Sim Ann : Tackling Inequality.... Charting our own path.

Sim Ann, a former top civil servant who joined the PAP in the 2011 GE, wrote an article entitled "Tackling Inequality : Charting our own path". The article was published in the Straits Times on 22 Dec 2011 and appears on her Facebook[Link], I suggest you read her article in full before reading the rest of the posting to thoroughly appreciate what she has to say on the issue...also read all the comments on her Facebook page on this article. It is an intelligently written article but I will tell you where she is wrong and she is wrong where it matters the most.

"For example, one lady who approaches us for help regularly has an unemployed husband. He has been staying at home for years, and refuses to get a job, even though he is able-bodied and quite capable of working. On occasion, our volunteers have been dismayed to find people they have helped continuing to spend money on habits they can ill afford, like smoking."

In her article she cites the case of family asking for help but found to have an able bodied person in household. Her choice of example echoes the perpetual and paralysing fear (or excuse?) of abuse in PAP govt that is used to explain why it cannot do more for the poor.  For every such case, there are also cases of people who fall through the cracks in the system that deserve help but find it hard to get any. Any good system in place will have to tend to the cracks and detect abuse. There are many cases of people falling through the cracks cited by Leong Sze Hian in his book and writings[Focus on help for families that need it] as well as this blog.  Today, the reality is it is probably harder to get help than abuse the system. There are numerous cases in which  the PAP's own MPs feel should get help but cannot get past the bureaucracy that sometimes look more like a firewall against abuse.

She also cite cases of those who can help themselves financially by giving up on expensive habits smoking - hmm..... but it is only expensive in Singapore because the govt tax it so much and prevents smokers from getting their fix from Malaysia. Smoking is bad for health and people should stop smoking regardless of their financial state.

There is another part of the article where she links the current European crisis to welfarism.  I'm not a proponent of the welfare state but this view is incorrect[Krugman : Legends of the Fail]. It is ideologically attractive to simply point to the Europe and say that is the end result of having too much welfare but it is not true. Ireland and Spain failed financially because they rescued the banks when the housing bubble in collapse so the PAP govt should at least be equally worried about high housing prices. In the US, they had more welfare in the 70s and 80s but lower deficit and national debt because they also had high income taxes to pay for it. It is common sense that if a govt takes in less that what it spends it will have a deficit funded by debt. The US debt is caused as much by defense spending as it is by welfare entitlement but it is ideological to miss big elephant in Singapore called defense spending. Sim Ann talks about potential abuse of tax payers money by smokers and those who don't work but the sum total of social our safety nets is dwarfed by our spending on defense. We should also be asking how much defense spending is necessary but the PAP  won't go there for ideological reasons. With globalisation and dependency on world trade the security threat has changed to all out war to low intensity conflicts, and the high income gap that weakens our social cohesion severely undermines our social defense changing the equation that justifies the tradeoff for high defense spending vs low social spending ...don't forget behind every weapon and platform is a service man with a stake in the socioeconomic system and severe inequality undermines what he has at stake.


The heart of the article and PAP's thinking can be found in this paragraph:

"That way we can evolve our own social model, one that emphasises enterprise and drive, rather than the redistribution of a shrinking pie; one that encourages self-reliance instead of welfare; and one that helps build a fair, just and inclusive society.

Our government spending will inevitably rise over the next decade, as our social needs grow and our programmes expand to meet them. But the government can only spend within its means.

We have kept taxes low in Singapore, especially direct taxes on income. This keeps us competitive and encourages our people to excel in their work, and to make the most of their abilities. For this reason, we must be cautious in taking on new state-funded welfare commitments."

Ideally, if the income gap is small, we can keep taxes low and everyone has the ability to be self-reliant.  That is what most ordinary Singaporeans including myself would prefer. However, today we have the largest income gap among developed countries. We do not have a small problem we have a very big problem....and we have to recognise this. She blames globalisation for the inequality but if that is true, why does our income gap have to be larger than all of the developed countries we compete against?  We will come to that later.

She says that we should emphasized enterprise rather than "try to redistribute a shrinking pie". But inequality itself is a hindrance to expanding this pie in a sustainable manner. We have to fix the income gap problem first in order to have sustainable growth (see video in previous posting). Redistributing wealth and expanding pie goes hand in hand. Sim Ann got her economics wrong. The US economy had the best growth when income gap was much smaller, the middle income families thrived and taxes were higher in the 50s and 60s. The notion of lowering tax to get economic growth and foster enterprise has a diminishing return when the income gap grows to a point when a large segment in society start to struggle financially - worried about healthcare, housing - you are going to have less drive and enterprise. If you want drive and enterprise, we can energise our SMEs by cutting rents, utilities cost, govt fees, and giving smaller company tax breaks while taxing our monopolies especially GLCs to level the playing field.

Simply growing a economic pie while keeping an income gap as large as what it is today without a fairer more equal distribution of wealth just make no sense. We have been seeing GDP growth but an increasing segment of the populace see their life getting worse. You cannot get people to buy-in to such a system over the long run - it is politically unsustainable and support will erode over time. Many people suggesting tax reform are not doing it because they insist on punishing the wealthy or enterprising individuals in our society. It is because we have waited for other solutions to narrow the income gap for far too long and nothing else the PAP has done has brought down our GINI index and the situation gets worse year after year. Economist Shiller puts it very well when he said that making tazes fairer does not  "destroy capitalism" or the important aspects of capitalism (enterprise and drive) but it prevents the wheels from falling off and helps capitalism to survive - Warren Buffett, shares this view.

The PAP has to narrow the income gap even if it means reforming progressive taxes to produce a fairer outcome for our society. Today as the share of corporate profits as a % of GDP rises every year we finding an increasing number of Singaporeans who work full time and cannot make ends meet.  In the 2011 GE and PE, the people sent a strong signal and perhaps a "final warning" of sorts to the PAP to get this fixed by the next elections. Today, the PAP is only stretching its safety net to catch an increasing number that have fellen to pverty levels .... It is equivalent to finding homeless people to put into shelters to make the most visible negative outcome of rising cost of housing disappear. The real problem runs deeper and wider - the Occupy movement in US calls it "the 99%" because it is hitting a growing segment of the populace. We have a wider income gap than in US where these Occupy protests have taken place and the income gap has become the key 2012 US Presidential election issue(Economic Inequality an Issue for 2012 Campaign).

The PAP insistence on maintaining the lowest corporate tax and lowest marginal tax rate for the rich among developed countries while at the same time having an income gap that is the highest among developed economies competing against us shows a huge imbalance in policy making. The PAP govt as recently as 2007 was cutting corporate taxes and raising GST which increases tax on the poor as the income gap grew to new highs.  The PAP also pursued policies such as importing 3rd world foreign labor to keep wages low and grow the economy. Productivity was neglected and fell behind other countries. If the PAP wanted to maintain low taxes, it should have structured our economy to avoid this 3rd world wage structure.

Sim Ann's article shows an underestimation of the problem and if it remains unsolved when the PAP goes for the next GE, telling voters that the pie has grown and taxes has remained low to keep people enterprising is not going to be enough when most people find their lives getting worse as wealth concentrates in a small segment of society.  Sim Ann's article contains no solution to narrow the income gap but merely explains why the govt is constrained by the need to avoid raising taxes  for the rich and corporations which is already at the lowest in our nation's history. While the PAP "expands the safety nets" to catch the poorest who cannot make ends meet, the effects of the income gap is spreading to the middle class which is now seeing financial strain. The stresses are building up and the problem is deepening as the govt tackles only the worst cases while many more become worse off. Sim Ann's formulation of "our own path" is a path to a dead end in which the problem is not solved and the status quo is retained.

