02 October 2008

Thoughts On A Thursday

With the banks all going down in domino fashion, it is only a matter of time before the shockwaves reaches the rest of the world.

With Freddie Mac and Fannie Mae seem like a localised US problem, the Lehman Brothers debacle seemed to have a wider and more direct reach to this part of the world.

And it did when people's investments in Credit Linked Investments and other structured products went up in smoke overnight.

There were a lot of news coverage in Hong Kong over this to the extend to hysteria when people started a panic bank run at Bank of East Asia all because of some hoax sms. The alleged perpetrator has since been arrested and brought in for questioning.

What made me jaw drop was not only the number of people who got burnt but also the type of people. Without sounding discriminatory, how does the illiterate Ah Pek ended up with HKD 500,000 worth of a complex structured product?

Even with my University degree, I am already struggling with the prospectus of an IPO as well as my own insurance policies (The Wife happens to be quite good at this. Heng ah....). So it makes me wonder, how the average Joe is able to digest the prospectus of these complex financial products?

Wait. Did any of them even understand the product before plonking down the money?

Wait. Did any of them even read the prospectus before plonking down the money?

Wait. Did any of them even read the operating manual of their current mobile phone?

So the Hong Kong gahmen is contemplating stepping in and helping out the folks who are supposedly duped into investing in these products.

I wonder if our own MAS is actively doing anything?

Well, as far as  I know, not much. Perhaps due to the fact that I am physically away from Singapore to actually see things happening. Someone please tell me.

Ex-CEO of NTUC Income, Mr Tan Kin Lian, has been actively writing on his blog in recent week focusing on this topic and engaging the gahmen to a certain extent. Definitely worth a read, even if you are not affected. He questions the agenda behind the agents who were pushing these products to the common people. Do they know the product that they are selling? Do they know that that the product that they are selling is way beyond the average Joe's comprehension? If so, why do they still sell them?

Perhaps the employers of these agents are to shoulder a portion of the blame too as they are the ones who peg the individual agents performance to their sales results and that usually the higher the risk of the product, the greater the score of their KPI.

Yes, high risk product but marketed as low risk to many of the unsuspecting folks and easily hidden amongst the thick wad of mambo jambo technical jargon, otherwise known as the prospectus.

Suddenly, I don't really know if those insurance agents/financial advisors really have my best interest at heart now, even if they were my friends before we started our individual careers.

Image Credits: Flickr - coolinsights
- Voxeros

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