Tan Kin Lian's Blog

Over reliance on ratings

2009-11-25T07:02:00.003+08:00

Over reliance on rating is a major cause of the financial meldown.

Tax burden around the world

2009-11-25T06:55:00.005+08:00

Read this article.

Denmark 48.3%
Sweden 47.1%
Belgium 44.3%
Italy 43.2%
France 43.1%

UK 35.7%
Japan 28.3%
USA 26.9%

Singapore - not listed, but way below 20% (not counting ARF, COE, ERP and costly HDB flats).

Level the playing field

2009-11-25T06:39:00.003+08:00

Life is difficult for young people. Jobs are hard to find and wages are low. The cost of living is high, especially the cost of housing. If they have studied in university, they have to repay a hefty study loan.

If they come from a poor family, they start life with $0. If they have to borrow, they pay a high interest rate, that goes towards the large profit of the banks. Those who come from wealthy families do not have to face this burden, as they can get the starting funds from their parents.

I have been toying with the idea of giving every young person a good start in life. Each person should be allowed to get access to credit, up to a certain limit, from the state at a low rate of interest, say 2.5% per annum. The credit should be for specific purposes, such as to meet living expenses during unemployment, unexpected medical bills, marriage or childbirth expenses. This limit can be set at one or two years of the average annual earnings.

The access to this credit will avoid the need for people to borrow money from loan sharks and pay exorbitant interest. Borrowing from the banks at 2% per month is not cheap either. Someone said that it is loan sharking by another name.

There are risks of abuse, but they can be managed and prevented. The benefits can outweigh the risks. Such a credit facility should only be given to citizens. This will give a level playing field to the people from poor families.

Tan Kin Lian

Survey: EPL matches on Pay TV

2009-11-25T05:39:00.000+08:00

What are your plans to watch EPL matches on Pay TV next year? Participate in this survey.

Here are the survey results.

Quality of service

2009-11-25T05:11:00.007+08:00

Someone sent to me a letter written by a 86 year woman complaining about the impersonal treatment provided by her bank. The sender asked for my comments.

I visited London, Paris and Canterbury recently and observed that the quality of service is generally better than Singapore. The situation is rather bad in Singapore due to the following:

a) Strong emphasis on keeping cost low, leading to overworked and highly stressed staff
b) Employment of foreign workers who are not familiar with the local setting
c) Low wages leading to high turnover and lack of accumulated experience
d) Complaints by customers are generally ignored

This observation applies to the business sectors and to the public service. There are some examples of excellent service in Singapore, but they tend to be occasional rather than systemic.

I dislike the automated system adopted in most large organisations in Singapore. They waste a lot of time for customers and makes it difficult for the customer to speak to a person. It does not reduce the cost for the organisation, as most customers need to speak to a person anyway, rather than get the reply from the pre-programmed automated responses. The people who designed these automated systems do not think about the needs of the customers. They only want to introduce expensive technology to "look good".

The quality of service can only improve if there is general respect for the customer or the public. Sadly, this lack of respect is quite systemic in Singapore, due to the elitist culture promoted by our leaders.

Tan Kin Lian

Loss of human touch

2009-11-24T12:17:00.004+08:00

Hi Mr Tan,

The email below may be amusing, but this is also happening in Singapore in the name of efficiency and productivity. I found this to be cold and the banks and government departments have lost their human touch for the customers and people.

I would like to read your comments or suggestions on this matter in your blog as matter of public interest.

Banking
Shown below, is an actual letter that was sent to a bank by an 86 year old woman. The bank manager thought it amusing enough to have it published in the New York Times.

Dear Sir:
I am writing to thank you for bouncing my check with which I endeavored to pay my plumber last month. By my calculations, three nanoseconds must have elapsed between his presenting the check and the arrival in my account of the funds needed to honor it.

I refer, of course, to the automatic monthly deposit of my entire pension, an arrangement which, I admit, has been in place for only eight years. You are to be commended for seizing that brief window of opportunity, and also for debiting my account $30 by way of penalty for the inconvenience caused to your bank. My thankfulness springs from the manner in which this incident has caused me to rethink my errant financial ways.

I noticed that whereas I personally answer your telephone calls and letters, when I try to contact you, I am confronted by the impersonal, overcharging, pre-recorded, faceless entity which your bank has become.

From now on, I, like you, choose only to deal with a flesh-and-blood person. My mortgage and loan repayments will therefore and hereafter no longer be automatic, but will arrive at your bank, by check, addressed personally and confidentially to an employee at your bank whom you must nominate.

Be aware that it is an offense under the Postal Act for any other person to open such an envelope. Please find attached an Application Contact which I require your chosen employee to complete. I am sorry it runs to eight pages, but in order that I know as much about him or her as your bank knows about me, there is no alternative. Please note that all copies of his or her medical history must be countersigned by a Notary Public, and the mandatory details of his/her financial situation (income, debts, assets and liabilities) must be accompanied by documented proof. In due course, at MY convenience, I will issue your employee with a PIN number which he/she must quote in dealings with me.

