Joseph Stiglitz shared the Nobel prize in Economics in 2001 for helping to develop a theory of assymetrical information which showed that only under exceptional circumstances are markets efficient.
Prof Stiglitz argued that inadequate regulation has caused the global financial crisis. He argued for stronger regulation relating to corporate governance, pay, lending practices, etc.
Here are some of his remarks in a debate organised by the Economist magazine.
> The current crisis is caused, in part, by inadequate regulation.
> Financial crisis has occurred quite regularly in recent decades. They have occured in developed and developed countries. The only countries that have been spared so far are thsoe with strong regulatory frameworks.
> In each case, the crisis has affected not just the lenders and borrowers, but also innocent bystanders. Workers have been thrown out of jobs. Governments had to intervene.
> Regulations are necessary to restore confidence.
Sunday, November 9, 2008
Quality of financial advice and fact find
Sunday Times 9 Nov 2008
Under the Financial Advisers Act (FAA), financial institutions and their representatives or financial advisers (FAs) are required to have a reasonable basis for recommending investment products to their customers.
The Act states that an FA must collect and document from the client information such as his financial objectives; risk tolerance; employment status; financial situation including assets, liabilities, cash flow and income; and current investment portfolio.
However, clients may choose not to provide the above information or choose to opt out from receiving advice. In such cases, the FA has to highlight to the client that it is the latter's responsibility to ensure that the product selected is suitable.
The FA may then proceed with his request for the transaction.
The Monetary Authority of Singapore (MAS) has encouraged the industry to improve the quality of advice and extent of fact-find.
It also expects FAs to have additional safeguards when dealing with clients with limited knowledge of investment products and who may find it difficult to understand the features of complex investment products.
Whether there is a breach of the FAA would depend on the facts and circumstances of a particular case.
Breaches of the FAA are punishable by a range of actions, including fines and imprisonment.
In particular, Section 27 of the Act provides that an FA is liable to pay damages to an investor who suffers loss or damage arising from advice that was not supported by a reasonable basis for recommending a certain product.
In addition, MAS may also take other regulatory actions such as issuing a prohibition order to bar the contravening person from providing financial advisory service for a fixed period.
Under the Financial Advisers Act (FAA), financial institutions and their representatives or financial advisers (FAs) are required to have a reasonable basis for recommending investment products to their customers.
The Act states that an FA must collect and document from the client information such as his financial objectives; risk tolerance; employment status; financial situation including assets, liabilities, cash flow and income; and current investment portfolio.
However, clients may choose not to provide the above information or choose to opt out from receiving advice. In such cases, the FA has to highlight to the client that it is the latter's responsibility to ensure that the product selected is suitable.
The FA may then proceed with his request for the transaction.
The Monetary Authority of Singapore (MAS) has encouraged the industry to improve the quality of advice and extent of fact-find.
It also expects FAs to have additional safeguards when dealing with clients with limited knowledge of investment products and who may find it difficult to understand the features of complex investment products.
Whether there is a breach of the FAA would depend on the facts and circumstances of a particular case.
Breaches of the FAA are punishable by a range of actions, including fines and imprisonment.
In particular, Section 27 of the Act provides that an FA is liable to pay damages to an investor who suffers loss or damage arising from advice that was not supported by a reasonable basis for recommending a certain product.
In addition, MAS may also take other regulatory actions such as issuing a prohibition order to bar the contravening person from providing financial advisory service for a fixed period.
Leadership styles
Hi Mr. Tan KL
President elect Obama is a good speaker. But he has no experience at leading a country or even a state. Will be make an effective president? What are your views?
REPLY
I do not wish to comment about President elect Obama specifically.
I like to view my general about leadership. I shall describe them as the "democratic" style and the "authoritarian" style.
