Here's an interesting clip from Al Jeezera documentary on the financial crisis Meltdown. Part of the video discusses the case in which the SEC went after Goldman Sachs for selling complex financial products to ordinary American citizens ("widows and orphans") in which it was the counterparty to benefit. from the failure of the products. Goldman coughed out US$500M as fines and compensation. In a similar caserecently, the SEC went after Citibank for mis-selling US$285M mortgage bonds to investors[Link].
A group of Singaporeans who lost their money in High Notes 5 sued DBS Bank. The High Notes 5 was a product created by DBS Bank in which it was the counterparty should the
Other investors like retiree Tham Wai Wah, 60, also felt 'cheated'. She had
trusted the relationship manager who had explained to her last year that the
High Notes 5 product was 'very safe'.
She said that with only an O-level education, she could not fully understand
the prospectus. 'I told them I'm a conservative investor and that this was my
She put in $125,000, part of her Central Provident Fund (CPF) savings she
withdrew upon retirement after working for 30 years as a clerk. Her husband is
also retired.[DBS 'High Notes 5' Investors:They pumped in life savings and now feel cheated ]
There were 1084 investors of High Notes 5. 873 filed for compensation, of that number, 669 received nothing[Link]. A total of 7.8% of the amount invested was returned to investors.
Because of the proactive involvement of the Hong Kong govt, Hong Kong investors received far higher compensation[Link]. The Singapore govt left it to the banks to decide who deserve compensation and how much. The Hong Kong govt negotiated a settlement with the banks in which investors would get back 96.5% of the money invested in Lehman Minibonds[Link].
DBS High Notes 5 investors in Singapore were left without any choice but to try to get their money back by suing DBS.. They lost the case and appealed against the verdict. They lost the appeal last week and reached the end of the road in their pursuit of justice. It is hard for private individuals to win a legal case against the bank because they are well covered by the terms in the contract. The Hong Kong strong-armed the banks into paying and the US SEC threatened a full blown investigation imless banks pay up. It takes a govt like the PAP to abandon ordinary citizens and leave them to fight alone for their own interests against powerful banks.
The video below also covers the real estate boom and bust in Spain and Dubai. There are many lessons here for us:
"Dubai in many ways, not to be too uncharitable, was a state pyramid scheme...a state ponzi. It relied on more people coming in to buy their property or even their deposits of people who were there earlier than them...and it had to keep on going"
- Christopher Davidson author "Dubai : The Vulnerability of Success", 19:10mins into the video.
The race to be the financial capital of the world was an important contributor to the crisis. This race is essentially a race to the bottom as govts deregulate to attract financial institutions:
"The real problem that we face going ahead is this same kind of pressure - where is going to be the financial capital of the world...is going to come back once the memories of the crisis has faded/ Certainly, Frankfurt and Paris are going to be back into the race....so is Tokyo so is Singapore so is Shanghai so is Hong Kong. And what I think may well happen at some point it is going to be Hong Kong and Shanghai combine ....its going to be regulatory arbitrage.....its going to be a race to the bottom" - Paul Martin, former Candian Prime Minister, 30:13min into the video
How did the toxic Lehman Minibonds get into Singapore and not other countries? Why are there 1000 investors in Singapore using MF Global wondering if they can get their money back? Why are banks calling you 2-3 times a day on your cellphone asking you if you want an unsecured loan?
We deregulated to attract banks and foreign financial institutions. The govt wants to keep the GDP growing by growing the financial hub. Lets be mindful that this is a race to the bottom and the collateral damage may be the lives and well being of ordinary Singaporeans..
You can watch all 4 parts of the documentary starting with Episode 1: