72) Minibond3 on October 20th, 2008 2.38 pm

To the people who left comments that it was investor greed that led to the loss of investment.

Allow my to explain my story in order that you may reconsider.

I bought MiniBond3. Was told that I will be buying into a fund that is holding the bonds issued by 6 entities. Needless to say if any of these 6 entities goes bust then the value of the fund will decrease by the value of the bonds held. I was not told that there was a so-called risk to a 7th entity – Lehman Brothers. And this fact was buried only in a fine line on one of the many many many pages of documents that I signed. And neither was I told that these were complex credit derivative investments. Simple bonds – called Minibond in small denominations for retail.

I hope you can understand why some people felt misled and mis-sold.

When Lehman Brother went bust – I said to myself that I was fortunate as Lehman Brothers was not one of the 6 banks. I did not realise that there was an ‘undisclosed’ 7th bank. So how? My fault as I was greedy?

Observer,
Minibond3 mentions that lehmen bank “And this fact was buried only in a fine line on one of the many many many pages of documents that I signed.”
RM has to do due dilligence of understanding whatever in the contract, and how is it that RM has missed the small print unless RM choose to ignore it. The question is why is it the Lehman is putting into small print instead of normal print ?
If there is one RM that forget fine but you have many RM fail to mention Lehman, and thing sound even more fishy.

High cost of living has been a topic of discussion for the past two years. But not much have been done. Prices keep going up day after day even in today’s bad economy. The revision of GST to 7% has been debated on many times but our government defended it tightly. Followed by inflation. Even in bad times like now, electric tariff still have to go up by 22%. But about 6 months ago when one of our minister was asked in a dialogue session if Singapore would go into a recession as the American economy has just fallen into a recession. And he answered that Singapore will not go into a recession as we have strong infrastructure to ride through the storm and our GIC has diverse investments in various countries to cushion any recession. Well, what he said did not happen. We are in a recession now.

You see, our government just do not listen to people on the ground. They operate this country just like running a company – need to make money. In regardless of the money is coming from foreign or local – Singapore need to have big sum of reserve. Has this huge reserve done the people of Singapore any good? Even now when many people loss their hard earn money in bonds sold by our banks and can no longer sustain 3 meals and a roof over their heads, help is still far far away. While our ministers are pocketing millions of dollars as salary because they are claimed to be top brains in the country, cannot do anything for a man on the street that is struggling to put food from hand to mouth.

All these are not new. So do you think they can do much about the minibonds and give you money back when the bus fare has been increased 3 times within 18 months and they don’t want to do anything about it? Even if they do give you money back for your losses, it will be a very small sum. And as usual, they will claim it back many folds in terms of increase in other necessities.

MAS really ought to take the bull by the horn and get these institutions to come clean and if, like puffyeye relates above, there is any discovery of wrong-doings, mis-selling etc. the criminal actions must follow.

Then we can proceed to look after the innocent masses and help them insulate as best as possible against the aftershocks of a depressed global economy.

For (1) my feel is that there was rampant mis-selling. First, there were many illiterate retirees who bought the product. I heard from a friend that his father is 75 years old, in ill health, and they push him this structured product that tied most of his money for 5 years! If touch wood he is to die, that product will have to be liquidated at a loss. Another friend told me that they ask her to borrow money from cashline to invest!

It is not only the retirees who should be protected. Even professionals could be cheated. Not many people will want to invest in a product that gives you 5% return but runs the risk of total loss of capital if any 1 of a basket of organization fail. When presenting the product, did the seller make it very clear that there could be total loss of capital (not partial loss but total loss)? Did they highlight that the more the number of reputable banks in the list, the higher the risk of the product – where the large number of banks is actually to the buyer’s disadvantage? Did bank staff claim that the risk of bank failure is very low, despite the financial crisis that starts unfolding last year? Did bank staff ask the retirees to put ALL their savings into something that is not capital protected?