The democratic style has the following characteristics:
> the leader has a clear vision with strong values and principles
> is able to attract capable people
> listens to diverse views and make the best balanced decision
> is ready to monitor the implementation and adapt according to the circumstances
The authoritian stlye hs the following characteristics:
> a strong and capable leader
> makes most of the decisions
> attracts loyal followers and implementators
> able to make major decisions and moves fast
Each style of leadership has its strengths and shortcomings. I believe that both style can succeed.
President elect Obama is a good speaker. But he has no experience at leading a country or even a state. Will be make an effective president? What are your views?
REPLY
I do not wish to comment about President elect Obama specifically.
I like to view my general about leadership. I shall describe them as the "democratic" style and the "authoritarian" style.
The democratic style has the following characteristics:
> the leader has a clear vision with strong values and principles
> is able to attract capable people
> listens to diverse views and make the best balanced decision
> is ready to monitor the implementation and adapt according to the circumstances
The authoritian stlye hs the following characteristics:
> a strong and capable leader
> makes most of the decisions
> attracts loyal followers and implementators
> able to make major decisions and moves fast
Each style of leadership has its strengths and shortcomings. I believe that both style can succeed.
Investigate the creators of the structured products?
Hi Mr. Tan
I see that the International Panel of MAS include the CEOs of Morgan Stanley and Merrill Lynch, who are responsible for creating the Pinnacle Notes and the Jubilee Notes. DBS, which is subsidary of Temasek, creates the High Notes.
Is this the reason why MAS is reluctant to go after these investment banks that created these toxic products?
REPLY
We still do not know if MAS is investing the investment banks that created these structured products. So far, we have not heard of any news from this angle.
The only news is that the distributors are encouraged by the MAS to compensate the "vulnerable" investors in full, and to seek a "fair settlement" with the other investors. It appears that the claims of the non-vulnerable investors are being rejected on the grounds that there were "no mis-selling".
I see that the International Panel of MAS include the CEOs of Morgan Stanley and Merrill Lynch, who are responsible for creating the Pinnacle Notes and the Jubilee Notes. DBS, which is subsidary of Temasek, creates the High Notes.
Is this the reason why MAS is reluctant to go after these investment banks that created these toxic products?
REPLY
We still do not know if MAS is investing the investment banks that created these structured products. So far, we have not heard of any news from this angle.
The only news is that the distributors are encouraged by the MAS to compensate the "vulnerable" investors in full, and to seek a "fair settlement" with the other investors. It appears that the claims of the non-vulnerable investors are being rejected on the grounds that there were "no mis-selling".
Decisions of FiDREC
I wish to ask investors who have lodged a complaint with FiDREC and received their decision to share your experience. Do you feel that your side of the issue has been fairly considered by FiDREC?
This will help other investors to decide if they wish to submit their case to FiDREC or to take legal action.
This will help other investors to decide if they wish to submit their case to FiDREC or to take legal action.
Investors should be aware about the risk: MM
Hi Mr. Tan,
I am quite discouraged by the lack of action by MAS. Even MM said that the investor should be aware that they are taking risk by going for 5%, instead of 1%.
Many investors could have received 2% as they are investing a large sum of money. We thought that the higher interest rate of 5% is due to locking up our money for 5 years, which we are prepared to accept. I was not aware that the product is so highly risky. Why should I risk my total principal just to get 3% more? Does MM know the facts?
What is the best course of action now?
REPLY
I think MM should know the facts as they are contained in several petitions submitted to MAS. They are also well covered in the newspapers.
Although the lack of progress is discouraging for the investors, my suggestions are:
1. Spend $120 to make a statutory declaration to state honestly how you were misled into making this investment.
2. Submit your claim again to the financial institution with the statutory declaration
3. If it is rejected by the financial institution (or rejected again, if you have been rejected earlier), you can submit your claim to FiDREC.
4. If many cases were by other investors were rejected by FiDREC, you can take a collective legal action.
The investors can still hope that the government in Hong Kong or USA can take legal action against on the financial institution. If the financial institution are found to be acted wrongfully, then our government may have to take similar action.
