<TABLE border=0 cellSpacing=0 cellPadding=0 width="100%"><TBODY><TR>Govt must block finance products that make no sense
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->IN THE continuing saga over structured financial products, what matters to Singapore retail investors is how their hard-earned savings were converted into 'ill-gotten gains' of financial institutions.
Punishing such institutions because some sales staff member failed to undergo training or sit for a test hardly addresses the issue. Nor does a warning that one could lose it all if one invested in a structured product.
What is glossed over is the product itself. The structured product goes against basic investment logic and makes no commercial sense.
Most Singaporeans are familiar with borrowing money to buy property. They know the property must be mortgaged to the lender. They know any sales revenue, income earned or interest paid must be paid into a designated account controlled by the lender.
So when Singaporeans invest in a fund to finance property transactions overseas, they rely on their experience in Singapore. Of course, returns must be higher given the foreign exchange risk and given that the properties are located overseas.
Most Singaporeans understand such risks. They also know that if there is a default, there is still the mortgaged property available to the lender (investor) and any payments from the borrowers to the overseas financial institution are held in trust for the lender. No liquidator of the overseas institution can touch them.
So imagine their shock when they lose everything.
What happened to the mortgaged property? What happened to the interest and principal repayments held in trust by the overseas financial institution?
What is this basket of 'reference entities'? Singaporeans understand a basket to be a stabilising factor, such as when the Singapore dollar is backed by a basket of foreign currencies.
But this basket of reference entities in the structured product is no spreader of risk. Each reference entity is an independent weapon of financial destruction. The insolvency of any one of the reference entities results in the annihilation of hard-earned savings.
American investor Warren Buffett is known for his dictum not to invest in anything he does not understand.
Here we have 'structured products' sold to retail investors who do not understand them by financial institutions that do not understand them either.
Let's consider another financial market for comparison: the Stock Exchange. Will a listed company be able to issue bonds structured similarly? Such bonds will not get past the Stock Exchange regulators.
There has to be some regulatory authority to block retail finance products that make no commercial sense.
Ong Eng Hin
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->IN THE continuing saga over structured financial products, what matters to Singapore retail investors is how their hard-earned savings were converted into 'ill-gotten gains' of financial institutions.
Punishing such institutions because some sales staff member failed to undergo training or sit for a test hardly addresses the issue. Nor does a warning that one could lose it all if one invested in a structured product.
What is glossed over is the product itself. The structured product goes against basic investment logic and makes no commercial sense.
Most Singaporeans are familiar with borrowing money to buy property. They know the property must be mortgaged to the lender. They know any sales revenue, income earned or interest paid must be paid into a designated account controlled by the lender.
So when Singaporeans invest in a fund to finance property transactions overseas, they rely on their experience in Singapore. Of course, returns must be higher given the foreign exchange risk and given that the properties are located overseas.
Most Singaporeans understand such risks. They also know that if there is a default, there is still the mortgaged property available to the lender (investor) and any payments from the borrowers to the overseas financial institution are held in trust for the lender. No liquidator of the overseas institution can touch them.
So imagine their shock when they lose everything.
What happened to the mortgaged property? What happened to the interest and principal repayments held in trust by the overseas financial institution?
What is this basket of 'reference entities'? Singaporeans understand a basket to be a stabilising factor, such as when the Singapore dollar is backed by a basket of foreign currencies.
But this basket of reference entities in the structured product is no spreader of risk. Each reference entity is an independent weapon of financial destruction. The insolvency of any one of the reference entities results in the annihilation of hard-earned savings.
American investor Warren Buffett is known for his dictum not to invest in anything he does not understand.
Here we have 'structured products' sold to retail investors who do not understand them by financial institutions that do not understand them either.
Let's consider another financial market for comparison: the Stock Exchange. Will a listed company be able to issue bonds structured similarly? Such bonds will not get past the Stock Exchange regulators.
There has to be some regulatory authority to block retail finance products that make no commercial sense.
Ong Eng Hin
