How to juggle accounts for a bigger bang?

This incident is still vivid in my mind. Quite many years ago I came to know of this group of companies and how well they paid out bonuses according to each subsidiary's performance. Some averaged 3 months some averaged 6 months and the exceptional ones got 12 months. All looked clean and fair, according to the books. Indeed the payout of bonuses was according to the book, actually according to the cooked book. One of the subsidiary companies actually cooked the book, brought in all future sales, WIP, etc and recorded as realised revenue and profits. That year the company was like boomtown Charlie. Every employee got 12 months bonuses. Not sure how many months the CEO and the top management staff got for cooking the book. What happened the next few years, never mind. The boat will straighten as it reaches the bridge. If the next few years lose money, take lesser bonuses. But one good year every now and then is good enough. For good years, the reward is amazing. For bad years, no sweat, the pay is still there. And if the company goes bust, just too bad. Find another company. This is the beauty of being in the corporate world and managing public companies, and being an employee. You never stand to lose your capital nor your pay, except if the company closes down. But when the company chalks up big profits, take as much as you can. Claim all the credits despite the fact that a large part of the profits were money makes money. Does anyone ask how much profit should be generated from the capital invested before talking about the excess profits? As an example, if the company has an asset of $1b, assuming that this money should give a decent return of 10%, given the risk in business, otherwise park in the bank for guaranteed risk free interest, a $100m profit is just about acceptable. Nothing to crow about. Only when profit is in excess of 10% would it be considered a contribution from the management and employees. (Not counting cooking books) It is not uncommon for management of a $1b company to crow about great profits and demand big bonuses even if the profit is less than 10% of the asset and capital invested. Another common practice by hedge funds or fund managers is to measure their performance with market indices. If they perform better than such indicators, they have done well, and need to be rewarded. Thus if everyone is losing 70% of their investment and if one is losing 60%, that one has done well. Clever accounting and clever logic.

Singapore United the way to go

This is the new war cry of Hsien Loong. He is calling on Singaporeans to work together to find solutions to the crisis. How real and relevant is such a call? The work together may be a bit real as everyone has to work to keep the machine running, the economy running. If everyone just plays his part be it a cleaner or a minister, things will continue to move. The part about finding solutions to the crisis is best left to the super talents. How could the less able be in a position to find solutions when the greatest minds in the US are still fumbling along? Even if they have any small ideas, they will quickly be brushed aside by the supertalents. They will be a laughing stock to have the audacity to suggest a solution to such an immense problem when supertalents could not resolve. And if assuming that they could get the idea across, make known to the supertalents. Oh yes, they can write to ST Forum or to Reach with their great ideas. I rather be real. Every one just do their parts well. Let the cleaners do the cleaning and the govt do the governing, the thinkers do the thinking. Hey, this is very Confusion, oops, Confucian I mean.

If looks can heal

I saw this beautiful structure in the Sunday Times this morning. A lot of glass, reminding me of the futuristic glass complex proposal for the Sentosa Casino. Very impressive looking building. This one is actually an artist's impression of the New National Heart Centre. It boasts of great facilities when ready in 2013. What keeps capturing my attention is the fine architecture and the feeling of being in a futuristic and well designed building. It is a great feeling. I think the patients would feel good too, and their hearts will feel better even before any medical treatment. I hope the building design was selected not just on good look but with cost consideration in mind. Otherwise, the cost of building such a great facility will ultimately be carried by the patients' bills. Nice building, and I already have this good sense of well being.

The need to control the beast

We have seen what had happened to the great American genies and how clever they were in bringing down the whole of America, not just the industries or the financial system. America will now be in debt for centuries to come. It is bankrupted many times over. The cause is simply too many clever people who thought they could make a lot of quick money by being too clever. They were not concern about real productivity, providing more goods and services, they were only interested in churning out numbers to represent huge paper profits in the short term, for their own vested interests, for the huge bonuses that they stood to win in the huge bets they put into the financial market. There was no responsibility, no conscience, no morals, no nothing, except how much was in it for them. And the tool that helped them to acquire their ill gotten gains at the expense of everyone, is derivatives. The first giant to fall because of gambling in derivatives is LTCM, or Long Term Capital Management, a hedge fund. Without the US govt intervention, the domino effect would have toppled many more financial institutions in 1998. That was just a warning but went unheeded. In a 2004 Bank Derivatives Report it was stated that the total values of derivatives held by US Banks was US$84.2 trillion. The bank risk exposure was US$804 billion. Today we know the answer of exposing to such high risk. The house of cards has collapsed. But be frighten, be very frighten, not because the America house of cards has collapsed. Be frighten because many are still convinced that derivatives and hedge funds are the way to go into the future. And they are pumping more money into these two beasts. How on earth would clever people be convinced to do so, when all the evidence of the disasters that can happen and already happened, be blinded to go along into the deeper and more dangerous end? They must be convinced by cleverer people that it is safe and the way to go. In relative terms, the clever people are smarter people and the clever people are just plain stupid. Way back in 2003, Warren Buffett had warned that derivatives are 'time bombs, both for the parties that deal in them and the economic system....In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that while now latent, are potentially lethal.' These words were more than prophetic. It has come to reality. At that time Buffett admitted that he could not understand how much risk the major banks were running themselves in. 'The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and govts have so far found no effective way to control, or even monitor, the risk posed by these contracts.' Do we not know the answer today? Do we still want to dabble in derivatives and allow them, and hedge funds to mess around with the financial system and market? We need independent bodies with different interests and missions to control and regulate the financial systems, the banking industry and the stock market. These institutions have their own short term interests to guard and will be blinded by them to take on higher risks than acceptable. Their exploits to grow and make more profits must be reined in by independent bodies whose interests are long term and the viability and sustainability of the system and institutions, and the foundation of a stable nation state. The financial system and the stock market must not be turned into high risk casinos. There is a need to control the beasts before they destroy everyone, every institution and the nation as a whole. The people within the industry are the most dangerous people to be tasked to regulate themselves. There is simply a conflict of interest, and self interest, short term interest will override the longer term interest and interest of other parties.

Promotions, promotions and promotions

Everyone is happy when they are promoted. But promotions do not come free. It means more pay! How much more pay and who is paying? Where are the money coming from?