I regret that it cannot be shorter than 28 digits but, again, I have modeled it on the number of button presses required of me to access my account balance on your phone bank service. As they say, imitation is the sincerest form of flattery.

Let me level the playing field even further.

When you call me, press buttons as follows:

IMMEDIATELY AFTER DIALLING, PRESS THE STAR (*) BUTTON FOR ENGLISH
#1. To make an appointment to see me.
#2. To query a missing payment.
#3. To transfer the call to my living room in case I am there.
#4. To transfer the call to my bedroom in case I am sleeping.
#5. To transfer the call to my toilet in case I am attending to nature.
#6. To transfer the call to my mobile phone if I am not at home.
#7. To leave a message on my computer, a password to access my computer is required. Password will be communicated to you at a later date to that Authorized Contact mentioned earlier.
#8. To return to the main menu and to listen to options 1 through 7.
#9. To make a general complaint or inquiry. The contact will then be put on hold, pending the attention of my automated answering service.
#10. This is a second reminder to press * for English. While this may, on occasion, involve a lengthy wait, uplifting music will play for the duration of the call.

Regrettably, but again following your example, I must also levy an establishment fee to cover the setting up of this new arrangement. May I wish you a happy, if ever so slightly less prosperous New Year?

Your Humble Client
(Remember: This was written by an 86 year old woman)

Lending to small businesses

2009-11-24T08:42:00.002+08:00

During the financial crisis, banks withdrew credit to small businesses, as they do not wish to see bad debts. The governments had to step in to provide cheap funds to the banks, so that they can continue to lend to small businesses, as these businesses create jobs.

The banks took the cheap funds, but did not lend to small businesses. Instead, they use the cheap funds to invest in the stock market and earned a big profit, on the inflated asset prices.

Is there a better way for the government to provide credit to small businesses, instead of relying on the banks, which are profit driven - and are not concerned about helping small businesses to create jobs.

I can think of two ways:

a) The cheap funds from government has to be tied to actual lending by the banks. If the banks do not lend to small businesses, they cannot get the cheap funds. This lending can be backed by partial guarantees by the government. (If I am not mistaken, this is the approach adopted in Singapore).

b) The government create another agency to provide the lending to small businesses, which is tied to the number of people employed, The entrepreneur is personally liable for the loan, but can have access to low cost credit. This should provide control over moral hazard, and serve the purpose of giving credit to small businesses, which in turn creates jobs.

Tan Kin Lian

Zero interest rate

2009-11-23T22:27:00.002+08:00

The global stock markets are strong because interest rate is near zero. When interest rate starts to move up, the stock markets will correct by a lot. The current levels of the stock markets are unsustainable and quite risky. I have decided to reduce my holdings of stocks.

Common Sense Investing - John Bogle

2009-11-23T21:16:00.002+08:00

Foreword:
Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner's game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), and after the substantial costs of investing are deducted, it becomes a loser's game.

Common sense tells us, and history confirms, that the simplest and most efficient investment strategy is to buy and hold all of the nation's publicly held businesses at very low cost. The classic index fund that owns this market portfolio is the only investment that guarantees you with your fair share of stock market returns.

Quotes:
"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees." Warren Buffett

"A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth." Warren Buffett

Credit card bills

2009-11-23T17:54:00.001+08:00

Be aware about the charges that can appear on your credit card bill. Read this blog.

Recession and opportunity to change

2009-11-23T16:28:00.002+08:00

The recession gives an excellent opportunity to recreate a new environment for business. Read this report. Our Government should also be thinking about change.

Excellent train service in UK

2009-11-23T09:04:00.001+08:00

I like the train service in the UK. There is something that Singapore can learn. Read here.

Oligopoly

2009-11-23T08:53:00.004+08:00

Source: Wikipedia

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). The word is derived from the Greek oligoi 'few' and poleein 'to sell'. Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants. This causes oligopolistic markets and industries to be a high risk for collusion.

Firms often collude in an attempt to stabilize unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be actual communication between companies) - for example, in some industries, there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership.

In other situations, competition between sellers in an oligopoly can be fierce, with relatively low prices and high production. This could lead to an efficient outcome approaching perfect competition. The competition in an oligopoly can be greater than when there are more firms in an industry if, for example, the firms were only regionally based and did not compete directly with each other.

Question: Is banking in Singapore similar to an oligopoly?

New York Times to Goldman Sachs

2009-11-23T08:38:00.001+08:00

The New York Times editorial slams Goldman Sachs for its role in creating the global financial crisis. What a brave newspaper who is willing to speak the facts honestly.

Low interest rate

2009-11-23T08:28:00.003+08:00

Interest rate has been low for the past few years. It will continue to be low for a long time, partly due to supply and demand. There is low demand for loans due to the global economic downturn. There is too much money due to stimulus spending of governments.