If there is mis-selling, who should bear the loss and to what extent? If the banks mis-sell, they should be punished. Even if it is not possible to compensate investors who lost money in the investment, I feel that a fine should be imposed on the bank. And if it can be proven that there is deliberate attempts to con investors, bank staff/management should be fined or jailed. If MAS do not take serious actions, history will repeat itself. Mark Twain once said that history does not repeat itself but it sure rhymes.

MAS has a ruling that only the very well to do with huge assets can invest in hedge funds because they are complicated products and most normal people will not understand them. These Lehman products are not easy to understand either. It is the responsibility of the bank to understand the risk of the products in order to market them – they cannot escape that responsibility.

More banks may fail. MAS should be more proactive and do a thorough review of all structured products sold by banks. Are any of these products CPF approved? If yes, better let the commoners know and take appropriate steps before $500 mil become $1 billion.

Another point I want to highlight about this incident is the question brought up by Siew Kum Hong : “Why did MAS not appoint the three individuals reviewing certain financial institutions’ internal processes, instead of leaving them to be appointed by the financial institutions and thereby permitting possible perceptions of conflicts of interests.” This is a very valid point and goes to show a very serious problem with MAS. A key principle of handling dispute is for a 3rd party to be the judge. Unless they have a very good answer, this shows that MAS makes decision without thinking and did not give the complaint due consideration. It is like telling the people “Don’t bother me and work out the solution on your own”. It will be good for PAP to remind people in MAS that they are public servants … they are supposed to serve the public.

The people in MAS, ICA, GIC, etc serve the public and they should not forget that. I was very disappointed in Jan 08 when I read an article that tells us of how GIC came to invest in UBS. The decision to invest was made in 2-3 days! Hello, this is not your grandfather shop where you can just go around to tikam our money. This is the people’s money and due diligence should be carried out especially when you are doing something out of your norm – to change from taking small stakes in a diversified portfolio to large stakes in 1 sector. Tony says that we don’t buy subprime because we do not understand it – kudos to you. However for GIC it is ok to buy banks that have a lot of subprime exposure even if we are not sure of the extent of its problem? Where is the logic? It is better to lose a good deal than to lose money. Don’t forget, bankers are very good at selling and not telling you the whole picture – ask those people at Speaker’s corner. When making such huge investment, there should be a cooling period to think the deal through. Don’t fall for tricks from Sales Tactic 101, i.e. once in a lifetime opportunity, offer valid for 3 days only, etc.

Don’t put your money in Singapore.

i do sympathise the position you’re in and to listen to all these accusations of greed and what not, but, do take a moment to reflect on them . . . .

as for the position you’re in, the underlying factor when you chose to invest is to increase your wealth. you would have done well to pay closer scrutiny to the fine prints even if there were pages upon pages of documents to sieve through. if you haven’t the time or the capacity to understand each of the written word than it becomes an increased risk which you willingly took. you loss.

unfortunately, there were too many risk-takers out there, that’s why the current turmoil.

now, take a moment to look at it from a non-investor’s point of view.

i knew about risks, not because I am savvy in the area of financial management. i know nuts about these things. i have friends around me who had been egging me to buy these minibonds and each time i would decline because i was not comfortable taking such a risk especially with a family to provide for. i was even ridiculed by these investor-friends.

and these are the same people we are asked to stick with? whoever made the statement to stick together is giving me another slap in the face.

now the whole world is depressed and in recession and i am stretched to the bone to provide for my family.

tell me, how would you feel if you were me?

You have my empathy, but then again, I think “Trust” plays a role in your deciding factor when you invested the MiniBond3 that you mentioned. I assumed you had put in considerable amount of time and discussions with someone closed to you reaching a consensus before embarking in this investment. I also assumed that you are taken in by the good return and was bought in that these “BIG” institutions will not fail.

You had already give away that you knew there were risks involved when you say: “Needless to say if any of these 6 entities goes bust then the value of the fund will decrease by the value of the bonds held. “. So in this respect, you have already mitgate the risk factor and thought it is worth taking. No?