Singapore's inflation rate 5.7% in November...

Inflation is up 5.7% in November (see report below).

This is the economy of the past 15 years. When the economy is strong, your wages go up but so does inflation and that eats away the increases. It is difficult for older workers to keep up with inflation and even worse for low skilled workers whose nominal wages have remained stagnant for years - I think you just need to compare the salary of cleaners 10 years ago with what it is today to see this.


-------------------------

Singapore's inflation up 5.7% in Nov
By Millet Enriquez | Posted: 23 December 2011 1328 hrs

	Photos 1 of 1 Shoppers in a retail mall in Singapore.

		inShare2	8

SINGAPORE: Singapore's inflation rose 5.7 per cent on-year in November due to higher costs of housing, car premiums and petrol.

Data from the Department of Statistics (DOS) showed housing costs increased by 10.0 per cent on higher accommodation costs and electricity tariffs.

Meanwhile, transport costs rose 11.6 per cent due to increases in Certificate of Entitlement premiums and petrol prices.

Food prices also went up 3.6 per cent, as a result of costly prepared meals, seafood, dairy products and eggs, fruits, vegetables as well as chilled meat.

Not including accommodation costs, inflation was 4.4 per cent higher from the previous year.

Last month's consumer price index was higher than market expectations of a 5.4 per cent on-year increase.

The consumer price index in January-November 2011 was 5.2 per cent higher compared to the same period last year. Excluding accommodation costs, the consumer price index increased by 4.2 per cent during the same period.

-CNA/ac

System breakdown goes beyond the MRT....

There is a lot of anger now with SMRT CEO Saw Paik Hwa and there are calls for her to resign. The Chinese tabloids fed the fury of the readers by publishing a photo of her dressed as Cleopetra carried by a few half naked men. She did that to raise money for charity but it doesn't matter - people are just angry and they will find reasons to be angry. Our MRT trains are 25 years old. Things breakdown due to wear and tear....and in an unpredictable fashion and perhaps maintenance cost have to escalate as the trains age but privatisation means a great pressure to increase profits and answer to shareholders.

SMRT's profits rose every year even as the quality of service fell due to overcrowding. Its CEO Saw received the highest pay package of any CEO in SMRT's history. Profits vs quality of service. High salaries does not mean the system delivers quality of service to the people and system reliability. But you think hard about what is happening at a larger entity better known as Singapore Inc. For years the leaders are paid record salaries pegged to GDP growth while the quality of life of the people declined. The system put in place in Singapore Inc to maximize GDP growth is headed for a breakdown like the MRT. Just like the unhappiness caused by deteriorating quality of service and overcrowding of trains, the unhappiness with Singapore Inc system has been rising...and an increasing number feel that change is badly needed and things are heading for a breakdown.

Here is the highly respected professor Robert Shiller explaining the dangers of the income gap and some ideas on how to maintain stability in an socio-economic system.

A few things to note about Professor Shiller. A few years ago, he became famous for coming up with the phrase "irrational exuberance" to describe the Nasdaq bubble and warned about its collapse. He also warned us about the US housing bubble and his index the Case-Shiller Index is now the most widely tracked index for housing prices in US. Professor Shiller research field is in behaviorial finance and when his conclusions are based on scientific evidence and his understanding of human behavior devoid of politics and ideological bias. He tells us simply that unless the income inequality is addressed, there will be instability in the economc system and our society. This video was made in Aug 2009....1.5 years later we see social instability around the world - the Arab Spring, protests in Israel, Occupy Wall Street movement etc. While there may be other issues like democracy and human rights involved, the common denominator in these protests is social inequality.

I explained in numerous postings that income inequality is one of the root causes of economic problems we see in the past few years. When wealth is unequally distributed, there is fall in aggregate demand which is usually compensated by increase of debt which then become the cause of crisis be it subprime debt in the financial crisis or the ongoing european sovereign debt crisis. Even if we stabilise these crisis in the short term, the current economic model is still not sustainable until the income gap narrows.

Income inequality we are seeing today has only been seen in the last 100 years on the eve of the Great Depression. It took a depression followed by a World War in the 1940s, to compress the income gap.

In Singapore, we have the biggest income gap among developed countries. There has not been a single protest in Singapore because we have very harsh laws - there has been no large scale protests in Singapore and Singaporeans over time have been conditioned not to participate in one. The lack of protest does mean there is no unhappiness or instability in our system. In fact, without a escape valve it the whole situation can be very dangerous. Leaders underestimate the problems and pressures build up. If you look at authoritarian states e.g Egypt, Syria and semi-authoritarian state e.g Russia you see complete calm 3 months before that there have been no major protests for decades and when trouble erupts regime change takes place. In places where people protest regularly like Israel, the system stayed intact because the govt there is forced to always adjust to avoid complete collapse. The strongest signal that something is not right is during the General Elections when Singaporeans feel some safety in numbers and turn up for rallies.  After that things look calm again and you can't tell whether people are now happy with the policy tweaks, some downward ajustment of minister salaries and various measures to cool the property market, provide more beds in hospital, increase ComCare + Workfare etc. The superficial calm probably leads the PAP govt to think sufficient is done, they have "bent over backwards" .....people can see the PAP system generally works and the few glitches fixed, the PR improved...and then they fall back into the thinking that the PAP is after all the fantastic govt that took this iny country from t 3rd world to 1st world, people can be wildly successful because of social mobility and  understand Singapore is a resource-less state so citizens have to right-size their ezpectations. The PAP looks like they are thinking along these lines based on the pace of change they are implementing. This is a gross underestimation of the inequality problem and will lead not just to election disaster for the PAP in 2016 but deep social problems for Singapore in the coming years. Our system is not generally okay - like those MRT trains that have been breaking down, our healthcare, retirement systen, education, housing ....all need major revamp due to the income inequality....they are all falling apart under the strain of income inequality.

The PAP govt has allowed the income gap to rise for too long and to grow too big to still maintain schemes that is consistent with its self-reliance philosophy. Take CPF as an example. If income gap is small, it makes a lot of sense to ask everyone to take care of their own retirment through CPF saving - you spend your own money. With the large income gap it means that that a large segment of the workforce will not be able to save enough for a proper retirement and many who can retire will not have a good quality of life. Even without all the modification to use CPF for children's education, housing and as loans to GIC for reserve building that drain off CPF funds, the basic schemes becomes inadequate because of the income gap, many in the lower income brackets cannot accumulate the minimum sum. The PAP solution is to keep pushing back withdrawal age in effect forcing aged people to take up menial work because most of the time that is the only work available to old folks. For a country with a reputation of being an affluent, tourists are sometimes shock when they see very old folks cleaning tables for a living. Our income gap means that in the coming years more people will have to retire later and the situation will worsen. The lack of shared responsibility for retirement at a time when income gap is so high makes it a hard buy-in for ordinary Singaporeans who work under intense competition from foreigners, depressed wages and cannot make it to a proper retirement. This is a mismatch with the level of commitment the state demands from its citizens in the form of conscription plus reservist duties and unequal sharing of responsibility. The implementation of CPF Life, increasing withdrawal age and restricting access to CPF through minimum sum rules is pushing and stretching the system that is already on its way to a breakdown in terms of its goal as a provident fund to deliver a decent quality of life to retirees....

