DBS High Notes Investors Lose Appeal

It is sad that the retail investors lost the appeal with cost. This means that they lost their investment and also have to pay their lawyer's fees. So, their loss is compounded.

Singapore Investors Lose Bid to Recoup $14 Million Lehman-Related Losses

http://www.bloomberg.com/news/2011-11-02/singapore-investors-lose-bid-to-recoup-lehman-related-losses-on-appeal.html

The Bloomberg article did not mean the words "with cost". I remember reading it in the newspapers.  I believe that this meant that the investors also have to pay the legal fees of DBS Bank (but I need someone to confirm this fact).

In contrast, read this Good News for Pinnacle Notes Investors

Collapse of MF Global - the lessons

Read Lucky Tan's article here.

The collapse of MF Global in the USA have a direct impact on retail investors in Singapore. They have money in their accounts with this brokerage firm and are worried that they may not be able to get their money back.

This brokerage firm lost a lot of money in the European bonds. It was reported that they might have transferred some of their client money to cover these loses.  It could be a big mess.

600 million missing in MF Global

This raises the issue about financial institutions, such as banks and brokerage firms, being involved in large scale speculation with their shareholder's money and, through illegally means, with their client's money. How can it be prevented?

I recall reading about the Glass Stegall Act in the USA which used to separate investment banking (where the speculation is carried out) from commercial banking (which has the fiduciary duty of looking after the money of their clients. This Act was passed during the Great Depression - after the lesson of the global financial collapse in 1928 - to address the same problem. With the passage of time, the lessons were forgotten and the key provisions of the Glass Steagall Act was repealled. This allowed the replay of the same drama.

Here is a description of the Act from Wikipedia:

The Banking Act of 1933, Pub.L. 73-66, 48 Stat. 162, enacted June 16, 1933, was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and introduced banking reforms, some of which were designed to control speculation.[1] It is most commonly known as the Glass–Steagall Act, after its legislative sponsors, Senator Carter Glass (D–Va.) and Congressman Henry B. Steagall (D–Ala.-3). Some provisions of the Act, such as Regulation Q, which allowed the Federal Reserve to regulate interest rates in savings accounts, were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm–Leach–Bliley Act, named after its co-sponsors Phil Gramm (R, Texas), Rep. Jim Leach (R, Iowa), and Rep. Thomas J. Bliley, Jr. (R, Virginia).[2][3]
The repeal of provisions of the Glass–Steagall Act by the Gramm–Leach–Bliley Act in 1999 effectively removed the separation that previously existed between investment banking which issued securities and commercial banks which accepted deposits. The deregulation also removed conflict of interest prohibitions between investment bankers serving as officers of commercial banks.

What are the lessons for today? Financial services and banking have to be more strongly regulated. Some specific measures include the following:

• To separate investment banking from commercial banking

• To require all trust account to be held by the banks, and not the brokerage firms. However, the law has to be updated to make it convenient to operate these trust accounts conveniently and through electronic means - and still retain the value of a third party oversight.

If these measures are not addressed, we will continue to see a repeat of other failures, similar to MF Global.

Singapore's crime rate

Lucky Tan asked:

Singapore has the highest prison population per capita after USA among developed countries. We have the 2nd highest rate of incarceration in South East Asia. Our rate of imprisonment is triple that of Malaysia. There is this poster that the SPF put up around housing estates that says "Low Crime Rate Does not mean no crime". If our crime rate is low, why are there so many people imprisoned? The USA has a large prison population because the crime rate is high.
http://singaporemind.blogspot.com/2011/11/singapores-high-prison-population.html

Medicare in USA - complicated and expensive

USA provides Medicare to its elderly. It is a generous scheme, but it is too costly. And it has become very complicated. This kind of problem is felt by most countries in the world. And Singapore is no exception - except that in Singapore, the people have to bear a large part of the cost. And insurance is not a solution - as it can get out of control.

http://money.cnn.com/2011/11/01/pf/medicare_plans.moneymag/index.htm?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29

What is the solution? I will say frankly what I think - and it will not be popular. We have to manage expectation. We must realise that people will have to die one day, and that using expensive medicine to prolong life is not the answer - the person who is cured will suffer a lower quality of life and the treatment will bankrupt the family (or the state). The medical profession will be able to find new wonder treatments, but they will be too costly for the patients or the country to bear, and will make the medical specialists rich.

We must educate people to accept that there is a financial and practical limit to medicine, and to accept that life will have to end one day. If doctors think that they can cure the patient, they should only collect their fees on success, and not on failure. If this success fee is practised, many doctors will not undertake treatment that are not likely to succeed.

Mobile website for FISCA

If you have a mobile phone, you can access the mobile website of FISCA at http://fisca.mviso.com

Regulation on Pay TV contracts

The MDA has now decided that they have to step in and regulate the Pay TV contracts as follows:

• The contract should not exceed 2 years
• There should be pro-rata refund on cancellation of contract.

This move, which is taken after a long time of free market practices, recognizes the weakness of the free market system. The businesses make things complicated and opaque and imposes unfair charges to boost their profits and take advantage of consumers.

There are many similar practices of this kind, for example, in life insurance contracts. In some countries, the regulators have decided to ban front end commission on these long term contracts, as they impose a heavy penalty on consumers, who were not aware about the front end costs.

There are so many bad practices that rip off consumers. The situation is especially bad in Singapore due to our legal system. At least, in USA, lawyers can take up class actions on behalf of consumers - but not in Singapore. 

I hope that our political leaders will learn about the reality of the free market and take the step to protect consumers - rather than leave things to be sorted out in the market. If the market can take care of these matters, there is no need to pay big salaries for ministers, political leaders and top civil servants.

Life in Denmark

One of my SMU students went for a few months of attachment in Denmark. Here is her observations about life there.

Hi Prof Tan, Life in Denmark is very different from Singapore. People here are very relaxed and know how to enjoy their life. In fact, they are one of the happiest people in the world. As you might now, Denmark is a welfare state with the highest income tax rate in the world. However, the welfare system is very well-run and efficient. Thus, the living standard over here is very high and most of the Danes receive good education. Compared to Denmark, Singapore is more bustling because we work way too hard. Here, the shops and supermarkets close at 6pm on average. There are many differences but I am really enjoying my time here so far.
I wish you have been well too. Hope to hear more about your experiences and thoughts about the presidential elections when we meet.