Ya, agree with you that you were not told of the 7th Bank. Question is, do they (these RMs) aware of this 7th Bank? Assume there is a litigation process, they could categorically deny that they too are not aware of the 7th Bank swifting the blame entirely to Lehman. So, in this context if taken in as argument in court, there was not misleading facts.

Just like any advertisements you see daily, how genuine are they? You will not see an advertisement that does not promote the good quality of their products/services they tried to sell. Whether you choose to believe what had been promoted, it is entirely an individual’s decision. Too much “Trust” and to easy a “Trust” may not be a good thing. The lesson learned here is, sometime, it is good to take a step back and consider the motives behind each unseemingly wonderful proposition. Is it too good to be true? That is a question I constantly ask and advise my friends since I have decided not to partake in any investments of any sort since 1982.

Allow my to explain my story in order that you may reconsider.

I bought MiniBond3. Was told that I will be buying into a fund that is holding the bonds issued by 6 entities. Needless to say if any of these 6 entities goes bust then the value of the fund will decrease by the value of the bonds held. I was not told that there was a so-called risk to a 7th entity – Lehman Brothers. And this fact was buried only in a fine line on one of the many many many pages of documents that I signed. And neither was I told that these were complex credit derivative investments. Simple bonds – called Minibond in small denominations for retail.

I hope you can understand why some people felt misled and mis-sold.

When Lehman Brother went bust – I said to myself that I was fortunate as Lehman Brothers was not one of the 6 banks. I did not realise that there was an ‘undisclosed’ 7th bank. So how? My fault as I was greedy?

For example : You put your car from a Parallel Imported and was told that the COE is guaranteed. After 3 bids still no COE. You ask why still no COE since Guaranteed. PI says COE Guaranteed means they guarantee they will bid. Being successful is another matter. So how? You fault as you greedy?

You buy a camera from shop which says GUARANTEED NOT SPOILT. The camera breaks down when you bring it home and you ask for refund but shop says that the sign should read from right-to-left (it is a chinese shop). So how? Your fault as you greedy?

Agree that we should not forget the ever rising cost. These MiniBonds and the Sub-Prime debacle had certainly triggered a global recession that even the innocent by stander got dragged into it.

May be they should use part of the reserves (say 50 billion?), payout to those needy (let’s say 2~2.5 million natives) to help them weather through these obscene price hike for the next 2~3years (while rebuilding the Singapore economy). This is not too much to ask of from the “disciplined and hard working people who built all this” as VB regurgitated what he heard from MM. If they deemed this is in principle violated their enshrined doctrine teaching to not allow Singapore to become a welfare state, they can always temporarily lift the ban on withdrawing our CPF money (let’s put a cap of 25,000 in any total withdrawal within a 3 year time frame). No one will be seen to be in favor as we are only making early withdrawals of our very hard earn money to make ends meet and to help spurs economy at the same time. At least this will not deviate from their policy of non-welfare. In adverse time, we need adverse resolution (not just those affected).

So I will make this plea to those ministers. Can do or not?

I think most of the attention in getting our government to provide a solution for Singaporean to ride over the economic recession has been diverted to this minibonds incident. Looks like veryone has forgotten about the rising cost of living despite the tumbling of the economy in Singapore.

Our government has already mentioned that retrenchment will soon hit the Singapore job market. So many will have no jobs which can make lives very difficult as most have families to feed. But still not many people are fighting for reduction in electricity tarrif or bus fare and MRT fare increased, diesel surcharge still remains dispite the fall in oil price, office rental remains high, increase in phone charges, increase in newspaper price, ERP charges etc which have an immediate impact of everyday life. But many are still chasing for money that has been gone down with the collapse of Lehman Brothers.

I do see that this issue of minibonds has become a smoke screen to cover the mores serious matters the affect everyone on the street for now till the recession is over which can be easily more than a year from now.

But please don’t mistaken that I am saying we can leave this minibonds matter to natural cause. We still have to take this matter with MAS but at the same time, we need to take care of our everyday living expenses too.

Conflict of interest. The reality of GLCs and TLCs is now biting us back. Isn´t it strange the regulator owns the regulated?