What about our healthcare system? Stretched capacities, insufficient beds at public hospitals as the govt tries to turn healthcare into a profit generation center by turning Singapore into a medical hub for the rich in the region.  Rising profits in healthcare sector, overcrowded public hospitals, rising fees....doesn't that start to look like the MRT system?  You pay more, quality drops due to overcrowding, record profit is made ...and Singaporeans are worse off every year.

Our economic growth model which now depends on increasing the foreign influx to increase the GDP....how is this going to be sustained? We rapidly reached the highest population density in the world. Housing cost and the cost of living has shot up at the same time our income gap rose to the highest among developed countries. We are starting to see a rise in poverty, a growing underclass and the stresses in the system is building up....but we are caught in a vicious cycle because we are now depended on this model having neglected productivity for too long. Are we not heading for a breakdown here?

When the system is old, you sometimes have to revamp it...do an overhaul or you have to spend large amounts on maintenance to ensure it does not break down. You cannot keep pressing on and pushing the system along to keep it going so that your profits and GDP keep going up. Things can deteriorate rapidly and when the unhappy people who have been waiting for improvements see that trust is completely lost and nothing you do after that matters because they will never trust you anymore.

CEO Saw has all the profits generated over the years made from the pockets of ordinary Singaporeans. She had the choice to spend it to overhaul the system to reduce the risk of breakdown and failure but she is also the CEO of a listed company and shareholders demand profits to be paid out as dividends. Singapore as Singapore Inc faces a similar conflict - its success is measured primarily in terms of GDP growth leading to policies that benefit only big businesses. Our society is one now strained by rising income gap, falling quality of life and breakdown of trust between the govt and the people. If we don't bury the notion of Singapore Inc and bring back Singapore the nation and revamp the systems to deliver benefit to the people and long term sustainability ....this whole Singapore Inc system will breakdown like the MRT system...and people will be demanding leadership change at the top.

Dictator Kim Jong Il is dead....

....and he is so loved by his people.



Here's a leader who kept his people ignorant for decades, make them live in utter poverty and deprive them of every single freedom. He lived in luxury while his people suffered, yet he is so loved by his people. If you have any doubt propaganda works, and can be use to completely deceive millions, you should see what is happening in N. Korea right now.
Today N. Korea's GDP is 3% that of S. Korea's. In the 70s, N. Korea's GNP was actually comparable to that of the south.....actually S. Korea's GNP only surpassed the N. Korea's in 1975.  Since the 70s, North Korea has economy has deteriorated. While some parts his country suffered famine, Kim Jongcono Il had a institute with 200 cooks creating new cuisines for him. He was known to be a drinker and womaniser. The Chinese tried to persuade him to open up N. Korea's economy but he refused because he knew that once people have access to information his propaganda machine cannot work and he would lose power fast.
North Korea is officially known as Democratic People's Republic of Korea. This is a joke. It is clearly not a democracy but a dictatorial dynastic rule.  It is more like a dictator's paradise than a "people's republic". Millions suffer to preserve the luxury lifestyle of a handful of elites that use nuclear weapons to threaten the world.   Unfortunately, N. Koreans are too brainwashed to liberate themselves. They have no Facebook, no Twitter and no blogs because the govt has physically isolated the Internet so that only N. Korean sites can be accessed. This is known as the N, Korean intra-net. All it takes to topple this regime is to connect a cable from this intra-net to the Internet and deliver the truth to the N. Korean people.  When a power structure built on propaganda, myths and lies, the system can be toppled easily when people have access to the truth.

Discrimination against poor Singaporeans with foreign spouses....

UPDATE : Some people commented here and in TOC's Facebook that these rules are in place to prevent marriage of convenience when foreigners marry Singaporeans to get PRs. But how can it be?These spouses are denied after they have children and in this case the oldest child is 9 years old yet the mother is denied when  it is clearly not a marriage of convenience. Others suggest that the rules are there to prevent foreigners from cheating our men - this does not make sense because it is applied to poor men only....there is more to cheat from richer men...clearly that is not the case for this lorry driver who has been married for 10 years. The only possible logic is the govt does not want poor men to procreate and is using these restrictions to discourage them - it is already bad enough that hard working men find it difficult to make ends meet because of the income gap...they are often made  poorer because of govt policies often don't favor them e.g. importing cheap labor causing their wages to be depressed,  having no minimum wage laws and rising cost of living. Yet, the govt put more obstacles to prevent them from making their own lives better ....this Jason Lim struggled for 9 years to raise his family working as a lorry driver and on the day he died he still couldn't get PR for his wife.....what does our society gain by making him go through his ordeal? This is unjust.

This is one issue that really makes me angry and I'll keep highlighting it until the govt changes its policy. What they are doing is downright unconscionable, highly discriminatory, unnecessary and harms a large number of poor Singapore families. If this is the first time you learn about this, I hope you can tell others what our govt has been doing so that everyone is aware that the people they elect as leaders are doing this.

A few days ago, a lorry driver by the name Jason Lim died when his vehicle rolled off a barge Pasir Panjang Terminal. Jason Lim is married to a Thai national and has 4 kids who are Singaporeans aged between 4 and 9. His wife may not be allowed to stay in Singapore because Jason is no longer around.

Our authorities pursue a discriminatory policy against low income Singaporean men married to foreigners. Their wives cannot get PR or citizenship and can only stay in Singapore by applying for LTVP (Long Term Visitor Pass) . Supporting a family when you're  poor in Singapore is extremely tough given the high cost of living.  For these poor Singaporean men with foreign wives, their problems are compounded because those on LTVP are not allowed to work, cannot get subsidised medical care and apply for HDB flats.

Singapore gives out PRs and citizenship to so many foreigners.... many of whom have stayed here only for a short duration  yet PR and citizenship is denied for Jason Lim's wife who is also the mother of 4 Singaporeans who have to serve NS when they are older.

Making the poor struggle and undermining the well being  of Singaporean children with foreign mothers, harms thousands of families in our country.  It exacerbates the pain of poverty for these families without any gains for our society. If the PAP may think that they gained something by penalising the poor for getting married and having children, but they have not...they have lost the trust and support of these men and everyone in the country that feels that each Singaporean should be treated with fairness and dignity.

MRT breakdown and what is wrong with our transport system....

UPDATE:  I would like to thank everyone for their comments and the lively exchange in the comments section. As far back as 4 years ago, I wrote about the MRT privatisation trade offs and how the need to pursue profits wilwould result in trading off quality of service. Some may have given some thought to this but might not have fully appreciate the consequences of privatisation.  A few months ago, shortly after Liu Tuck Yew took charge of the Transport Ministry, this debate surfaced again between Workers' Party and Liu. Liu and a few of PAP MPs offered their side of the argument. This series of breakdowns really woke everyone up and once the problems become severe people quickly understand the pitfalls of the current model. While it is unclear whether cost cutting to preserve profits resulted in the problems of the past few days many people now understand that the need to increase profits will lead to compromises. To me, the MRT breakdown is also symbolic of a larger breakdown that is starting...the breakdown of Singapore Inc and many of the systems put in place by the PAP govt. I will explain it in my next posting. As with the MRT situation, people quickly understand what has gone wrong only when the breakdown becomes obvious and the rpoblems become hard to fix.

I was once stuck in a train on the Circle Line for 15 minutes before a technical problem was rectified. The train was very stuffy and passengers were very frustrated ...and that was for a 15 minute delay so when you have a  people stuck in a train for a hour without air conditioning and lights, you can expect people to be very angry with what happened.