But there is another factor. The banks are keeping large spread for themselves. They charge a high interest rate on their loans, especially to small businesses, but offers a low interest rate to their savings. They make a large profit.

In a competitive market, the banks should be competing among themselves to pay higher interest rate to get savings to give out as loans. Their access to cheap government money reduces the need for paying competitive interest rate. There are just a few banks and there could be some "tacit understanding" among the banks that they do not need to compete for savings in this environment. This is an oligopolistic situation.

For interest rate to raise, we need a new arrangement for businesses to get loans at cheaper rates, and for savers to get a higher interest rate. This is a challenge for the governments and economists to rebuild a more competitive environment for the financial sector. The old "free market" did not work well.

Tan Kin Lian

Motley Fool

2009-11-23T00:49:00.001+08:00

This is an excellent website to educate the public about investments.

Better citizens

2009-11-23T00:18:00.002+08:00

We need better citizens to improve the future of a country. Read this.

Bailout of AIG

2009-11-23T00:11:00.001+08:00

Read this report. The counter parties should have been forced to take a haircut, rather than get paid in full.

Full employment and welfare state

2009-11-22T23:36:00.002+08:00

Winston Churchill was the Prime Minister of Great Britain during the Second World War. His outstanding leadership was the key factor in winning the war for Great Britain, against a stronger Germany. He was called "the savior of our nation".

Towards the end of the war, an election was called in Great Britain. Churchill was the leader of the Conservative Party. The Labour Party campaigned on a platform of full employment and a welfare state, and won the general election. Churchill lost, in spite of the gratitude of the people for his leadership. The people were looking towards the future and wanted a government that could deliver full employment and welfare.

Charity and the retrenched

2009-11-22T23:31:00.003+08:00

Mr Tan,
What exactly is the legal definition of "Charity"? I am somewhat confused by the "We Are One" campaign which is enjoying an unprecendented TV coverage, to solicit public donations.

Why are retrenched people who can't find jobs, being lumped with the traditional Charity recipients, as in, chronic sick, aged, infirm, homeless, destitute. Is this legal? Surely a lot of retrenched people get at lease some retrenchment benefits whilst those really in dire need e.g. kidney patients, poor sickly aged people, are actually more deserving of :charity: money?

Why are "those affected by the economic downturn" now being sanctioned by the government as charity recipients?

Who isn't affected by the economic downturn, it is a question of the "degree". How do you qualify to get this charity money? Who is the judge? this is very important. Everyone would like to say he is affected terribly by the economic downturn!

I went to "weareone" website to find outmore. The FAQ just tells you how to donate, not telling how the money is administered, who qualifies to get it, how, when, who, zilch!

The website, as in the tV clips, said that the donation is for those "affected by the economic downturn". this is a very vague statement for me to part with my donation money, which could also be given to a kidney patient in financial trouble.

I am quite traditional, i still think that if retrenched people cannot find work and is in financial trouble, it is the Government's duty to generate jobs, or have a system to cushion the impact.

Is it a shift in the policy to pass the burden of supporting jobless people to the rest of the people with jobs, and the government will wash half its hands off the burden of generating jobs, by putting the jobless on charity? I wonder if the small boy on tv who felt proud of contributing the lego bricks, does he know wht he is doing?

In summary, I don't feel comfortable at all constantly being bombarded by the media in the last few weeks, and not getting any wiser going to their website.

What does everyone here think? Tell me, am I being selfish, oversensitive and unreasonable?

REX

Marketing of Portals

2009-11-22T13:00:00.000+08:00

I wish to look for marketing associates who are interested to work from home to market the portals. Details are shown here. If you are interested, send an e-mail to kinlian@gmail.com.

Law Society - Speech by Michael Hwang

2009-11-22T12:32:00.002+08:00

Read this speech by President Michael Hwang of the Law Society. He made reference to the Minibond saga.

Yield on a Life Insurance Policy

2009-11-22T10:23:00.006+08:00

Microsoft Excel has a function to calculate the yield on a life assurance policy. You can get this function using Insert > Function > Financial > Rate.

Policy taken for 18 years
Monthly premium of $50
Surrender value at end of 18 years is $12,800
What is the yield?

You have to enter the following values in the RATE function:
NPER - number of periods: 18
PMT - payment: $50 X 12 = $600
PV - present value: 0
FV - future value: -12,700 (show as negative as the money is being received)
TYPE: payment type: 0.5 (for monthly payment)

This returns a value of 1.68%

The Big Squander

2009-11-22T10:19:00.002+08:00

Paul Krugman wrote this article about the bailout of the banks during the financial crisis of 2008. The government should have insisted that the banks take a haircut on the credit default swaps that were bought from AIG. They did not. The banks obtained 100% payout on the CDS, which were funded by the tax payers. Now the banks can pay multi million dollar bonuses again. What a corrupt world.

Wonderful scenes of Paris

2009-11-22T09:16:00.003+08:00

I just visited Paris. Here are some wonderful scenes of this beautiful city.