COP’s Hearing: “Learning from the Past--Lessons from the Banking Crisis of the 20th Century”

A lot can be learnt from past banking crisis and their solutions.

US’s Congressional Oversight Panel has lined up few experts for testimonies about banking crisis and their solutions.
Experts' views on past banking crisis and lesson learnt

The testimonies by these experts are compiled in the website above.

We can learn a lot about banking crisis listed below, solutions used then and insights gain:
1. Great Depression in 1930s;
2. Savings and Loan collapse in the 1980s: the solution then was Resolution Trust Corporation (RTC);
3. Banking Crisis in Japan in early 1990s;
4. Banking Crisis in Sweden in early 1990s (This solution is what they called "Nordic Capitalism – the future of capitalism"). Refer to my previous related post.

What will US (and the world) use as a solution to current financial crisis ?


My other related posts on:
Europe investment, financial crisis, US investment.

Geitner's Treasury Outlines Framework for Regulatory Reform

Geitner of US Treasury has come out with a framework for regulatory reform.
It can be read from link below:
Geitner’s Treasury Outlines Framework For Regulatory Reform

Summary: (refer to the website for actual texts and details)
4 components of regulatory reform
1. Addressing Systemic Risk
2. Protecting Consumers and Investors
3. Eliminating Gaps in Our Regulatory Structure
4. Fostering International Coordination

Primary focus: systemic risk

For 1. Addressing Systemic Risk, it is applied on the following:
1. Systemically Important Firms and Critical Payment and Settlement Systems
2. Standards on Capital and Risk Management for Systemically Important Firms
3. Registration of All Hedge Fund Advisers With AUM (asset under management) Above a Moderate Threshold
4. Oversight, Protections and Disclosure for the OTC Derivatives Market
5. Money Market Funds

How will these be done ? Which regulators will do what ?

Some of the other related main regulators in US:
Securities and Exchange Commission (SEC)
Federal Reserve
Commodity Futures Trading Commission (CFTC)

How will these regulators divide their turfs ?

More on Reform on Monetary System

Zhou Xiaochuan, Governor of The People’s Bank of China has more speeches related to international reserve currency:
On saving ratio
Changing Pro-cyclicality for Financial and Economic Stability

His speech text of "Reform the International Monetary System" was released on 23 Mar, "On saving ratio" on 23 Mar, "Changing Pro-cyclicality for Financial and Economic Stability" on 26 Mar. We can see his urgency to get the messages across before the G20 Summit :-)

In this Reuter’s article, it was said that "Russia said it would put forward a proposal for the creation of a new reserve currency issued by international financial institutions at the Group of 20 meeting in April." and "Moscow said it has the support of other emerging market countries, including Brazil, South Korea and South Africa for its proposal. ".

In a FT’s article, it was said that "EU leader condemns US ‘road to hell’".

US and UK are against to the proposal of new international reserve currency.

It left to be seen what will happen on the coming G20 Summit.

Zhou Xiaochuan of The People’s Bank of China proposed “Reform to International Monetary System”

Zhou Xiaochuan of The People’s Bank of China has proposed a reform to international monetary system in his speech "Reform to International Monetary System" (published in both Chinese and English).

Read his text of speech for details.

A lot about international reserve currency can be learnt from his view.

A summary: (I try to figure it out)
*
(Previous) International reserve currency : Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system

Theoretical characteristics of an international reserve currency:
1. Anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply
2. Its supply should be flexible enough to allow timely adjustment according to the changing demand
3. Adjustments should be disconnected from economic conditions and sovereign interests of any single country

Why existing system doesn’t work:
Triffin Dilemma, i.e., the issuing countries of reserve currencies cannot maintain the value of the reserve currencies while providing liquidity to the world, still exists.

Desirable goal :
create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run

Solution:
super-sovereign reserve currency, proposed to use SDR.

Not a new idea:
1940s, Keynes: "Bancor", based on value of 30 representative commodities
1969, IMF: SDR

Proposed SDR valuation:
basket of currencies, expanded to include currencies of all major economies, GDP included as weight.

Steps
1. short run, the international community, needs to recognize and face up to the risks resulting from the existing system, conduct regular monitoring and assessment and issue timely early warnings.

2. Give SDR a greater role; push forward a SDR allocation; approved Fourth Amendment to the Articles of Agreement and relevant resolution on SDR allocation proposed in 1997; broaden scope of using SDR; Set up a settlement system; promote the use of the SDR; Create financial assets denominated in the SDR; improve the valuation and allocation of the SDR

(This may be the difficult part) :
Entrusting part of the member countries' reserve to the centralized management of the IMF and IMF as international "supervisor" on the macroeconomic policies of its member countries.

Suggestion for IMF to promote greater role of SDR :
set up an open-ended SDR-denominated fund based on the market practice, allowing subscription and redemption in the existing reserve currencies by various investors as desired.
*

Many countries are really frustrated with status of USD, especially those that bought lots of USD-denominated debts.

But questions remain:
1. Can IMF really handle this big role of handling all member countries' reserve and be the international "supervisor" on the macroeconomic policies ?
2. Will countries of the world let IMF handle it ?



Note:
You may wish to check out my other posts on US investment and economic analysis.

Nordic Capitalism – the future of capitalism ?

In this FT's article, it was said that, Jorma Ollila, advocates that Nordic style of capitalism (characterised by openness to globalisation balanced by strong government programmes to protect people from its excesses and an egalitarian education system), is the future of capitalism.


Who is Jorma Ollila?

His more prominent roles are:

1. Chairman of both Nokia and Royal Dutch Shell
2. Chairman of European Roundtable of Industrialists (an informal forum of around 45 chief executives and chairmen of major multinational companies of European parentage covering a wide range of industrial and technological sectors).

European Roundtable of Industrialists is a good place to get views of European Industrialists.

So, what is Nordic Capitalism ?
I found this insightful PDF file written by University of Jyväskylä.

Nordic economies:
Five small North European countries, which includes Denmark, Finland, Norway, Iceland, Sweden.

There is this book, Creating Nordic Capitalism – the business history of a competitive periphery, which is a good source to learn about Nordic Capitalism.

You can get a sample chapter from the website.

There are case studies given by the books on Capitalism of Sweden, Finnish, Danish and Norwegian.

Swedish Capitalism
Bonnier & Wallenberg
ASEA/ABB

Finnish Capitalism
Stora-Enso
Nokia and Tampella

Danish Capitalism
Arla Foods
Carlsberg

Norwegian Capitalism
Elkem
Kreditkassen

Iceland, as we know, is in deep trouble.

I wonder how are the status of these countries (Denmark, Finland, Norway, Sweden) and the companies used as success stories of Nordic Capitalism.

Can they withstand the onslaught of this financial crisis ?
How should the future of capitalism be ?

US: toxic asset plan - using public-private investment funds (PPIF) : Legacy Loans Program and Legacy Securities Program

To remove toxic assets from US banks, FDIC & Treasury launch Legacy Loan Programs and Legacy Securities Program.

We can get details of Legacy Loan Program and Legacy Securities Program from FDIC’s website.
Legacy Loan Program and Legacy Securities Program

The PDF files are very wordy and I feel that the easier way to understand is through the examples given.

(Excerpt from website)

Examples of Legacy Loan Program (main components related to $ highlighted)

If a bank has a pool of residential mortgages with $100 face value that they are seeking to divest, the bank would approach the FDIC. The FDIC would determine, according to the above process, that they would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio. The pool would then be auctioned by the FDIC, with several private buyers submitting bids. The highest bid from the private sector – in this example, $84 – would define the total price paid by the private investors and the Treasury for the mortgages. Of this $84 purchase price, the Treasury and the private investors would split the $12 equity portion. The new PPIF would issue debt for the remaining $72 of the price and the debt would be guaranteed by the FDIC. This guarantee would be secured by the purchased assets. The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis – using asset managers approved and subject to oversight by the FDIC.


Example of Legacy Securities Program (main components related to $ highlighted)

Treasury will launch the application process for managers interested in the Legacy Securities Program. An interested FM would submit an application and be pre-qualified to raise private capital to participate in joint investment programs with Treasury. Treasury would agree to provide a one-for-one equity match for every dollar of private capital that the FM raises and provide fund-level leverage for the proposed PPIF. The FM would commence the sales process for the PPIF and raise $100 of private capital for the PPIF. Treasury would provide $100 of equity capital to be invested on side-by-side basis with private capital and would provide up to a $100 loan to the PPIF if the fund met certain guidelines. Treasury would also consider requests from the FM for an additional loan of up to $100 subject to further restrictions. As a result, the FM would have $300 (or, in some cases, up to $400) in total capital and would commence a purchase program for targeted securities. The FM would have full discretion in investment decisions, although the PPIFs will predominately follow a long-term buy and hold strategy. Depending on the amount of loans provided directly from Treasury, the PPIF would also be eligible to take advantage of the expanded TALF program for legacy securities when that program is operational.

Resources for shareholder activism - Hermes Principles and the example of People’s Solidarity for Participatory Democracy (PSPD)

In this time of recession/financial downturn, we see lots of frauds on listed companies, majority shareholders trying to buy out and delist companies at cheap price, actions by majority companies that are detrimental to minority shareholders’ welfare etc..

Ever wonder, can minority shareholders do something to protect themselves from onslaught of these companies’ management ?

Shareholder activism is the answer.

European Corporate Governance Institute (ECGI) has a good write-up and resources on shareholder activism. There are proponents and opponents on shareholder activism. Some research reports are available in the website which argue on different angles.

Hermes (which is also featured in ECGI website above) has come out with Hermes Principles for corporate governance.

These are the principles concerning requirement that companies be run in the long term interest of shareholders. Read the PDF files for details. Its principles are on:
1. Communication
2. Financial
3. Strategic
4. Social, Ethical and Environment.

These principles can be a guideline for minority shareholders to ask companies’ management to adhere to.

In reality, companies’ management often doesn’t heed the opinions of minority shareholders.
What then should minority shareholders do ?

We can take a look at Korea’s shareholder activist group :
People’s Solidarity for Participatory Democracy (PSPD)
One of its articles in the website mentions some basic methods for shareholder activism: (read the article as it comes with examples and resources)

Participating in the Corporate Decision Making Process
1. Attending Shareholders Meetings
2. Shareholder Proposals
3. Proxy Solicitations
4. Convening Extraordinary Shareholders Meetings
5. Policy Recommendations

Preventive Measures and Monitoring the Behavior of Management
1. Inspection of Books and Records, Appointment of Inspectors Demands to Cease Illegal Activities
2. Injunctions to Prevent Illegal Acts of Management
3. Policy Recommendations
4. Holding Management Accountable for Their Conduct

Shareholder Derivative Actions
1. Criminal or Administrative Complaints
2. Demanding the Dismissal of Responsible Officers.
3. Policy Recommendations

Shareholders, unite ! :)

China’s 家电下乡 subsidised purchase of electronic goods for rural areas

China government’s 家电下乡 "subsidised purchase of electronic goods for rural areas" is one of China’s policies to boost internal consumptions.

家电下乡信息管理系统(Information Management System)
The website has information on announcements, laws & regulation, provincial activities, industrial activities etc regarding 家电下乡.

Q&A on the policy:

Questions & answers by China’s Ministry of Finance
Q&A on other website

Some compilations on 家电下乡on websites:
website 1
website 2

The policy is of good intention, subsidising rural folks on purchase of modern electronic goods for improvement of living standard, while providing much needed orders for electronic goods manufacturers to prevent further spread of bankruptcies and unemployment in the industry.

Its effectiveness depends on real needs of rural folks and actual executions of the program.
The devils are in the details.

Examples of concerns voiced (some are already happening), seen from various websites:
1. Unfair competitive pressure and crowding out effect on small and medium companies that models are not selected for the program.

2. Poor rural folks cannot afford to buy even with subsidy.

3. Even if it is affordable, it may not be usable, for example TV in areas with poor reception of TV programs.

4. Even if it is affordable and usable, cost of ownership may be too high, for example electricity bills, maintenance/repair/parts costs, subscription cost (for example TVs) etc..

5. Perception of the models being selected : lower quality goods, obsolete models ?

6. Ease and hidden costs of getting subsidies

7. Fraudulent goods that made to imitate selected models

8. Incentives for rural distributors to promote selected models will not be there if profits are squeezed too thin compared to other not-selected models

You may see that even if a policy is of good intention, its financial outcome depend greatly on the interaction of its different participants and transaction cost/information cost of participants.

A big compilation on economists’ blogs from Resources for Economists on the Internet (RFE)

Came across this website Resources for Economists on the Internet (RFE)
website

There are many economists’ blogs listed in RFE (in fact, far too many)..
Many big names in economics are inside. Many important economics related institution too.
It’s really a phenomenon seeing these big names blogging.

Its other useful resources :
website

I came across this Resources for Economists on the Internet (RFE) from RePEc Blog (Information about Research Papers in Economics). I put this RePEc Blog into my economists’ bloglist. You may like to check this out.

Note: If you like this post, you may like my other posts on
economist.

Fraud prevention – information from Commercial Affair Department Singapore

Commercial Affair Department Singapore’s website has a lot of useful information on fraud prevention. I’m amazed with the many types of scams/frauds.

Some resources:

Crime alerts
Examples of scams/frauds:
Job Application Scam
Lottery/Lucky Draw scam
Kidnap scam
Impersonation scam
Elderly gold scam
Apple scam
Government welface scam
Counterfeit currency/credit card scam
Renovation scam
Rental scam

Crime prevention advice
The PDF files at the bottom are good reads.
More frauds/scams..

Press releases on scams/frauds

Other information:
links to MAS’s MoneySense – Protect Yourself Against Bogus Investment Opportunities
link

Singtel *127 Crime Alert SMS. (Wonder what is the cost ?)
link

Many of these scams/frauds are operated internationally. Therefore, it is good to explore internationally on other countries’ regulators/legal enforcers’ website for information on scams/frauds.

Really scary.. The real world is like "a jungle out there". Equip yourself with fraud prevention knowledge.

Fraud prevention – don't take risk dealing with unlicensed financial operators: Singapore

Singapore is a financial hub.
It has many financial institutions doing different kinds of transactions.

Licensed financial institutions and services that they are licensed to provide.
You can click on "all institutions (alphabetical order)" to search for a particular company.
However, they are also unlicensed financial institutions that are doing businesses in Singapore, often disguised themselves as operating in Singapore or have names similar to licensed financial institutions.

The names can be deceiving. They can be sophisticated sounding (International, Consultancy, Wealth Management, Asset Management). Don't be deceived by the names.

Investor Alert List – not authorised companies
The list is not exhaustive. Choose to transact only with the regulated ones, rather than with the ones not in the alert list, for better fraud prevention.

These advices are good read. Very useful in preventing fraud.

Regulations & Licensing of Singapore financial institution
Useful if you want to know the legislation guidelines.

A licensed/regulated companies and an approved investment product cannot replace due diligence. Due diligence and self-assessment of risks are still of utmost importance at all times when investing in any investment product.

Think Lehman Brother’s Minibond and related products.

Fraud prevention – don't take risk dealing with unlicensed financial operators (Malaysia)

In this time of financial crisis/recession,
be extra careful of frauds.
For recession survival, beware of frauds.

Bank Negara Malaysia has some useful information which is useful to prevent potential financial fraud.
From its "Hyperlink",
we can find lists of licensed :
banking institutions,
insurance companies & Takaful operators,
dealers of foreign currency,
money changers,
non-bank remittance operators,
issuers of credit cards, charge cards, e-money, remittance services providers,
loss adjusters,
insurance brokers, Takaful brokers,
financial advisers.

Be very vigilant of having transactions with unlicensed financial operators.
Though they may not necessarily fraudsters, don’t take the risk.
It’s a matter of "what if".

Consumer may be more legally protected when he is dealing with licensed ones.
However, due diligence is still needed, especially if large amount of money is involved.


Bank Negara Malaysia’s website has also
"Financial Consumer alerts".

Check occasionally on Financial Consumer Alerts.

Among the ones mentioned:
Unauthorised withdrawals,
Misuse of BNM’s name,
Get-Rich-Quick schemes,
Warnings about companies, for e.g. G-Gold Gallery, PureInvestor.com Inc., Swiss Cash/Swiss Mutual Fund.

Check also on press release.
You will be able to see, for examples:
Sunshine Empire charged for illegal deposit taking;
Walton International Property Group raided..

These advices may save us from potential frauds.

A Manager’s Guide to Creative Cost Cutting – 181 Ways to Build the Bottom Line

In recession, what should a company do to survive ?

One of the ways is by cutting cost.
Cost cutting or building bottom line should be done at all times, not only when times are bad.
However, a manager should try with all his mights especially in recession before he admits defeats by laying off staffs or even filing for bankruptcies.

There is this book "A Manager’s Guide to Creative Cost Cutting – 181 Ways to Build the Bottom Line", written by David W. Young.

The book provides 181 ways for a manager to brainstorm on, with historical examples that works.

I put this book into my "Recession booklist" at near bottom of my blog.