You can't blame the people on the train for being angry but I feel much of the anger for SMRT's CEO Saw Piak Hwa is misdirected. Ultimately as CEO of SMRT, the buck stops with her but that does not mean she has been negligent or did not do her job well. The problems were caused by misalignment of the rails and an inquiry is being conducted to determine all the facts. The actual cause may be failure to check the rails because experts did not recommend SMRT to do so or checks were done but the technicians did not do a good job or it is really something that cannot be foreseen even with the best technical knowledge. However, Saw is presumed by many on the Internet and the general public to have done something wrong.

There was unhappiness with Ms Saw even before this latest incident and much of this is unjustified. People blame her for crowded trains, unpleasant rides and many don't like her for getting a high salary of several million for running a public transport system. You cannot blame Saw for the crowded trains because she does not control our foreign influx and when the trains became crowded it is not within the SMRT resources to invest in new lines or completely revamp the system. Only the govt can build new lines and Ms Saw is answerable to share holders she can't just throw in every penny to replace trains, and rebuild stations because SMRT is a listed company and bottom line is everything. SMRT did improve the signalling system to increase frequency and that upgrade cost $1B.  I don't blame her for her pay because such high executive compensation is now common place among listed company CEOs and Saw is not an exception.

"SMRT must make this right...." - Minister Liu, Straits Times headlines, 17 Dec 2011

Singaporeans are unhappy with the whole transport system and Saw Piak Hwa, the well paid CEO of SMRT has become an easy target for their anger. She is not in charge of the transport system, Minister Liu is but I don't suggest you direct your anger at Minister Liu because he has been on the job for a few months and inherited the whole system with all its problems from Raymond Lim who inherited it from Mah Bow Tan....and so on. Raymond Lim and Mah are no longer ministers. There are so many issues that cause Singaporeans to be unhappy about transport that I doubt Minister Liu can fix them all. Our transport system may never get back to a state that Singaporeans find it satisfactory.  When did our transport problems begin? ....Once you understand how it begins, you will have some idea how it can be fixed.

In Singapore we have the most expensive cars in the world due to the COE. We have the highest cost of using cars due to ERP, road tax and petrol tax. In many countries, a person working as a cashier in a supermarket can own a car so transport is not in issue but in Singapore a many professionals/degree holders do not drive due to the cost. But since Singapore is small and population density is high people can accept that not everyone can own a car. However, the distribution of COEs purely on the basis of the ability of people to pay mismatch the needs of people with this limited resource, cars. A lower middle class father with a real need for a car, say someone with children and parents with medical conditions (difficulty walking cannot take bus), is priced out by the teenage son of a millionaire who doesn't really need the car. Our income gap which is the largest in the developed world amplifies the mismatch. The alternative to owning a car is taking taxis that is why people are up in arms when fares are increased because it has become a necessity for some people. When people complained that it was hard to get taxis during peak hours the taxi companies increased peak hour charges to price poorer people out during peak hours. When traffic becomes heavy, ERP charges are increased to price 'poorer' drivers out - these mechanisms are fine if our income gap is not so big and we can compete more equally to pay to get scarce resources based on our needs. But that is not the case for Singapore and people are torn apart by their needs and ability to pay.  The thing that can save us all from the unhappy outcome of this system is a good public transport system. That is why many cities without COEs have not fallen apart ....a COE-less system forces the govt to make the public transport system so good that people prefer not to drive their cars...with a quota system in place, the govt has less incentive to create public system that is good enough to compete with car ownership.

Our public transport system has been privatised and the tradeoff between operating profits and passenger comfort comes into play. What public transport companies like SMRT and SBS try to do is adhere to minimum standards and maximise profit margins. So the incentive for CEO Saw is to do no more than the minimum in terms of service quality because she won't lose any customers as a monopoly . The elimination of new long haul bus services which the transport ministry plans to force more people into a "spoke and hub" system in which the MRT forms the hub and short haul buses the spoke can only worsen the system. More direct long haul buses that connect major worker centers to major housing estates can relieve the congestion in our MRT system.

Our entire transport system is now in a very unsatisfactory state with middle class families struggling very hard to own and use a car that they really need and ordinary Singaporeans unhappy with the crowded public system and poor people completely priced out of taxis and cars when they urgently need them.

The Worker's Party suggests re-nationalising the bus and MRT so that more resources can put into them and the need for generate profit is taken away. This may sound like a bold drastic solution but I believe that the govt should go even further. Good public transport is essential to lift up the quality of life of the majority of people in Singapore and reduce the demand for cars limited by road capacity  Worker's Party suggests to operate this system on a cost recovery basis - I would go even further to suggest that the govt should make the system as good as possible even if it means that they incur some operating losses in the form of subsidies to students, senior citizens and poor.  After all  the govt sinks in billions into defense without cost recovery.... and rightfully so for the long term security of the nation even though there are no direct and immediate threats. Similarly, we should think in terms of the gain in the quality of life of Singaporeans when we invest and operate our public transport system - it will help to alleviate some of deleterious effects of our large income gap and strengthen our social compact. In that sense spending on public transport system is part of security as one of our pillars of defense - social defense - depend very much on the cohesiveness of our society.

If people feel that is system is designed for the rich and their needs are not met when the time comes, the man behind the weapons, asked to serve his country, may have one less reason to die for his society ....

China's Economy : Many problems, many bullets....

In April 2010 Jim Chanos spoke about China being on a threadmill to hell[Link]. It turned out that it was Europe not China that was on that threadmill.

China is “on a treadmill to hell,” said Chanos, who saidin January the nation is Dubai times a thousand. “They can’tafford to get off this heroin of property development. It is theonly thing keeping the economic growth numbers growing.”  

Actually the Chinese govt did have the foresight to cool their property market since 2010. Numerous draconian measures including increasing down payment, restricting buyers to only two properties, restricting bank lending etc. Measures that can only be implemented in a country like China. China's red hot economy caused inflation to rise and Chinese govt restricted lending by raising the reserve ratio slowly choking off credit to the economy. Between July 2006 and June 2011, China’s reserve requirement ratio was changed 35 times. This is the tool of choice for China's policy makers to control the liquidity in the system.

The estimated banking reserves today is 30% of its GDP which means China has the tightest monetary policy in the world today. At some point bank lending was so restrictive, small businesses couldn't get loads from the banks and went to underground lenders. Thinks happen quickly in China and by the time the authorities came around discover the lending it is estimated that as much as large  US$600B[Link].

An economy slowing down is not in itself a problem if the central bank has bullets in its arsenal to fight it - and China has kept plenty of bullets due to its tight policies. The US economy is muddling along and still growing but the US Fed has pushed interest rates to zero and Bernanke is left with very little if a recession comes along. Why is all this important?

The Singapore economy is clearly slowing down looking at the export figures. Europe is going to into recession and the US will probably stay flat barring any economic shock from Europe due to the debt crisis - this is a big risk if Europeans can't stabilise the situation and some kind of disruption occurs. What happens in China will probably tip the balance.

China is in the midst of transforming its export-led economic growth to one led by domestic consumption. It will import more, get its domestic economy fired up and become less dependent on exports. We see some of this in its latest trade figures[China looks to bring in more imports, keep exports stable]/  China exports more to Europe than it does to any other country so it has to ram up its domestic economy to keep growing and creating jobs. The purchasing power of China is huge and exceeds that of US [China tops US as biggest-economy by purchasing power].

