Who’s Paying For Their Losses?

Now that bank deposits are guaranteed, that puts a lot of confidence back into our financial system.

But a sore point remains … buyers of Lehman Minibonds, Hi Notes, etc, are going to get compensated in a case-by-case approach. (And what happens next is that the educated ones who don’t deserve the compensation, will get their compensations because they know how to make their case while Aunty and Uncle will get shortchanged because they can’t justify themselves) MAS has left the ball in the court of the banks to “do the right thing”. They will not do enough. What ever the banks do, the public will never deem it as enough. The woes will continue. Why wait instead of taking action now?

… and who is bearing the cost of this compensation?

Surely it should not come from our taxes because it’s just not fair that our hard earned money should go into compensating other people’s losses when we don’t share in their gains. It’s also not fair that the government bear the cost because that money was meant for better things than compensating toxic products.

I appreciate the government’s effort to help the under-educated in getting their compensations because I can’t say that the Aunties and Uncles deserve their fate. But having said that, would Uncle and Aunty share their wealth had these gambles paid off? Note that they don’t get taxed on their profits.

Instead of getting into a witch hunt or making a moot point, I’d like to propose an idea for the future …

Relationship Managers and those banking executives that make commissions on such products should only get their commissions AFTER those products have matured and their commissions should be based on the profit margin of the product in question. Should the product lose money for their clients, they don’t lose anything and they don’t gain anything either. This will put more accountability into the product seller’s hands and thus promote more responsibility amongst those sellers. After all, isn’t a Seller supposed to have unlimited risk instead of instant rewards?

For the current situation, one nagging question begs – is it fair that these bankers get to keep their commissions and possibly get more than 13 months worth of bonuses this year? How about returning the interest they gained on these toxic products and returning their commissions to help offset the costs of the compensations? Now that deposits are guaranteed, they would have no moral fear of folding and defaulting on their depositors’ monies.

And for the future, total disclosure must be enforced. The current “risk appetite” survey is nothing more than a procedure to satisfy MAS’ conditions and it doesn’t hold any water. Banks should be held accountable if their clients are not totally informed of the risks for getting into investment products.

All this upselling and dream-hawking must stop. I am, in a way, glad that this Financial Crisis has revealed such cracks in our system because this is a golden opportunity to right the wrongs that have been going on for too long.

To our government I say, do the right thing and make it happen now. More Aunties and Uncles are on the way because the baby boomers are the next and largest population in the queue. If not now, then you’re going to have really big problems in the next downturn.

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