Check this book out. It maybe the book that you need for your company to cut cost or for your boss to do a better job in cost cutting.

Recession Survival Guide – compiled by Harvard Business Publishing

Recession (or even Depression), economic downturn, financial crisis/tsunami/meltdown, layoffs, foreclosures, bankruptcies, frauds, ….etc… the list goes on..

We are bombarded by headlines of these words in media everyday.
What should we do in this critical moment ?

Harvard Business Publishing has compiled a "Recession Survival Guide".
website

Its many articles are divided into sections of:
1. voices on the recession
2. how to cope
3. how to lead
4. keep innovating
5. perspectives

I wish to search for ways to survive on this recession.

If you have ideas on Recession Survival, feel free to share with me here.

Handy's Guide to Management Gurus - by Charles Handy

One of the efficient and effective ways to learn about management theories are by learning from management gurus. But who are the management gurus ?

Charles Handy, himself a management guru, has compiled a "Handy’s Guide to Management Gurus".

His list of management gurus:
1. Charles Handy
2. Peter Drucker
3. Tom Peters
4. Warren Bennis
5. Sumantra Ghoshal
6. Kenichi Ohmae
7. Gary Hamel
8. Rosabeth Moss Kanter
9. Bill Gates
10. Ricardo Semler
11. Micheal Porter
12. Fons Trompenaars & Charles Hampden Turner

The "Handy’s Guide to Management Gurus" is available in internet from BBC World Service –Learning English. It comes with PDF files, radio programmes, highlights and biography.
website

The PDF files on these management gurus are good reads !

ACRA Singapore - area of concern in financial statement audit in current economic environment

Just saw in newspaper ACRA (Accounting and Corporate Regulatory Authority) Singapore has come out with a list of areas of concern in financial statement audit in current economic environment.

link

The PDF file in the link is a good read.

Areas of concern:
1. Planning and fraud considerations
2. Cash at banks
3. Going concern
4. Valuation of financial instruments held at fair value
5. Impairment of assets
6. Deferred tax asset recognition
7. Provision for onerous contracts and restructuring
8. Disclosure in financial statements, off-balance sheets items
9. Communication with those charged with governance

Refer to the PDF file in the link for details.
It even mentions the references/standards applicable to the areas of concern.

To improve on how to spot frauds, maybe we should learn from these references/standards.


Note:
Do check out my other related posts on Singapore investment, financial crisis and
fraud prevention.

Singapore Budget 2009 - Singapore fiscal stimulus

Singapore Budget 2009
Detailed documents on Singapore Budget 2009:
website

The "Budget Highlights" is a summary. Refer to website above for details.

Its key initiatives:
Jobs for Singaporeans
Stimulating Bank Lending
Enhancing Business Cashflow and Competitiveness
Supporting Families
Building a Home for the Future

There is a "If I were the Finance Minister" game in Singapore Budget website.
link to the Game
Cool ! This is a creative way to show the tradeoff on fiscal policies and what to consider as a Finance Minister.

As what Milton Friedman said, "There is no such thing as free lunch."

Malaysia's first and second Economic Stimulus Packages

From Malaysia’s Treasury, details of the Economic Stimulus Package:

Malaysia’s 1st Economic Stimulus Package
PDF file

Malaysia’s 2nd Economic Stimulus Package
PDF file
its appendices
PDF file

SmartPengguna - a website to compare product prices in Supermarket Stores in KL, Selangor

Heard from Malaysia news today, there is this website called SmartPengguna.
website

I found this website useful.

This website is useful to compare prices of products sold in Supermarket Stores (Carrefour, Giant, Jusco, Mydin, TESCO) in Wilayah Persekutuan KL (Federal Territory) and Selangor. Carrefour, Giant, Jusco, Mydin, TESCO are the main Supermarket Stores in Malaysia.

We can select the Supermarket Stores near to our home and select the products to be compared (currently there are 8 categories available). Note the date/time the information is updated.
We can also get Ministry news and user generated articles from the "News, Articles, Feedback, Q&A" portion.

This type of website is useful to reduce information cost/information asymmetry. Consumer can compare the prices first before taking a trip to the Supermarket Stores. But the pre-requisite is the information has to be accurate and updated frequently. The cost of getting information to this website should not be too high, otherwise this website will not be sustainable.

If you like the concept of SmartPengguna as a way to save and survive in recession, check out my other posts on recession survival and fraud prevention too.