The Chinese economy is now slowing like the rest of the world and actually the policy makers wanted that because inflation was their biggest problem. Inflation appears to under control and the are starting to ease and put more liquidity in back with the first cut in bank reserve ratio on 28 Nov 2011[Link]. There is plenty of room to cut ..and if that does not do the job, they can reduce interest rates and reverse all the restrictive polices on the property market.

Despite Chanos dire predictions for China crashing into the abyss, China may end up being the sole rescuer of the global economy. While China has many problems, bad bank debts, excessive borrowing by local govt and over investment in infrastruture, it does not borrow money from foeign lenders and hence cannot be held hostage by the financial markets like Europe. There is also the positive side effect of not being a democracy, the guy on top can just give the command and things get done. Compare that with 17 democracies in the Eurozone - they have all the resources to end the crisis but just can't get it done. Before the Asian crisis, Chinese banks were asked by the central govt to increase lending to state own enterprises. When the Asian crisis hit close to $300B of these loans become bad and would have crippled the Chinese banking system. In the US, politicians will deliberate and debate for weeks and months as the economy sinks about moral hazard etc but in China they simply buried the problem. The Chinese govt set aside $300B to buy up all the bad loans to clean up the bank's balance sheet. A few years later, the same banks had successful IPOs and took in plenty of money from investors around the world.

You may have heard this advice from pundits and investment advisors a few years ago to invest in Chinese stocks because its economy is growing very fast. Well, as the Chinese economy grew in 2009, 2010, and 2011 rapidly, China's stock market has been sinking lower and lower. The stock market in China does not correlate with economic growth but with liquidity in the system. As the Chinese economy was growing, the govt was tightening by pushing up the reserve ratio and later on the interest rates. That kept money out of investments in the stock market even as the economy grew continuously for more than 2 years and the stock market went no where. Every major stock market rally in China's Shanghai Composite (and  in Hong Kong?) coincide with the start of monetary easing in China. .Chinese stocks have fallen to the lowest levels in 2.5 years and while its economy slows from the problems in Europe, the govt will have to ease monetary policies to maintain growth which what is needed to give its stock market a boost.

For many resource rich countries, China's growing domestic economy will provide a backstop to the problems in Europe and slow growth in USA. In the previous crisis in 2008, a number of analyst spoke about decoupling but it did not happen because the shock to the global economy was too sudden and severe. Aggregate demand simply collapsed and plunge the world into a global recession. This time we have a crisis that has gone on for 2 years and policy makers appear to understand most of the possible ramifications including the Singapore govt that warned of dark days ahead. There are even radio adverts telling people their bank accounts are protected to prevent a run like in the 2008 crisis. I'm not optimistic about Europe given that they appear to be behind the curve all the time and are reactive to market stress. Some kind of economic shock may occur if the situation get so bad that some countries want to leave the Eurozone or default on the crippling debts. Italy is indeed on the threadmill to hell as it is paying more than 7% to borrow money unless something is done soon.. The outlook is uncertain but global recession is not inevitable. There are opportunities coming for those who can see through the fear but be careful of potential shocks from Europe.

Singapore : Why can't we seem to Innovate....

Steve Wozniak Apple's co-founder said this yesterday[Link]:

Look at societies like Singapore where bad behaviour is not tolerated and can get you extreme punishments: Where are the creative people? Where are the great artists, where are the great musicians, where are the great writers?

All the creative elements seem to disappear. Though, of course, everybody is educated and has a good job and nice pay and a car.

Thinking for yourself is creativity and that's goes right down to what we were talking about dress, the clothing that you wear - you wear what you want to wear.

If you read Steve Jobs biography there was a time he had long hair and was some sort of later day hippie. In Singapore he would have been stopped at the airport in the 70s and disallowed from entering Singapore. The founders of Apple had a earlier business that created boxes that allowed people to make illegal long distance phone calls. They were in every sense rule breakers.

Over the years, there were calls for Singaporeans to be more innovative. Be more creative. Be more entrepreneurial. Some  Singapore companies conduct "innovation drive" or "suggestion drive" to get workers thinking. But after a while it usually loses momentun because it is hard to build up the culture among Singaporeans and overcome the social factors outside the company that constrain Singaporeans to a pattern of behavior - the education system, the strict laws, various socio-economic factors.

The basic idea is this:

Wozniak is right to say that strict rules and heavy punishment for breaking rules is what stifles creativity in Singapore. I believe it starts with the political space. In the past, what happened to people with a different point of view had a chilling effect on the rest of society. Over time people became fearful of expressing their views and challenging authority. This behavior cannot be compartmentalised and over resulted in an obedience to all authority - students don't question their teachers, workers don't challenge their bosses, and people believe everything they read in the Straits Times.  The govt exerted control through harsh laws and punishment ...everything is orderly and we have obedient citizens who learn all the rules and are afraid to break them. This is great if we make our living working at assembly lines, doing routine work and the world never changes. Unfortunately, that is not the reality we are in and we either innovate and out smart our competitors or we go on Lim Swee Say's strategy of doing the same things faster, cheaper and better than them which is getting very difficult with China playing the same game..

The PAP's "cheaper and faster" growth model is a race to the bottom for workers. How do our lives and living standards improve by making Singaporean workers cheaper? The PAP's idea of building an economy dependent on cheap foreign labor has so many deleterious effects but the main problem is it is not sustainable. We already have a population density higher than that of Hong Kong, housing and cost of living as a whole has escalated and Singapore is becoming increasing more expensive. To compensate for the rise in the cost of doing business, Singapore looks for cheap labor - we used to have mainly Malaysians but now we have to go all the way to get workers from China, India, Burma and Vietnam. As wages among ordinary Singaporeans become depressed, inequality rose.

If you look at how companies survive and thrive over time, the ones that succeed are able to transform themselves over time to deliver innovative products. The Appes, the Googles and the Facebooks...the ability to evolve companies like these is one key to sustaiinable economic growth without the "cheaper, better, faster" strategy. Much need to be changed for us to get there including our education system that puts so much emphaisis on exam scores that it forces students to focus on doing well for exams above everything else. Students are sorted according to PSLE scores into secondary schools that now lack diversity in the student population - each school taking in student from a narrow slice of PSLE scores.

We should all take a page from Apple's comeback strategy when Steve Jobs rejoined the company - Think Different about the way we do things, forget the rules, the punishment, the pressure to conform and suspend our fear of authority.  Be open to alternative ideas, question everyting around you, remove the constraints on your thinking ....

Unfortunately we live in a country that has a dominant govt that is uneasy with alternative ideas. Ideas are censored  and books are banned not for obscenity but because they give us another perspective of Singapore.. How are we to innovate when some one decides which idea we should have and which we shouldn't...and what information we should know and what we shouldn't. know. Unless we free up this great resource, the creative minds our people, we will stagnate and decline going the way of others who also try to preserve the status quo in a fast changing world.

Housing debt slavery : How it can occur....

My friend who is an economist was terrfied when he bought a private condo. He and his wife were thrifty penny pinchers whoi paid down the housing loan as fast as possible.  Why was he so fearful? Being an economist he knew a lot of economic history and knew that many things can go wrong when one has a large debt. Somehow these few years, people don't think too much about borrowing  half a million or a million to buy a home - sometimes they do it because others are doing it. Sometimes they think they are okay as long as they stay employed.

15 years ago a friend of mind show me the terrible situation got in with his housing loan. He computed that he paid a total of $200K in instalments but the oustanding loan decreased by only $60K. How is this possible? During the Aisan crisis interest rates went up to 6-8% depending on which bank you got your loan. 8% on a 800K loan is a whopping $64K a year roughly $5K a month on interest alone. Not to mention the depreciation of the property during that time.Interest rates today are artificially low. They may be low for many years but if you look at a window of 2 decades chances are you will hit a duration of extremely high rates.

