Wednesday, March 27, 2013

Is our money safe in Singapore ?

Is Our Money Safe in Singapore?

Our MRT is congested during the peak hours, and everyone complains (kpkb).

We had flooding in some parts of Singapore during one of those rare flash thunderstorms, people took note.

But nobody takes note that our money is safe in the banks and the CPF.

The current Cyprus crisis is instructive.

In the past few days, the banks in Cyprus were closed and the Cypriots could withdraw 100 Euro – 200 Euro (S$160 – S$320) per day from the ATM. (Good luck to all who did not keep some money in the old-fashion way, in their mattresses!)

Now, the one frightening aspect of the bailout term is that some of the customers’ deposit in the banks may be expropriated.

And the future for the country: a lowering of standard of living and probably a much higher rate of unemployment … >20%?? (Can you imagine we having unemployment rate of 10%, let alone >20 %?)

Cyprus was a financial haven for wealthy people who parked their money there, and I suppose, in this way, this is no different from Singapore. But there are many things that our Government has done right to prevent such banking crisis from ever happening here and of which we have taken for granted:
1. We made sure we have able and competent people in our financial regulatory institution.  Our financial regulatory institution is staffed by some of our brightest people, the scholars (what’s wrong with being a scholar? Full disclosure: I am not a scholar; I flunked my O-level). And we are able to retain these brightest people because we pay them well. Here is an extract of an interview with Hank Greenberg, the man who, most people credit, as having built AIG into the largest insurance company in the world. Mr. Greenberg retired as CEO and Chairman in 2005, way before the 08/09 Financial Crisis which melted AIG. The interview was reported on 14 Mar 2013 (source:, Hank Greenberg).
Hank Greenberg, when asked as to how the Financial Crisis started, said:“The SEC, where were they when the investment banks were leveraging the capital 40 to 1? Did you hear anybody say anything?
The blame is widespread. I think if you look at some other countries -- a city-state like Singapore -- a tiny state but very well run and the regulators are terrific. They get paid as much as they would if they were in the private sector, or maybe more. They're intelligent, smart.”
2. We are always aware when things go wrong, but rarely do we know of many instances of things that were prevented from going wrong. One good example is the case of the Bank of Credit and Commerce International. The Bank founded in 1972 with HQ in London and Karachi, applied to operate in Singapore, in 1973.
The application was rejected.  
It tried again in 1980 and 1982 by which time the bank was operating in 78 countries (including USA, UK and Hong Kong) with 400 branches.  
The application was again rejected. 
This was despite representation was made on behalf of the bank by high-powered intermediaries such as a former British Prime Minister (who was close to the then Senior Minister, Lee Kuan Yew) and a respected American banker who helped Singapore set up the Asian Currency Unit and to whom Singapore owed a certain obligation (source: The Straits Times, 12 Aug 1991, page 17).
In 1991, the bank collapsed. 
Depositors in USA, UK and Hong Kong, among many other countries, lost their money.  The Bank of England was lambasted as ‘grossly incompetent’ for allowing it to operate in UK.
Thanks to our smart and competent people (some of whom are scholars) at MAS, we did not have a banking/financial crisis on hand.
3. So, we have smart people (scholars) in charge of our MAS.  And we compensate them well to retain them. Now, do you want someone like me, a guy who flunked O-level, and barely made it at second try, to be the elected person or the Minister to take charge of these smart people? This is where many of us do not appreciate having top talents (scholars) to be in our Government, whether as a civil servant or as an elected MP/Minister. We need to pay well to attract the best and the brightest (pay peanut, you get monkey, or a guy who flunked O-level). And the right compensation has a positive side-effect: there is less incentive to be corrupted. Thus one of our greatest intangible assets is that our political leadership has a reputation of not only competent but also not corrupted. Charlie Munger, the Deputy Chairman of Berkshire Hathaway (most people know Warren Buffet as the Chairman) spoke openly on this. Reference: Google onto: Charlie Munger, Singapore.
Rupert Murdoch, a mover-and-shaker in mass communication in USA, UK and Australia, spoke positively on high salary of Ministers and non-corruption in Singapore. Reference: Google onto: Rupert Murdock on Singapore.
And years after years, probably in the last 20 years, Singapore has consistently been rated as one of the top 5 countries with the least corruption (the other four are usually, New Zealand and the 3 Scandinavian countries of Denmark, Finland and Sweden) by two international organisations: World Audit Organisation and Transparency International.
Not surprisingly, investors have confidence in us! In our competence and honesty!

No wonder, we survived the Asian Financial Crisis of 1997.

And now we survived the recent Financial Crisis of 2008/2009. During this period, our unemployment rate at its worst was no greater than 4%, whereas USA’s was 8% - 9% and is still at around 8%. Some developed countries in the EU had and still have >10% (Spain’s has been at >20 %!!!). 

Our sovereign rating remains secured at AAA, whereas that of USA, UK and France was downgraded. We are now in this extremely exclusive club of AAA with 10 other members only: Germany, Netherland, Switzerland, Denmark, Sweden, Norway, Finland, Australia, New Zealand and Canada.

If it had not been for our Government’s prudent financial policies, we might have to limp from crisis to crisis, and perhaps to eventually beg for bailout, and one thing is for sure: there is no Germany to come to our aid.  So next time, when some political leadership request to spend more and more and more and more, please pause for a moment and think: We could end up like Cyprus except that there is no Germany or the EU to bail us out. 

And let’s consider the relatively high salary our scholar-civil-servants and scholar-Ministers get as a small insurance premium we are paying to ensure our savings and other assets are not wiped out.

Please feel free to share with your friends.


No comments: