies listed would never go broke – it was unthinkable.
Here are some of the companies that are on all of the synthetic CDO reference lists: the three Icelandic banks, Lehman Brothers, Bear Stearns, Freddie Mac, Fannie Mae, American Insurance Group, Ambac, MBIA, Countrywide Financial, Countrywide Home Loans, PMI, General Motors, Ford and a pretty full retinue of US home builders.
In other words, the bankers who created the synthetic CDOs knew exactly what they were doing. These were not simply investment products created out of thin air and designed to give their sales people something from which to earn fees – although they were that too.
They were specifically designed to protect the banks against default by the most leveraged companies in the world. And of course the banks knew better than anyone else who they were.
As one part of the bank was furiously selling loans to these companies, another part was furiously selling insurance contracts against them defaulting, to unsuspecting investors who were actually a bit like "Lloyds Names" – the 1500 or so individuals who back the London reinsurance giant.
Except in this case very few of the "names" knew what they were buying. And nobody has any idea how many were sold, or with what total face value.
It is known that some $2 billion was sold to charities and municipal councils in Australia, but that is just the tip of the iceberg in this country. And Australia, of course, is the tiniest tip of the global iceberg of synthetic CDOs. The total undoubtedly runs into trillions of dollars.
All the banks did it, not just Lehman Brothers which had the largest market share, and many of them seem to have invested in the things as well (a bit like a dog eating its own vomit).
Here's how it works: a bank will set up a shelf company in Cayman Islands or somewhere with $2 of capital and shareholders other than the bank itself. They are usually charities that could use a little cash, and when some nice banker in a suit shows up and offers them money to sign some documents, they do.
That allows the so-called special purpose vehicle (SPV) to have "deniability", as in "it's nothing to do with us" – an idea the banks would have picked up from the Godfather movies.
The bank then creates a CDS between itself and the SPV. Usually credit default swaps reference a single third party, but for the purpose of the synthetic CDOs, they reference at least 100 companies.
The CDS contracts between the SPV can be $US500 million to $US1 billion, or sometimes more. They have a variety of twists and turns, but it usually goes something like this: if seven of the 100 reference entities default, the SPV has to pay the bank a third of the money; if eight default, it's two-thirds; and if nine default, the whole amount is repayable.
For this, the bank agrees to pay the SPV 1 or 2 per cent per annum of the contracted sum.
Finally the SPV is taken along to Moody's, Standard and Poor's and Fitch's and the ratings agencies sprinkle AAA magic dust upon it, and transform it from a pumpkin into a splendid coach.
The bank's sales people then hit the road to sell this SPV to investors. It's presented as the bank's product, and the sales staff pretend that the bank is fully behind it, but of course it's actually a $2 Cayman Islands company with one or two unknowing charities as shareholders.
It offers a highly-rated, investment-grade, fixed-interest product paying a 1 or 2 per cent premium. Those investors who bother to read the fine print will see that they will lose some or all of their money if seven, eight or nine of a long list of apparently strong global corporations go broke. In 2004-2006 it seemed money for jam. The companies listed would never go broke – it was unthinkable.
Here are some of the companies that are on all of the synthetic CDO reference lists: the three Icelandic banks, Lehman Brothers, Bear Stearns, Freddie Mac, Fannie Mae, American Insurance Group, Ambac, MBIA, Countrywide Financial, Countrywide Home Loans, PMI, General Motors, Ford and a pretty full retinue of US home builders.
In other words, the bankers who created the synthetic CDOs knew exactly what they were doing. These were not simply investment products created out of thin air and designed to give their sales people something from which to earn fees – although they were that too.
They were specifically designed to protect the banks against default by the most leveraged companies in the world. And of course the banks knew better than anyone else who they were.
As one part of the bank was furiously selling loans to these companies, another part was furiously selling insurance contracts against them defaulting, to unsuspecting investors who were actually a bit like "Lloyds Names" – the 1500 or so individuals who back the London reinsurance giant.
Except in this case very few of the "names" knew what they were buying. And nobody has any idea how many were sold, or with what total face value.