If you read the story below, it talks about housing loans in Hungary with interest of 13% and 6% in Switzerland. Because Hungarians can borrow from Swiss banks at 6% to buy a home in Hungary, many did so because many others have done so in the past saving plenty plenty of interest. Guess what went wrong for these Hungarians? /..read the story below. Think twice before taking a loan in a foreign currency.

Another situation that can arrise is negative equity. When the price of the home falls very quickly, the market price of the home can fall below the oustanding loan you have with the bank. When this happens, the banks can ask you to pay down part of your loan immediately so that you get back to positive equity. This clause I believe is found in all housing loan agreements today. It didn't happen in Singapore but  home buyers in Hong Kong got hit by this during the Asian Crisis and were at the mercy of the banks that had the right to  foreclos on the property,

During boom times, there is always this tempting strategy of buying a home then taking loan with a long tenure then servicing the loan with rental income. I've seen a number of people who get into trouble with this strategy - they can afford one condo but buy two thinking the 2nd property can pay for itself via rental income. To get into real trouble buy 3 condos. when you can only afford one. If your timing is perfect perhaps you can get away with it but many people do this during the boom time when poperty prices are high. When rental yields fall, they end up slaving away to hold on to the property.
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Austrian Banks Face Hungary ‘Debt Slave’ Revolt


QBy Boris Groendahl and Edith Balazs - Dec 14, 2011 7:01 AM GMT+0800 inShare0More

Business Exchange Buzz up! Digg Print Email Enlarge image

Austrian Banks Facing Payback Balint Porneczi/Bloomberg

Hungarian forint notes. because it may have to inject capital into its banks. Hungary’s banking association last month proposed a plan of its own that would include further losses for the banks of as much as $2.2 billion.

Hungarian forint notes. because it may have to inject capital into its banks. Hungary’s banking association last month proposed a plan of its own that would include further losses for the banks of as much as $2.2 billion. Photographer: Balint Porneczi/Bloomberg

When Hungary’s former central bank governor was buying a house two months before Lehman Brothers Holdings Inc. collapsed and the country sought an emergency bailout, he received an offer he couldn’t refuse.

Peter Akos Bod, now an economics professor at Corvinus University in Budapest, was given a choice of mortgages by his bank. The 60 year-old could select a loan in Hungary’s currency, the forint, at 13 percent interest, or one in Swiss francs at less than 6 percent. After crunching the numbers on a spreadsheet, he picked the cheaper franc loan.

“It was rational,” he said of his 2008 decision in an interview in the Hungarian capital. “I put it into a model.”

Three years later, Bod and about one million compatriots who took mortgages in francs are faced with a debt pile that has swelled to 4.9 trillion forint ($22 billion). The currency’s 40 percent slump against the franc has raised repayment costs, pushing mortgage arrears to a two-decade high and prompting Prime Minister Viktor Orban’s government to brand the loans “debt slavery.”

To help homeowners, Orban imposed currency losses on banks including Erste Group Bank AG and Raiffeisen Bank International AG (RBI) that may total 900 million euros ($1.2 billion). Faced with the risk Orban would impose further measures, lenders have offered to accept $2.2 billion of additional losses if the government promised to take no further action. If it doesn’t, banks are threatening they may withdraw from the country.

‘Too Risky’

“Against the backdrop of a potential western European financial crisis, this raises the risk that western lenders will just pull out of Hungary because it’s just too risky, which would be disastrous,” Neil Shearing, senior emerging markets analyst at Capital Economics Ltd. in London, said in an interview. “Hungarian banks are incredibly dependent on their western European parents for short-term credit lines. At the very least it means credit is going to remain very tight.”

Six of Hungary’s seven biggest banks have foreign parents, including Italy’s Intesa Sanpaolo SpA and UniCredit SpA (UCG) and Germany’s BayernLB. Only OTP Bank Nyrt., the country’s largest lender, is still domestically owned.

Almost 18 months after Orban was elected in April 2010, he passed a law allowing Hungarians to repay mortgages denominated in foreign currencies at discount of about 25 percent to today’s exchange rate. As long as a client applies before Dec. 31 and repays the entire loan before Feb. 28, the banks have to make up the difference.

“I paid it back last week,” Bod said. “I’m free of debt slavery,” said the former industry minister. The plan “is easy to explain from a political viewpoint. It’s cheap for the government, expensive for the banks, good for voters.”

Overseas Borrowings

While borrowers in Poland, Romania, Bulgaria and Croatia also took foreign currency loans, Hungary is unique because average household borrowing in overseas currencies is more than six times the region’s average, according to Barclays. In Poland, where more than half of all mortgages are franc- denominated, banks limited them to more affluent customers, and cushioned the franc’s advance against the zloty by cutting rates. Hungarian banks raised rates.

Every redeemed mortgage equates to a loss for the banks. Cristina Marzea, an analyst at Barclays Capital, said in a Nov. 17 report that banks operating in Hungary may lose 12 percent of their combined capital, or about 900 million euros, because of the early repayment plan.

‘Immediate Action’

Lenders responded by suing the government in the Hungarian Constitutional Court and asking the European Union in a Nov. 14 letter to take “urgent and immediate action” against Orban, adding they will need to reassess their commitments in Hungary. Erste and Raiffeisen, which signed the letter, have said they will cut lending in the country.

“Banks are having to make brutal decisions about where they deploy capital at the moment, and if policy makers make life too difficult for European banks, as in Hungary, then they will more aggressively deleverage in these markets,” Tim Ash, head of emerging markets at Royal Bank of Scotland Group Plc, said in an e-mail. It’s “obviously bad for credit and growth.”

Demand for franc mortgages rose from 2003, when Hungary’s government stopped subsidizing forint home loans. Foreign banks filled the gap, using their parent’s access to euros and francs to undercut OTP. (OTP) The profitability of the country’s banking industry soared, with return on equity jumping to between 20 percent and 30 percent annually from 2003 to 2007. When the government started to cut spending in 2006, Hungarians took out more loans secured on their homes to finance consumption.

Dual Monarchy

By June 30, Austrian banks had lent $42 billion to Hungarian borrowers, Italians $23 billion and Germans $21 billion, according to the Bank for International Settlements.

Orban’s bank policies have especially irked neighboring Austria, which until 1918 was Hungary’s partner in the Dual Monarchy of the Hapsburg empire and which re-engaged with the region through its banks after communism collapsed in 1989.

Austria’s central bank Governor Ewald Nowotny in October described the Hungarian law as “brutal” as well as legally unworkable and “economically nonsensical.” Nowotny last month ordered the country’s lenders to limit new loans in eastern Europe to make their business “more sustainable.”

When Erste (EBS) set aside an extra 450 million euros for Hungarian bad debt in the third quarter, Chief Executive Officer Andreas Treichl pointedly referred to “irrational populist measures in EU countries” and predicted that Hungary’s government would “continue to take action that will not be positive for the Hungarian banking system.”

‘Biggest Event Risk’

Moody’s Investors Service last week said that Austrian banks’ exposure to the central and eastern European region is “the single biggest event risk for the sovereign.” Austrian banks are also the biggest lenders in the broader eastern European region. Standard & Poor’s said Dec. 5 it may downgrade Austria, one of the six remaining euro area countries rated AAA, because it may have to inject capital into its banks.

