Tuesday, September 29, 2009
Financial innovation that are useful to consumers
Here are some financial innovations that are useful to consumers, as stated by Robert Shiller.
Get a Free Car Insurance Quote Online From Any Auto Insurance Company
You should be able to get a free car insurance quote online from any auto insurance company with a website, and most of them do these days. There was a time when you had to pay for a quotation, but not now. In fact if any company tries to charge you for an online quote, don't bother dealing with them.What should you be looking for in a free auto insurance quote? A low price obviously, but that
Free market (8) - Access to credit
Banks provide credit to businesses. They charge an interest rate comprising of the cost of funds (i.e. the interest that they pay to deposits) and the credit spread (i.e. the additional fee to cover the risk of default by the borrowers, expenses and profit).
In a competitive environment, the credit spread narrows and banks make a modest profit. Under volatile market conditions, the credit spread can increase sharply as the banks take advantage to increase their profit margins.
Some banks take advantage of the market volatility to recall loans and increase the interest sharply. The borrower has no recourse, but to pay the high interest rate, as this is a commercial term.
The banking industry is able to make huge profit at the expense of the business and consumer sectors. Some lawmakers have described the practice as predatory or usurious.
During an economic crisis, the Government has to step in and guarantee the credit for small businesses, as the banks are not prepared to take the risk. Some people refer to this practice as "lend you an umbrella during the sunny days and take it back when it rains".
Is there a better way to provide credit for businesses, rather than rely on the banking industry, especially if the banks do not have a social conscience and exploit the situation to make huge profits?
In my view, there should be a state owned development bank that is willing to offer financing on fair terms to the essential sectors of the economy, i.e. those that meet the needs of the population for their day to day living. These loans are for small businesses to buy the tools, equipments and stocks to run small businesses to provide goods and services for the population.
It is also possible to have large numbers of community or cooperative banks to provide the lending to the small businesses. These banks can draw their funds from the state owned development banks on fixed terms.
This type of structure ensures that there is healthy competition among the large number of banks. The lending should be restricted to the cost of running a business, and not for speculation in properties, including commercial properties.
If businesses have access to credit on fair terms and are not subject to exploitation by the banks or by speculative forces, they can provide their goods and services at fair prices, stablilise the cost of living and increase their economic efficiency.
A large source of economic instability and crisis in past years is due to speculation in property and cost of credit, and in exploitation by the owners of these resources. It is better for these two key sectors to be controlled (and still reflect the market) but to remove the exploitation of the market.
Tan Kin Lian
Tan Kin Lian
In a competitive environment, the credit spread narrows and banks make a modest profit. Under volatile market conditions, the credit spread can increase sharply as the banks take advantage to increase their profit margins.
Some banks take advantage of the market volatility to recall loans and increase the interest sharply. The borrower has no recourse, but to pay the high interest rate, as this is a commercial term.
The banking industry is able to make huge profit at the expense of the business and consumer sectors. Some lawmakers have described the practice as predatory or usurious.
During an economic crisis, the Government has to step in and guarantee the credit for small businesses, as the banks are not prepared to take the risk. Some people refer to this practice as "lend you an umbrella during the sunny days and take it back when it rains".
Is there a better way to provide credit for businesses, rather than rely on the banking industry, especially if the banks do not have a social conscience and exploit the situation to make huge profits?
In my view, there should be a state owned development bank that is willing to offer financing on fair terms to the essential sectors of the economy, i.e. those that meet the needs of the population for their day to day living. These loans are for small businesses to buy the tools, equipments and stocks to run small businesses to provide goods and services for the population.
It is also possible to have large numbers of community or cooperative banks to provide the lending to the small businesses. These banks can draw their funds from the state owned development banks on fixed terms.
This type of structure ensures that there is healthy competition among the large number of banks. The lending should be restricted to the cost of running a business, and not for speculation in properties, including commercial properties.
If businesses have access to credit on fair terms and are not subject to exploitation by the banks or by speculative forces, they can provide their goods and services at fair prices, stablilise the cost of living and increase their economic efficiency.
A large source of economic instability and crisis in past years is due to speculation in property and cost of credit, and in exploitation by the owners of these resources. It is better for these two key sectors to be controlled (and still reflect the market) but to remove the exploitation of the market.
Tan Kin Lian
Tan Kin Lian
Protect the interest of first time home buyers
Read this letter in the Straits Times Forum. I agree with the views expressed by many young people, that HDB flats should be sold at controlled, affordable prices, and not be subject to speculation in the market. Here is another example of the bad "free market".
Old ezLink cards cannot be used from 1 Oct 2009
The old ezLink cards cannot be used from 1 October 2009. This affects over 3 million cards. There was so little publicity about the deadline to convert to the new card that many people were caught unaware. What will happen to the balance in these cards? Read my views here.
Law professors lobby for consumer protection agency
There is a need for consumers to be protected against bad business practices and complex products that are designed to take unfair advantage of consumers. Even the law professors agree with this view. Read this report.
Financial innovation
Hi KL,
Robert Shiller wrote a column in the Financial Times (27 Sep 2009) with the above title.
The main thrust is that the source of this crisis lies in imperfect financial architecture, rather than over-complexity of products. We should recognise that increased complexity offers potential rewards as well as risks. Complexity is only problematic when used to obfuscate and deceive. Regulators beginning to actively discourage complexity are headed in wrong direction. Innovation in financial sector has to be upheld to improve our lives, the same as innovation in any other sectors. Thus regulators need to be given a stronger mandate and more qualified manpower to encourage innovation.
The conclusion is to use this crisis to promote innovation-enhancing financial regulation, not to let this be eclipsed by superficially popular issues.
Shiller's arguments appear sound to me. Innovation is the lifeblood of capitalism, driving productivity growth, and should be actively encouraged under proper regulation.