It is known that some $2 billion was sold to charities and municipal councils in Australia, but that is just the tip of the iceberg in this country. And Australia, of course, is the tiniest tip of the global iceberg of synthetic CDOs. The total undoubtedly runs into trillions of dollars.
All the banks did it, not just Lehman Brothers which had the largest market share, and many of them seem to have invested in the things as well (a bit like a dog eating its own vomit).
How I was misled (3)
Dear Mr. Tan
I wish I had read your blog before purchasing my pinnacle notes series 6 last year.
The picture painted by the sales representative was so good, I was convinced it was a great investment. I even encouraged my two daughters to invest their hard earned savings, something I have not stopped regretting since the downturn.
On hindsight, I should have realised that there were some things that were not so right. The prospectus was not shown to me although it was sent to me much later, by post, after I had closed the deal. I tried to read it, but the technicality floored me. So many pages of fine print. The copies of the agreement were not sent to me either.
When I called the representative's mobile, he didn't answer my calls. Then I called his office at H and discovered that he had left. Subsequently, the manager very kindly did a trace and delivered the copies by hand to me. By then I had managed to read some of the stuff in the prospectus and realised that I could lose all my money as it was not capital protected. It was too late to do anything except pray, but it looks like prayers didn't help.
I don't know if there is anything left of what we invested. Is there anything that can be done? I have left out the names of the people as I don't know if I should at this stage. I hope you can help in some ways.
Sincerely,
Mary
I wish I had read your blog before purchasing my pinnacle notes series 6 last year.
The picture painted by the sales representative was so good, I was convinced it was a great investment. I even encouraged my two daughters to invest their hard earned savings, something I have not stopped regretting since the downturn.
On hindsight, I should have realised that there were some things that were not so right. The prospectus was not shown to me although it was sent to me much later, by post, after I had closed the deal. I tried to read it, but the technicality floored me. So many pages of fine print. The copies of the agreement were not sent to me either.
When I called the representative's mobile, he didn't answer my calls. Then I called his office at H and discovered that he had left. Subsequently, the manager very kindly did a trace and delivered the copies by hand to me. By then I had managed to read some of the stuff in the prospectus and realised that I could lose all my money as it was not capital protected. It was too late to do anything except pray, but it looks like prayers didn't help.
I don't know if there is anything left of what we invested. Is there anything that can be done? I have left out the names of the people as I don't know if I should at this stage. I hope you can help in some ways.
Sincerely,
Mary
Investing in ETF
Hi Mr. Tan,
I came across your blog on ETF ..
http://tankinlian.blogspot.com/2008/07/invest-in-indexed-fund.html
Given many global banks are currently in stress, can you advice what happen will
happen to Lyxor or STI ETF (value) if in the worst scenario, their parent company like StateStreet or Barclay go under?
John
REPLY
If the fund manager goes under, I believe that it is easy for another fund manager to be appointed to take over their work. The assets are held by trustees in separate accounts. They should not be adversely affected.
This is my guess but I am not a legal expert on such matters.
I came across your blog on ETF ..
http://tankinlian.blogspot.com/2008/07/invest-in-indexed-fund.html
Given many global banks are currently in stress, can you advice what happen will
happen to Lyxor or STI ETF (value) if in the worst scenario, their parent company like StateStreet or Barclay go under?
John
REPLY
If the fund manager goes under, I believe that it is easy for another fund manager to be appointed to take over their work. The assets are held by trustees in separate accounts. They should not be adversely affected.
This is my guess but I am not a legal expert on such matters.
NTUC Income shares
Hi Mr Tan,
I would like to seek your advise with regards to the Income Shares which i had 'invested' in. Are these shares safe to hold on in the midst of the financial meltdown?
While I had trust in NTUC, I'm just afraid the monies collected by Income could be used to invest in junk derivatives and erode Income's financial position.
Would you be able to offer your advise? Many thanks for your time, and do continue the fighting spirit!
Thomas
REPLY
It should be safe. I also have shares in Income and will keep them during the financial crisis.