Hungary’s banking association last month proposed a plan of its own that would include further losses for the banks of as much as $2.2 billion.

“What we want in exchange is that the government accepts the package we submitted in its entirety and there won’t be new regulations on this issue for two years,” Daniel Gyuris, deputy head of the association, said in a Dec. 5 interview.

The banks may yet be helped by Hungary’s move this week to tap the International Monetary Fund for as much as 20 billion euros of aid after spurning its advice last year. The EU and the European Central Bank have already criticized the debt-repayment plan and the program may form part of Hungary’s negotiations with the IMF. The IMF’s mission chief to Hungary, Christoph Rosenberg, declined to comment on policy issues relating to the country when contacted by e-mail.

“Any further attempts to unilaterally restructure foreign currency debt is off the cards,” said Capital Economics’s Shearing. “I can’t see how the IMF would sanction that. Any restructuring will have to be approved by the banks and the government.”

To contact the reporters on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net;

Eurozone Crisis :Stability or Spiral into chaos?

UPDATE 18 Dec 2011: While Europe is not out of the woods and the crisis far from over, Draghi's backdoor operation that I mentioned in the posting does have some effect in relieving the stress in the system. Bond yields of Eurozone countries have fallen across the board and there is renewed demand for European debt [Spanish, Italian Notes Gain as ECB Stokes Demand; Bunds Advance] especially 2 year bonds since ECB is offering 3 year loans.  Italian 2yr paper fell from 8% to 5%..


Several weeks ago, I wrote that I believed the ECB would start printing money at some point in time because there is no other way to get of this crsis. The ESFS and ESM,bailout funds created by securing guarantees and financing from already indebted nations, are just not going to work. The Eurozone govts owe too much money and creditors are not convinced they will be paid back unless the ECB steps in. A number of govts in the Eurozone have collapsed, severe austerity has been implemented in PIIGS countries and riots are now frequent in a number of countries. Last week's summit proposed to have a "fiscal union" to put in place checks to prevent govts from overspending in the future. However, it does not address the current sovereign debt crisis - how creditors are assured they will get paid when there is no lender of last resort.

A few weeks ago, I thought that German intransigence was just a ploy to get other countries to play ball - impose austerity, and suffer for their past sins. After they get what they want, the ECB will have a free hand to print some money and the whole world can breathe a sigh of relief. The Japanese prints money to pay its debts...same goes for Britain and US. I was corrected by a number of commenters who informed me that what the Germans are doing is not for show - they are dead set against quantitative easing and will never let it happen. I did some checks and it turned out to be true - despite the disastrous consequences of a default by a Eurozone nation which will ultimately cause more pain and damage, the Germans are hard wired by their Weimar Republic experience never to allow money to be printed to pay debts. The Weimar Republic printed so much money it caused hyperinflation and  wiped out the savings of ordinary Germans. The risk of another Weimar Republic is very small with the new fiscal pact in place enforcing discipline. One suggestion is for the ECB to lend to IMF so that IMF does the lending - with its experience of imposing austerity and discipline, monitoring and ensuring lenders gat paid, the crisis of confidence can be resolved. This and other solutions that involved the ECB printing money are opposed by Germany and it is politically impossible for Merkel to get agreement from her party's coalition partners. Even contribution to a bailout fund results in enormous political opposition in Germany as Germans do not want to pay for the overspending of other Eurozone govt - even though they are part of a union and another member's problem will spill into the German economy by way of contagion.

The instability in the Eurozone prompted one Pentagon official to warn of widespread unrest and a collapse of the union:

"We are extraordinarily concerned by the health and viability of the euro   because in some ways we’re exposed literally to contracts but also because   of the potential of civil unrest and break-up of the union,’’ - General Martin Dempsey, chair of the US Joint Chiefs of Staff. [Link].

So is the Eurozone heading towards chaos?

There are a number of silver linings in this whole mess. One of them in the form of Mario Draghi who became the ECB chief recently. He is Europe's version of Bernanke in the current crisis. He cut interest rates twice and took a page out of Bernanke's playbook by allowing Europeans banks to borrow money from ECB at 1%  for 3 years using almost any kind of collateral including sovereign bonds. This is the same backdoor  Bernanke created during the financial crisis allowing banks to put up any kind of collateral to borrow money. This will help to stabilise European banks and buy some time. In theory the banks can also now use the 1% loan to purchase Italian bonds that yield 6-7% as an indirect way for ECB to fund Eurozone govts[explanation of this backdoor]. This is a clever way around article 123 of the Eurozone treaty and avoid enraging the German Bundesbank

"We have a treaty and Article 123 prohibits financing of governments. We   shouldn’t try to circumvent the spirit of the treaty"  - Mario Draghi.

....and he has cover because the move is also needed to stabilise the banking system.
The other silver lining is probably Christine Lagarde who replaced the scandalous Strauss-Kahn. She has been proactively looking for solution to the crisis. One that involves IMF may emerge.

There risk of something economically dire happening  grows over time as this crisis remains unsolved. The guys at PIMCO describe the situation as a snowball rolling downhill, it gets bigger with every failed attempt to stop it. At some point, this crisis will spin out of control and become too big to fix.  Europe is going into recession and their debts will become even harder to pay back when the economy slows. The longer this crisis drags out, the more confidence is eroded and creditors abandon the Eurozone one by one....if countries like Italy cannot roll over its debt properly, they will default and that will be really derail the global economy.

Pinnacle Notes : Morgan Stanley ordered to halt attempts to block lawsuit

After DBS won its lawsuit in Singapore, Morgan Stanley wanted to block the Pinnacle Notes lawsuit in US using a Singapore court. A US judge in New York tells them they can't do that.

There are a number of reasons why they want the lawsuit to be fought in Singapore instead of US.  SEC and others have won a number of cases involving mis-selling, mis-representation and neglect of fudiciary duties- the recent one mentioned in my blog involving Citigroup:

"The SEC had accused the bank of betting against a complex mortgage investment in 2007 -- making $160 million in the process -- while investors lost millions. The settlement would have imposed penalties on Citigroup but allowed it to deny allegations that it misled investors".[Link]

Citigroup was counter party that benefited from massive losses of investors to which it sold mortgage investments. Citigroup offered to pay US$285M to settle the lawsuit with SEC but the settlement was rejected by a judge because it allows Citigroup to get away without admitting fraud.

So who was the counter party that made from all the losses from Pinnacle Notes? Morgan Stanley...the same investment bank that sold these notes to investors. Now you see why they want to avoid fighting the lawsuit in USA. In the US the authorities took up the hard work of investigating the banks, gathering evidence and suing the bank to recover investors' money....so what did our 1st world govt do for Singaporean investors? ...These Singapore investors were left to fend for themselves against a powerful investment bank, they had to get their own lawyers, fork out their own money and do every thing themselves to get some justice. Where are the men and women who say they have to be paid well to serve the people?

In Singapore,  according our ex-MM  - they went in with their "eyes open" and signed on the contract so there is no case. This feels like an  over-simplification of justice,,,and a case that cannot be won in Singapore has more than a fighting chance in USA.
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Morgan Stanley Ordered to Halt Singapore Suit


QBy Bob Van Voris - Dec 13, 2011 12:34 PM GMT+0800 inShare1More

Business Exchange Buzz up! Digg Print Email Morgan Stanley (MS) can’t ask a court in Singapore to block investors there from suing outside the country over their losses on $154.7 million in synthetic collateralized debt obligations, a judge in New York ruled.