I am thinking perhaps it would help if you state your stand on this, so that people will not read you wrongly, or to quote you out of context. Are you in principle opposed to financial innovation (leading to increased complexity)? Or fundamentally it is the crooked salesforce to blame who exploited the complex products? Or we should point at the regulators? If regulation is perfect, there is no way a seller can cheat, and buyers are informed of all associated risks & rewards, do you think complex products are alright?
In your writings, you have recommended easy-to-understand products to men on the street - low cost with fair distribution of rewards. Your well-meaning intention is very clear, no doubt about this. Less clear is the driving principle: because you think financial innovation is bad, or you think the ethics of banks is very questionable, or you think the regulators will never catch up with the industry players' tricks etc. This is important because the proposed remedy will be different. If innovation is bad, we will ask regulators to ban/minimise creativity; if innovation is helpful but consumers are often poorly informed, we should push for better communication by sellers while retaining innovative drive; if regulators are themselves behind the curve and not equipped with necessary skills, we need to incentivise more talents to join them.
Hope to see a response. Thanks for your time!
YZ
There is a proper place for financial innovation, to keep up with the times and changing needs of society. For example, we have to innovate to provide a better system of financing health care. We need a better system to allow people to pay their mortgage installments in an environment of irregular employment.
It is better for the innovation has to be carried out as a joint effort by the industry, consumers and the regulators.
We will need a consumer protection agency that has the power to safeguard the interest of consumers. This function used to be performed by regulators, but they have neglected this function in recent years under the misguided strategy of "leave it to the market". This role has to be reinstated. America is addressing this issue now.
Tan Kin Lian
Robert Shiller wrote a column in the Financial Times (27 Sep 2009) with the above title.
The main thrust is that the source of this crisis lies in imperfect financial architecture, rather than over-complexity of products. We should recognise that increased complexity offers potential rewards as well as risks. Complexity is only problematic when used to obfuscate and deceive. Regulators beginning to actively discourage complexity are headed in wrong direction. Innovation in financial sector has to be upheld to improve our lives, the same as innovation in any other sectors. Thus regulators need to be given a stronger mandate and more qualified manpower to encourage innovation.
The conclusion is to use this crisis to promote innovation-enhancing financial regulation, not to let this be eclipsed by superficially popular issues.
Shiller's arguments appear sound to me. Innovation is the lifeblood of capitalism, driving productivity growth, and should be actively encouraged under proper regulation.
I am thinking perhaps it would help if you state your stand on this, so that people will not read you wrongly, or to quote you out of context. Are you in principle opposed to financial innovation (leading to increased complexity)? Or fundamentally it is the crooked salesforce to blame who exploited the complex products? Or we should point at the regulators? If regulation is perfect, there is no way a seller can cheat, and buyers are informed of all associated risks & rewards, do you think complex products are alright?
In your writings, you have recommended easy-to-understand products to men on the street - low cost with fair distribution of rewards. Your well-meaning intention is very clear, no doubt about this. Less clear is the driving principle: because you think financial innovation is bad, or you think the ethics of banks is very questionable, or you think the regulators will never catch up with the industry players' tricks etc. This is important because the proposed remedy will be different. If innovation is bad, we will ask regulators to ban/minimise creativity; if innovation is helpful but consumers are often poorly informed, we should push for better communication by sellers while retaining innovative drive; if regulators are themselves behind the curve and not equipped with necessary skills, we need to incentivise more talents to join them.
Hope to see a response. Thanks for your time!
YZ
MY REPLY
I am against complex products that are designed to "cheat" the consumers and marketed under the name of "financial innovation". The main culprits are the financial engineers who design these products, although the people who sell these products have to share the blame for being greedy to earn the attractive commission. The regulators also failed in the duty by allowing these products to be sold.
There is a proper place for financial innovation, to keep up with the times and changing needs of society. For example, we have to innovate to provide a better system of financing health care. We need a better system to allow people to pay their mortgage installments in an environment of irregular employment.
It is better for the innovation has to be carried out as a joint effort by the industry, consumers and the regulators.
We will need a consumer protection agency that has the power to safeguard the interest of consumers. This function used to be performed by regulators, but they have neglected this function in recent years under the misguided strategy of "leave it to the market". This role has to be reinstated. America is addressing this issue now.
Tan Kin Lian
Health care system in Germany
Here is an excellent health care system, that is much better than America or Singapore. Look to Europe for good examples, e.g. Germany or Switzerland.
RED Portal (15) - Rental Rates
If you are a owner of a condominium, how much should you offer your unit for rental? The RED portal has a tab called Info. It shows the range of rental rates for various condominium projects.
If your condominium is not listed, you can look at the benchmark price (BMP) for sale. Most condominiums are rented at between 0.25% to 0.4% of the BMP price. For example, if the BMP price is $1000, the rental rate should be between $2.50 to $4.
As a guide, you can take 0.33% (4% pa) of the value of the property. If the sale value is $1 million, you can rent it for $3,300 per month.
If you wish to list you unit for rental, click on the Offer tab (for your housing project and give your details. Our staff will contact you.
www.easysearch.sg (Real Estate Data)
If your condominium is not listed, you can look at the benchmark price (BMP) for sale. Most condominiums are rented at between 0.25% to 0.4% of the BMP price. For example, if the BMP price is $1000, the rental rate should be between $2.50 to $4.
As a guide, you can take 0.33% (4% pa) of the value of the property. If the sale value is $1 million, you can rent it for $3,300 per month.
If you wish to list you unit for rental, click on the Offer tab (for your housing project and give your details. Our staff will contact you.
www.easysearch.sg (Real Estate Data)
ProTrader - Financial Trading Game
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