If you borrow money and pledge shares, the bank will check the prices each day. If the values of your holdings fall below the amount borrowed less a safety margin, the bank ask you to put in additional money. If you do not, you have to sell the shares at its depressed prices. This is called "margin call".
This causes the prices to fall further. As they are no buyers, the prices can drop a lot. This triggers more margin calls.
Solution: do not invest with borrowed money. Invest with long term savings.
Thursday, November 20, 2008
Relief loans to repay credit card debts
Many people expect the next big financial crisis to be triggered by the failure of the credit card debts.
I hope that action can be taken to minimise the impact of this impending crisis. I believe that a large number of people borrowed on credit cards due to reduction or loss of their earnings. The high interest rate on the credit cards add to their burden.
I suggest that a relief loan be provided to these people who have runned up the credit card debts for this reason. This relief loan can help them to reduce their heavy debts. My proposal for this relief loan is set out below:
http://tankinlian.blogspot.com/2008/11/relief-loans-to-replace-loss-of.html
I suggest that the banks should give a discount on the repayment of the credit card debts through the relief loan. As they have earned a high rate of interest before, they should take a reduction in return for the repayment of the loan.
I also hope that a limited amount of relief loan be given to other borrowers who have incurred a credit card debt for other reasons, e.g. over-spending.
The relief loan, charged at a modest rate of interest, will give the borrower a better chance to repay the borrowings, and prevent another round of financial crisis.
This targeted approach is better than giving every person a cheque under a stimulus package (as was practiced recently in USA).
I hope that action can be taken to minimise the impact of this impending crisis. I believe that a large number of people borrowed on credit cards due to reduction or loss of their earnings. The high interest rate on the credit cards add to their burden.
I suggest that a relief loan be provided to these people who have runned up the credit card debts for this reason. This relief loan can help them to reduce their heavy debts. My proposal for this relief loan is set out below:
http://tankinlian.blogspot.com/2008/11/relief-loans-to-replace-loss-of.html
I suggest that the banks should give a discount on the repayment of the credit card debts through the relief loan. As they have earned a high rate of interest before, they should take a reduction in return for the repayment of the loan.
I also hope that a limited amount of relief loan be given to other borrowers who have incurred a credit card debt for other reasons, e.g. over-spending.
The relief loan, charged at a modest rate of interest, will give the borrower a better chance to repay the borrowings, and prevent another round of financial crisis.
This targeted approach is better than giving every person a cheque under a stimulus package (as was practiced recently in USA).
Poor return from Living policy
Dear Mr. Tan,
I bought a Living policy with NTUC when you were CEO. Lately, I read that you recommended against the Living policy. Can you clarify?
REPLY
I have just surrendered my Living policy. After paying premium for 12 years, my cash value is still below the total premiums paid.
In the earlier years, the bonus was quite attractive. Later, the bonus was cut due to the economic downturn in 2003.
There was a chance to restore the bonus earlier this year, before the financial crisis, but the management refused to do so. I have decided to terminate the policy as it is likely to provide a poor return over the next few years.
This poor return applies to most life insurance policies issued in recent years. It is better for the consumer to buy term insurance and invest the savings in a low cost investment fund. With the drop in investment values, there is potential for a good return over the next 10 to 20 years.
http://www.tankinlian.com/faq/savings.html
I bought a Living policy with NTUC when you were CEO. Lately, I read that you recommended against the Living policy. Can you clarify?
REPLY
I have just surrendered my Living policy. After paying premium for 12 years, my cash value is still below the total premiums paid.
In the earlier years, the bonus was quite attractive. Later, the bonus was cut due to the economic downturn in 2003.
There was a chance to restore the bonus earlier this year, before the financial crisis, but the management refused to do so. I have decided to terminate the policy as it is likely to provide a poor return over the next few years.
This poor return applies to most life insurance policies issued in recent years. It is better for the consumer to buy term insurance and invest the savings in a low cost investment fund. With the drop in investment values, there is potential for a good return over the next 10 to 20 years.
http://www.tankinlian.com/faq/savings.html
Lodge your complaint now, before the fund collapsed
Dear Mr. Tan,
I have just visited to H. I think you may want to highlight the following:
1. PS6 is not worth 1.7% of original value
2. PS6 now has a high chance of worthless, but no letter was sent. However, the letter dated 10 Nov 2008 from H only said credit event has occurred. It is up to you to research. Thanks to your website, which is very informative.
