New and sounder system

'We are in the midst of a once-in-a century credit tsunami. Central banks and govts are being required to take unprecedented measures. In 2005, I raised concerns that the stock market mechanisms were flawed and the protracted period of its existence, if history was any guide, would have dire consequences. This crisis, however, has turned out to be much broader than anything I could have imagined. It has morphed form one gripped by liquidity restraints to one in which fears of insolvency are now paramount. Given the financial damage, I cannot see how we can avoid a significant rise in layoffs and unemployment...All of this implies a marked retrenchment of consumer spending as households divert an increasing part of their incomes to replenish depleted assets and stocks. A necessary condition for this crisis to end is a stabilisation of stock prices...the ultimate collateral support for much of the commercial backed securities....' The above is a doctored version of Alan Greenspan's testimony in Congress. But it does reflect in some ways to the crisis in the financial system and the stock market today. Greenspan had admitted that his blind belief in the free market and how financial institutions will protect their shareholders' interest was wrong. And every party in the system is an accomplice to this failure, from regulators, financial institutions, rating agencies and watchdogs. When greed is in the minds of management, regulators, and all concerned, the system will crack. Or when false premises or untenable missions and goals were set, things will go wrong. Perhaps this financial crisis is a wake up call to review what we set up to do, to achieve, and whether these are right, attainable, or flawed from the start. Do we want to be an international financial centre? Yes. Do we want a stock exchange that is number one is Asia? Yes. Do we want all the international financial institutions to be here, the hedge funds and all? Yes. Can we manage them? Or would we allow them to dictate to us how things should be to our detriment? Or should we scale down our lofty ambition and admit that we are small and there is a limit to how big we can grow before we get choke to death? We definitely need to reveal the existing structure, mechanism, rules of the game and the goals we set for ourselves. All organisations are run by human beans. And human beans are selfish by nature. They will think of their own interests first and the interests of the organisations they are in charge. As long as these organisations are profitable, the rest can go to hell. Doesn't matter to them. And that is what is happening today.

Do we need independent watchdogs

The answer is obvious. The formula of incestuous relationship and thinking that it will work has been proven beyond any doubt that it cannot work. It is just human nature, that when Quan Xi is part of the formula, when knowing who becomes too close for comfort, when you need to watch who you are likely to offend, who is paying your salary, people will compromise their professionalism and do things that are just short of being right and correct. Don't agree? Look at the mess we are in now. These are definitely avoidable if the lines drawn are clear. When business is business, when govt is govt, when people's interests is in conflict with commercial interests, when building a nation and building a business pull away from each other, you need independent bodies to stand firm in their missions. Business, govt, people, private shareholders, nation etc all have opposing interests. Recent events highlighted the inadequacies of many watchdog organisations, need not mention their names to embarrass them, as they struggled amid conflicting interests and blurring of roles. They failed miserably and still put on a front that they are doing their jobs damn well. It is fat hope to think that the present structure and organisations will be changed to provide a clearer distinction of govt, independent watchdogs and commercial interests. But it can be done if there is a strong political will to do so. Watchdog organisations can be mandated, with the blessing from the political masters, to be professional and work independently without having to look over their shoulders. CPIB is an example to emulate. They will also need to have strong individuals, stubborn individuals, passionate individuals, who are prepared to do what they are supposed to do, even standing up against political bigwits to put things right. We used to have such specie of human beans in the establishment. Seems like they are now extinct. But these are the prerequisites, this must be the case or these organisations will lose their credibility and relevance and become jokes in private conversations. And they are at this point in time. Just because the views are not articulated or not printed in the media does not mean that they are well regarded. Yeah, no complaint means everything is fine. There were no complaints about flawed financial products to raise the eyebrows, and no complaints about the flawed mechanism of the financial systems, the stock exchange etc. So everything is fine. Actually there are many complaints but no one is listening. No one wants to ruffle feathers or be the messenger of bad news. Can we walk around naked and deceiving ourselves that all things are fine?

Time to acquire local banks

With the stock market going into a tailspin, with banks and blue chips companies at fire sale prices, it is time for GIC and Temasek to consider buying them up in the cheap. The American govt is pumping in US$250b to buy up bank stocks. GIC and Temasek should find value to acquire or build up their holdings of local banks and blue chips. And with DBS being the smallest local bank, why not buy up the number One or number Two banks?

Selling ice cream!!!

Not everyone is a super talent. Not everyone can perform multi tasking effectively. Not everyone can wear 10 or 20 hats and still get the jobs done competently. And not everyone has the privilege of holding multi jobs and can get away with doing very little, or doing nothing, and still being paid handsomely. As each profession or job gets more complex, it will require higher level of knowledge and skills and attention to details. And if several professional jobs or trades, perform by different professionals, are lumped together and expecting people of diverse professional background to be able to execute them efficiently, what we are going to have is superficiality. It also insults the complexities of the nature of the jobs and the professions. The financial industry has undergone this phase of transition when insurance agents and stockbroking agents were ‘encouraged’ to cross train, to allow insurance agents to sell financial products and stockbroking agents to sell insurance products. What a silly idea. But it was done. So what can be expected? Each profession is governed by a series of stringent rules and regulations, laws and technical expertise that demand professional devotion. But some jokers thought that both professions were like car or ice cream salesmen, and a little training will do the job. So what we have eventually is the blurring of roles and the blurring of products. And there are many such products to complicate matters. And these inadequately trained people were out there trying to sell additional things which they are not familiar with. And they called them Financial Advisers, I think. And I think some of these financial advisers are now involved in the minibond fiasco. They are presumed to have the professional knowledge to sell financial products but now found inadequate. Some are going to be screwed till their anus burst for failing to exercise professional due diligence. Ignorance or inadequacy will not be an excuse. Financial products and instruments, derivatives etc are complicated stuff and cannot be administered superficially. There are many technical, financial and legal terms and conditions governing such products and these are not easy to understand. It is not like selling cars or ice cream. I have even been approached by bank tellers to buy such ‘ice cream’. Selling such products is not a once off the shelf, its over. They are dynamic products that require constant monitoring and attention. And the consequences for misreading, misjudging and mis selling can be very serious.

A gaping wide hole!

When the minibond crisis hit the fan, everyone ducked. Or at best, no one stand up except one, or a handful from the most unexpected place, the Hong Lim Speakers Corner. Where were all the people and organisations who are expected to fight or advise the citizens who are in trouble? And in the ST today, Chua Mui Hoong is asking for the setting up of an industry watchdog. She said this is an opportune time to push for it. You mean we don't have any industry watchdog? Oh, she said we have, but they failed to respond to the crisis appropriately. Or everyone was looking over their shoulder to see if someone was going to give the go ahead. Or they may not want to step on the wrong shoe or get involved into something that would put them in a bad light. This boils down to the incestuous relationship of corporate and govt in paradise. When govt is in business, not only that the roles of govt and corporations are blurred, you do not know who is what. Even the govt, the regulators, may unknowingly, unintentionally to put it nicely, compromise their tasks to regulate. It all added up to create this mess. Incestuous relationship is never healthy. And now we have all kinds of cries to question the selling of high risk products to the people. Why in the first place? Are these carefully thought over? We need watchdogs to look after watchdogs. That is for sure. We cannot have people floating in in their eight horse chariots when there is a crisis and rode away after slapping a few guilty ones. The watchdogs must really be independent, and not affected by incestuous relationship.