I am quite discouraged by the lack of action by MAS. Even MM said that the investor should be aware that they are taking risk by going for 5%, instead of 1%.
Many investors could have received 2% as they are investing a large sum of money. We thought that the higher interest rate of 5% is due to locking up our money for 5 years, which we are prepared to accept. I was not aware that the product is so highly risky. Why should I risk my total principal just to get 3% more? Does MM know the facts?
What is the best course of action now?
REPLY
I think MM should know the facts as they are contained in several petitions submitted to MAS. They are also well covered in the newspapers.
Although the lack of progress is discouraging for the investors, my suggestions are:
1. Spend $120 to make a statutory declaration to state honestly how you were misled into making this investment.
2. Submit your claim again to the financial institution with the statutory declaration
3. If it is rejected by the financial institution (or rejected again, if you have been rejected earlier), you can submit your claim to FiDREC.
4. If many cases were by other investors were rejected by FiDREC, you can take a collective legal action.
The investors can still hope that the government in Hong Kong or USA can take legal action against on the financial institution. If the financial institution are found to be acted wrongfully, then our government may have to take similar action.
HK: Probe into minibonds bankers wins support
Bonnie ChenandAdele Wong
Monday, November 10, 2008
The chances of bankers being summoned to explain the Lehman Brothers minibond fiasco grew stronger yesterday after the largest party in the Legislative Council indicated support for such a motion.
The move comes despite a warning by Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung that the concern raised by foreign banks over a legislative inquiry may have an adverse effect on the business environment.
Chan said he believes the banks involved would probably buy back the minibonds next month.
The motion to summon bankers can only be passed if it gets majority support from lawmakers representing both the geographical and functional constituencies.
Thirteen of the functional constituency lawmakers are expected to support the motion but they will still need at least three votes from the Democratic Alliance for the Betterment and Progress of Hong Kong.
DAB chairman Tam Yiu-chung said the party will decide tomorrow whether a Legco investigation will affect the time of compensation and Hong Kong's status as an international financial center.
But another DAB member, Wong Tin-kwong representing the import and export sector, said he was inclined to support the motion.
"If the issue is to be investigated, it has to be tackled in the right direction," he said.
Only three former Liberal Party members and David Li Kwok-po of the finance sector have said they will vote against the motion. However, the pan-democrats said Li should not vote since he is chairman of the Bank of East Asia.
Civic party chairwoman Audrey Eu Yuet-mee said an open investigation by Legco would be fair to all sides. A source said the government is trying to get the DAB and some functional constituency independent legislators to vote against the motion.
Monday, November 10, 2008
The chances of bankers being summoned to explain the Lehman Brothers minibond fiasco grew stronger yesterday after the largest party in the Legislative Council indicated support for such a motion.
The move comes despite a warning by Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung that the concern raised by foreign banks over a legislative inquiry may have an adverse effect on the business environment.
Chan said he believes the banks involved would probably buy back the minibonds next month.
The motion to summon bankers can only be passed if it gets majority support from lawmakers representing both the geographical and functional constituencies.
Thirteen of the functional constituency lawmakers are expected to support the motion but they will still need at least three votes from the Democratic Alliance for the Betterment and Progress of Hong Kong.
DAB chairman Tam Yiu-chung said the party will decide tomorrow whether a Legco investigation will affect the time of compensation and Hong Kong's status as an international financial center.
But another DAB member, Wong Tin-kwong representing the import and export sector, said he was inclined to support the motion.
"If the issue is to be investigated, it has to be tackled in the right direction," he said.
Only three former Liberal Party members and David Li Kwok-po of the finance sector have said they will vote against the motion. However, the pan-democrats said Li should not vote since he is chairman of the Bank of East Asia.
Civic party chairwoman Audrey Eu Yuet-mee said an open investigation by Legco would be fair to all sides. A source said the government is trying to get the DAB and some functional constituency independent legislators to vote against the motion.
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