I would like to seek your advise with regards to the Income Shares which i had 'invested' in. Are these shares safe to hold on in the midst of the financial meltdown?
While I had trust in NTUC, I'm just afraid the monies collected by Income could be used to invest in junk derivatives and erode Income's financial position.
Would you be able to offer your advise? Many thanks for your time, and do continue the fighting spirit!
Thomas
REPLY
It should be safe. I also have shares in Income and will keep them during the financial crisis.
Bank Negara Zeti appointed to financial reform task force
Malaysia is one of the very few countries least affected by subprimes and CDOs....thanks to a large extent to Bank Negara Governor Zeti.
Source: Central Banker Analysis
Published on November 19, 2008
The governor of Malaysia’s central bank says early detection and action is critical to minimising financial crises.
Bank Negara Malaysia governor Dr. Zeti Akhtar Aziz was recently appointed a member of the newly-formed United Nations high level task force to examine possible reforms of the global financial system, including the International Monetary Fund and the World Bank. She tells The Asian Banker that the current global financial crisis might have been less severe if the multilateral financial institutions had exercised a leadership role at an earlier stage.
“We have not really seen the international financial institutions come forward and certainly not at the early stages of the crisis. They are now coming forward to deal with the effects of the crisis,” says Zeti, who will have a hand in recommending reforms of the institutions through the UN task force known as the Commission of Experts on Reforms of the International Monetary and Financial System.
Since the global financial crisis took a more severe turn in October, some world leaders have called for a new financial world order or a review of the role of the Bretton Woods institutions in promoting financial stability.
Aside from Zeti, the other members of the task force include Chukwuma Soludo, Central Bank of Nigeria governor; Jean-Paul Fitoussi, professor of economics at the Institute d’Etudes Politiques de Paris; Avinash Persaud of Barbados, chairman of Intelligence Capital; Yaga Venugopal Reddy, former governor of the Reserve Bank of India; Eisuke Sakakibara, professor at Waseda University; Yu Yongding, director of the Institute of World Economics and Politics. Joseph Stiglitz, Nobel prize winner for economics and former chief economist at the World Bank, will chair the Commission.
With several Asians on the task force, it is seen as a key platform to give the region a greater voice in efforts to reform the global financial system. Zeti says she hopes international financial institutions will engage more with Asia at the international level to better appreciate Asian perspectives and conditions. There are moves towards achieving this, she adds, as there is a growing appreciation of the fact that Asian participation is crucial in unwinding current global imbalances.
Zeti, who was also appointed chair of the Bank for International Settlements Asian Consultative Council, recognises that it is important for the region to have a strong interface with the rest of the world and appreciates the forums that are paving the way for this. The council is currently assessing the spillover effects of the financial crisis and looking at how these may be best managed.
For Zeti, early detection and action is critical. “I believe that crisis may happen from time to time in different parts of the world, but when there is a detection that the crisis is imminent, it is very critical to take early action, because if early action is not taken then what happens is the crisis has to run its full course,” Zeti points out. In Malaysia’s experience, early intervention reduces the costs of a crisis, she adds.
In the wake of the Asian financial crisis, Malaysia set up entities to acquire the non-performing assets of its beleaguered banks and recapitalised some institutions. Zeti says within six months of initiating these institutional arrangements, the banks started lending again, helping the country recover quickly from the Asian financial crisis. “The cost of the crisis was less than 5% of GDP,” she says. “The main reason for early action is to minimise the costs. Once the crisis is prolonged the deterioration that takes place will be greater and the cost of any resolution or repair is going to be much higher.”
In the current situation, Malaysia itself is preparing for tougher times. Zeti says it is closely monitoring financial institutions and that Bank Negara will take pre-emptive action.
“In the previous crisis we had a debt restructuring committee that dealt with it (non-performing corporate loans), and even during normal times we had a small debt restructuring entity for small and medium scale enterprises that include financial advisory services and so on. We also have such services for households to deal with their financial problems before they result in foreclosures or repossessions and so on. This is what we are managing well before it happens,” Zeti explains.