3. I try to see my wife’s RM and I can sense that they are systematically preventing her from meeting us. They arranged until we insisted, or otherwise they give us a written letter whey we could not see our RM. I thieir strategy is that once you lodge the complaint, the RM dropped out. At it becomes words against words, in cold environment. RM become shun from lying infront of the client.
4. I went to the branch and they originally sent a very junior RM who is only prepared to take complaint and not explaining the product.
5. My RM was on MC although I had scheduled and confirmed meeting with her. Even the branch manager did not even know she is on MC. She said she only started relieving as Br Mgr the day before.
[I had 3 different stories. The counter staff said RM was having outside appointment and will contact her. The relieve RM said she was very sick, but did not know we spoke to our RM the day before. The more senior RM said my RM has stomach flu. The branch manager did not know my RM was on MC until I told her what they told me.]
6. The RM whom met us even dare to say, even if the prospectus is given after sale, as long it is given on the same day, it is considered given BEFORE sale. It shows how green those people they use to speak to us.
IMPORTANT
I think you may want to advise others their complaint for mis-selling, if any, even before the fund collapsed.
As for my case. I am clear it was mis-selling, because the RM today said differently about the product compared to the RM at point of sale. I think it is very likely that the current RM and original RM may not understood the product.
I think we will do a SD and file it, and let nature takes its course, bec it is already a dead horse unless the Authority really takes action.
I really feel painful for those who may not know how to take care of themselves. I am saddened not because of the loss of my $50,000, but how institutions take advantage of ordinary main-street workers’ hard earn saving. This is SOFT TALK for our HARD CASH.
We are grateful that you stood for ordinary men and women, and yet being criticized by the Chua Chap [don’t even bother to remember his name].
LKH
I have just visited to H. I think you may want to highlight the following:
1. PS6 is not worth 1.7% of original value
2. PS6 now has a high chance of worthless, but no letter was sent. However, the letter dated 10 Nov 2008 from H only said credit event has occurred. It is up to you to research. Thanks to your website, which is very informative.
3. I try to see my wife’s RM and I can sense that they are systematically preventing her from meeting us. They arranged until we insisted, or otherwise they give us a written letter whey we could not see our RM. I thieir strategy is that once you lodge the complaint, the RM dropped out. At it becomes words against words, in cold environment. RM become shun from lying infront of the client.
4. I went to the branch and they originally sent a very junior RM who is only prepared to take complaint and not explaining the product.
5. My RM was on MC although I had scheduled and confirmed meeting with her. Even the branch manager did not even know she is on MC. She said she only started relieving as Br Mgr the day before.
[I had 3 different stories. The counter staff said RM was having outside appointment and will contact her. The relieve RM said she was very sick, but did not know we spoke to our RM the day before. The more senior RM said my RM has stomach flu. The branch manager did not know my RM was on MC until I told her what they told me.]
6. The RM whom met us even dare to say, even if the prospectus is given after sale, as long it is given on the same day, it is considered given BEFORE sale. It shows how green those people they use to speak to us.
IMPORTANT
I think you may want to advise others their complaint for mis-selling, if any, even before the fund collapsed.
As for my case. I am clear it was mis-selling, because the RM today said differently about the product compared to the RM at point of sale. I think it is very likely that the current RM and original RM may not understood the product.
I think we will do a SD and file it, and let nature takes its course, bec it is already a dead horse unless the Authority really takes action.
I really feel painful for those who may not know how to take care of themselves. I am saddened not because of the loss of my $50,000, but how institutions take advantage of ordinary main-street workers’ hard earn saving. This is SOFT TALK for our HARD CASH.
We are grateful that you stood for ordinary men and women, and yet being criticized by the Chua Chap [don’t even bother to remember his name].
LKH
Straits Times deleted these sentences
The Straits Times Forum editor published my reply to Chua Sheng Yang but deleted the following sentences:
I can only recall the saying, “None are so blind as those who will not see the truth”.
Mr. Chua made a personal attack on my character in the last three paragraphs of his letter. I am surprised that your newspaper found it fit to print these unsubstantiated remarks, as they are not relevant to the main issue. I shall not respond to them.
I can only recall the saying, “None are so blind as those who will not see the truth”.
Mr. Chua made a personal attack on my character in the last three paragraphs of his letter. I am surprised that your newspaper found it fit to print these unsubstantiated remarks, as they are not relevant to the main issue. I shall not respond to them.
Wednesday, November 19, 2008
Sieze the opportunity
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.
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.
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
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