Friday, October 31, 2008

Minibonds short term gain long term pain

If there is mis-selling then the bank ought to do the right thing. By doing the right thing what I mean is to buy back all the toxic assets at the original value and compensate consumers.

There should be no compromise and the banks should take responsibility if mis-selling is systemic. It should not be a case by case basis because it has nothing to do with the risk appetite of the consumer but the misrepresentation of risk profile of the product. Those guys with high risk appetite wouldn't go for a 5% PA returns. Even town council is dubbed. You think the town council has high risk appetite? Are they going to pay the TC back? Will they also be the vunerable investors? The statement is they are not significantly affected? Maybe they are vunerable investors to DBS?

I believe that the banks should be taken to task and made to pay. This is to ensure that they look before they leap the next time. They know that the regulators will be breathing down their neck, and if they decide to let consumers take extra risk without justified returns, they will have to eat the fruits of their schemes.

Why not train the consumer to be more savvy? It is good lesson for them. Caveat emptor? Don't buy if you don't understand the product. What this means is a lot of people will not want to invest in structured products because the trust isn't there anymore. Besides you can't train everyone to be more savvy but you can definitely controls the banks and make sure they look into consumer's interest before they think of their profits.

Besides, putting sole responsibility on the consumer is not the solution . The whole problem arises from bad product and the marketing of the product. Punishing the FIs would lead to them being more responsible in their selection of structured products and the way they market it, because they know they will be made to pay if they did something wrong. If MAS let them get away with mis-selling just to protect them from losses then we can guarantee somewhere along the line we are going to have this problem of mis-selling appearing in another form. They will also sell some toxic product with high revenue and let the consumers take the risk. I am not saying we won't see these happening if MAS acted to make the banks pay back. However, I think the FI will think twice before attemping some stunts.

If we protect consumer's interest, people would want to put their money with us and use our fund managers.

Will banks become too conservative and more banks would pull out of SG as a result of tighter regulations? Maybe but that is for the regulators to make sure that the balance is correct.

I am not an investor in any of the minibombs but I am all for payback to the consumers if mis-selling is proven. I think MAS should step in and do something about, cos sitting on the fence is rather painful. Sooner you act the less damage to repair.

So if DBS were to pay out whose money are we using? Probably tax payer's money, since our government has invested a huge chunk in it. Along with it maybe our CPF money used to buy bonds in GIC. Do I think it is fair? I would rather the bank be principled and act in good faith. We are all in the same boat and if it means delayed CPF withdrawal I am willing to sacrifice for my fellow singaporeans.