From a regulatory perspective, Bank Negara is looking at the issues that have surfaced in the crisis, including how to deal with non-regulated institutions when they need liquidity, and how to improve the coordination of regulators within the financial system like the relationship between the central bank and the Securities and Exchange Commission. It will be hoping it has taken the right actions early enough to minimise the pain to the financial system.
Source: Central Banker Analysis
Published on November 19, 2008
The governor of Malaysia’s central bank says early detection and action is critical to minimising financial crises.
Bank Negara Malaysia governor Dr. Zeti Akhtar Aziz was recently appointed a member of the newly-formed United Nations high level task force to examine possible reforms of the global financial system, including the International Monetary Fund and the World Bank. She tells The Asian Banker that the current global financial crisis might have been less severe if the multilateral financial institutions had exercised a leadership role at an earlier stage.
“We have not really seen the international financial institutions come forward and certainly not at the early stages of the crisis. They are now coming forward to deal with the effects of the crisis,” says Zeti, who will have a hand in recommending reforms of the institutions through the UN task force known as the Commission of Experts on Reforms of the International Monetary and Financial System.
Since the global financial crisis took a more severe turn in October, some world leaders have called for a new financial world order or a review of the role of the Bretton Woods institutions in promoting financial stability.
Aside from Zeti, the other members of the task force include Chukwuma Soludo, Central Bank of Nigeria governor; Jean-Paul Fitoussi, professor of economics at the Institute d’Etudes Politiques de Paris; Avinash Persaud of Barbados, chairman of Intelligence Capital; Yaga Venugopal Reddy, former governor of the Reserve Bank of India; Eisuke Sakakibara, professor at Waseda University; Yu Yongding, director of the Institute of World Economics and Politics. Joseph Stiglitz, Nobel prize winner for economics and former chief economist at the World Bank, will chair the Commission.
With several Asians on the task force, it is seen as a key platform to give the region a greater voice in efforts to reform the global financial system. Zeti says she hopes international financial institutions will engage more with Asia at the international level to better appreciate Asian perspectives and conditions. There are moves towards achieving this, she adds, as there is a growing appreciation of the fact that Asian participation is crucial in unwinding current global imbalances.
Zeti, who was also appointed chair of the Bank for International Settlements Asian Consultative Council, recognises that it is important for the region to have a strong interface with the rest of the world and appreciates the forums that are paving the way for this. The council is currently assessing the spillover effects of the financial crisis and looking at how these may be best managed.
For Zeti, early detection and action is critical. “I believe that crisis may happen from time to time in different parts of the world, but when there is a detection that the crisis is imminent, it is very critical to take early action, because if early action is not taken then what happens is the crisis has to run its full course,” Zeti points out. In Malaysia’s experience, early intervention reduces the costs of a crisis, she adds.
In the wake of the Asian financial crisis, Malaysia set up entities to acquire the non-performing assets of its beleaguered banks and recapitalised some institutions. Zeti says within six months of initiating these institutional arrangements, the banks started lending again, helping the country recover quickly from the Asian financial crisis. “The cost of the crisis was less than 5% of GDP,” she says. “The main reason for early action is to minimise the costs. Once the crisis is prolonged the deterioration that takes place will be greater and the cost of any resolution or repair is going to be much higher.”
In the current situation, Malaysia itself is preparing for tougher times. Zeti says it is closely monitoring financial institutions and that Bank Negara will take pre-emptive action.
“In the previous crisis we had a debt restructuring committee that dealt with it (non-performing corporate loans), and even during normal times we had a small debt restructuring entity for small and medium scale enterprises that include financial advisory services and so on. We also have such services for households to deal with their financial problems before they result in foreclosures or repossessions and so on. This is what we are managing well before it happens,” Zeti explains.
From a regulatory perspective, Bank Negara is looking at the issues that have surfaced in the crisis, including how to deal with non-regulated institutions when they need liquidity, and how to improve the coordination of regulators within the financial system like the relationship between the central bank and the Securities and Exchange Commission. It will be hoping it has taken the right actions early enough to minimise the pain to the financial system.
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