The New York-based bank’s attempt is vexatious, U.S. District Judge Leonard Sand said yesterday, granting a request by investors including the Singapore Government Staff Credit Cooperative Society Ltd. to stop Morgan Stanley from seeking a Singapore High Court order.



Several Morgan Stanley units created a “classic bait and switch scheme secretly designed to benefit Morgan Stanley” at customers’ expense, according to the lawsuit filed in October 2010. The investors claim Morgan Stanley didn’t tell them it was a counter-party to the agreements, meaning that for each dollar the investors lost, the bank gained a dollar.

Morgan Stanley disagrees with the ruling and its Singapore court action was entirely appropriate, Hong Kong-based spokesman Nick Footitt said today.

“This dispute involved plaintiffs who are all based in Singapore, who purchased notes in Singapore, and who contractually agreed to the exclusive jurisdiction of the Singapore courts,” he said.

Morgan Stanley, which had sought to have the investors’ lawsuit thrown out because the Monetary Authority of Singapore investigated the sale of structured financial products and created a resolution system, this month denied any wrongdoing.

‘Fare Better’

Morgan Stanley has “a sense they would fare better in Singapore,” said Eugene Tan, assistant professor of law at the Singapore Management University.

Any alleged misstatements by Morgan Stanley on the notes “were mere puffery or were vague statements of optimism,” the bank said in a court filing. “Defendants had no duty to disclose the allegedly omitted information.”


In October, Sand dismissed some of the investors’ claims and permitted the rest of the case to go forward. One month later, Morgan Stanley asked the Singapore court for an order blocking the investors from pursuing the case.

“Rather than availing themselves of the remedies available here, defendants are attempting to require the plaintiffs to begin anew in Singapore,” Sand said yesterday in his ruling. He also denied the New York-based bank’s request that he certify his October decision for pretrial appeal.

Pinnacle Notes

The plaintiffs seek to represent a class of all investors who bought the Pinnacle Notes from Aug. 1, 2006, to the end of 2007.

A group of investors in Singapore last month lost a bid to recoup losses on Lehman-related products with an appeal court in the city state ruling that “the principle of caveat emptor applies equally to literates and illiterates,” using the Latin phrase for ‘buyer beware.’’

The Monetary Authority of Singapore banned 10 financial institutions from selling structured investments in 2009 following claims by investors that they were misled on products tied to Lehman Brothers Holdings Inc.

The authority lifted the ban last year after the institutions boosted internal procedures of their advisory services across all investment products.

Tan said the disputes surrounding collateralized debt obligations were unique.

“I don’t think investors are going to have a different investment climate in Singapore based on this lawsuit” against Morgan Stanley, he said.

The case is Dandong v. Pinnacle Performance Ltd., 10- cv-08086, U.S. District Court, Southern District of New York (Manhattan).

Obama in Kansas 6 December 2011

Shared prosperity is not just the  vital cornerstone of social stability and cohesiveness but the key to a sound and sustainable economy. The support for many govts today depends very much on how well they tackle the issue of income inequality.

Obama inherited the worst initial economic conditions since Franklin Roosvelt in the 1930s. If you can recall, the US and the world economy went into freefall in early 2009.  Even before the financial crisis, the US economy had serious problems as the income inequality rose to levels that was only seen in 1929, the eve of the Great Depression. Obama was elected to office to address the income iequality problem and mitigate the effects of income gap by reforming healthcare. Howver, before he got around to solving the longer term problems, he had to find ways to stop the US economy from plunging into the abyss. The US economy has since rebounded but the recovery has been unsatisfactory because the financial crisis resulting from the birsting of the housing bubble seriously damaged a large part of US economy - the housing sector kept falling even as the economy recovered causing a drag on job creation limiting the magnitude of the recovery. Throughout his presidency, Obama was thwarted by the big business lobby that tried to stop health care reform and environmental protection policies by misinforming the American public. Impatient with the slow economic recovery, American voters compounded Obama's problems by voting a group of  right wing Senators supported by the Tea Party who later blocked tax reform,  measures to control waste in defense spending and attempts to regulate the financial sector to prevent future crisis. Much time is lost in the US political deadlock on issues for which the clock is ticking like climate change. The frustration has spilled into the streets with Occupy Wall Street movement spreading across the country.

There is only one developed country in the world where the income gap is higher. The only place in the developed world with a 3rd world wage structure where a man can work full time without minimum wage and cannot afford to raise his family ...and he is still required to support the hawkish stance of the ruling party by serving in the military as a conscript without in return getting the corresponding security of social safety nets and universal health care. Worse still,  he is made to compete with a massive influx of foreigners that gives business and state owned corporations access to cheap labor from 3rd world countries at time when corporate profits as share of GDP is at historic highs. The frustration has built up but kept hidden by harsh authoritarian rules and a state controlled media  ....but as the thresholds are crossed and the middle class declines, the demand for change will grow stronger with time and at some point accelerates and becomes unstoppable.

Once popular Putin faces uprising in Russia....

I haven't kept up with news in Russia and recent news reports of the rapid political change in the country surprise me.
Putin's United Russia saw its share of popular votes falling from 64% in 2007 to just 48.5% in the recent elections. Opposition supporters are not happy with irregularities in the vote counts - some areas have more votes than eligible voters - and massive protests are expected all over Russia this weekend.

Recall that Putin a was powerful and popular authoritarian who was credited with bringing law and order to Russia and putting the economy back on its feet. He was so powerful at one time, he could ignore human rights and throw his opponents into jail without a dent in his popularity. The opposition which included former world chess champion was fragmented and weak with little support from the ground.

5 years was all it took for things to change in Russia.

Here's what has gone wrong in Russia according to Al Jeezera:

"The public's growing disillusionment with United Russia is concentrated among the country's intellectual elites, young professionals, urbanites and internet users. Their grievances vary from the stifling of freedoms to Putin's growing authoritarianism and the calcification of Russia's political life. "Our votes have been stolen long time ago," writes former world chess champion and now opposition leader Garry Kasparov. "They've been stolen together with our freedom of choice and with our right to express a point of view that is different from the one promoted by the official media." 

But a growing majority of Russians say they are unhappy with the ruling party because it has failed to lift their standard of living, despite years of high oil and gas prices, over which Putin presided. "Our pensions are still low and our roads are still bad," says one Moscow resident. "The party of power could have done so much more in the ten years it's been in power," says another. Low salaries, small pensions, soaring inflation, a crumbling infrastructure and unreliable healthcare - these are the main points of dissatisfaction for most Russians. As a result, opposition parties - such as Russia's Communist Party, the Liberal Democrats, and Just Russia - are continuously citing these grievances in their election ads.

But perhaps the biggest problem United Russia faces is its status itself: the status of the party in power. Like the Communist Party of the USSR, United Russia has increasingly become the party of choice for Russia's elites. It boasts over two million members and counts among its own the country's crème de la crème. It includes not only regional governors and major business owners, but also Olympic champions, film directors, pop stars and even a pair of famous lion tamers. Some joined because they genuinely saw United Russia as a party of patriots driven to restore the country's glory after the tumultuous years following the breakup of the Soviet Union. But others sought access to power, privileges and decision-making that came with party membership.

United Russia's status as the ruling party, though, has become a double-edged sword. Ordinary Russians increasingly resent those in power, seeing their wealth while themselves struggling to simply get by in the world of consumer pleasures that now surrounds them. As revelations of corruption emerge and Russians learn about the ways members of United Russia misuse public funds, the party is now called "Partiya Zhulikov i Vorov", or "The Party of Swindlers and Thieves"."