CENTRAL PROVIDENT FUNDS ENDANGERED: SOLUTIONS PROPOSED
Presidential candidate Dr. Tony Tan recently spoke about “how close we were to a total collapse of the world financial system in 2008-2009”. (Straits Times 20 July 2011)
This contradicts Minister Lim Hng Kiang’s 2008 statement four days after Singapore guaranteed $700 billion deposits of various currencies. $150 billion reserves was set aside for this limitless guarantee. Minister Lim said “$150 billion backing is an amount that will be ample to meet any eventuality except the most remote.” If we were so close to a total collapse as Dr. Tan says, that means we were close to losing more than $150 billion reserves. Didn’t MAS think the fall of Lehman Brother was most remote too?
The U.S. Stock Market fell 89 percent during the Great Depression. Our reserves will be worth pennies on the dollar if the global economy had collapsed. However, depositors are still entitled to their $700 billion in cash at the click of the mouse. How is Singapore going to raise so much cash so fast? Such pressures will cause Singapore’s currency to fall and devalue our Central Provident Funds. Moreover, our liabilities for foreign currencies’ deposits will rise.
Why did the limitless guarantee cover foreign banks which had financial troubles in hundreds of billions of dollars? Why did it last till end of 2010? Even if a limitless guarantee is needed, it should cover only the Singaporean banks like DBS, OCBC and UOB. Moreover, shorter time frames should be used to enable regular reviews.
Looking forward, laws must be enacted to ensure that only a limited percentage of our total reserves can ever be used for bank guarantees. PERCENTAGE is the most important word here because value of reserves plunge when markets plummet like waterfalls.
Britain used anti-terrorism laws to freeze Iceland’s assets. Total bank deposits in Iceland was only a small fraction of the bank deposits in Singapore. If a “total collapse” had occurred, Singapore’s reserves may not be enough to cover the $700 billions deposits of various currencies. Singapore’ indebtedness may far exceed that of Iceland. Governments worldwide may also freeze Singapore’s assets.
To avoid foreign governments confusing our Central Provident Funds with our reserves, Singapore should progressively give Singaporeans freedom to take out their CPF money as and when they wish.
Singapore must not try to play the role of Bernanke with our Central Provident Funds. Bernanke may print unlimited quantities of money but our Central Provident Funds are limited.
writejt@gmail.com
http://singaporereserves.blogspot.com
Yours Sincerely,
Joseph Tan
Thursday 28 July 2011
Sunday 17 July 2011
HOW ONE DECISION MAY BANKRUPT SINGAPORE
One week after Iceland faced bankruptcy, Singapore guaranteed $700 billions deposits of various currencies. This blanket guarantee included foreign banks which had financial troubles in hundreds of billions of dollars.
Singapore’s reserves were used to back this guarantee. Our reserves represent the cumulative sacrifices, sweat, toil, tears, heartaches and headaches of numerous Singaporeans both present and past. Our savings are meant for our children, our aged, our beloved, our homes, our medical needs and to protect us from ruthless enemies. Yet, they were all placed in jeopardy by one single decision alone.
The U.S. Stock Market fell 89 percent during the Great Depression. Our reserves will be worth pennies on the dollar if the global economy had collapsed. However, depositors are still entitled to their $700 billion in cash at the click of the mouse. How is Singapore going to raise so much cash so fast? Such pressures will cause Singapore’s currency to fall and devalue our Central Provident Funds. Moreover, our liabilities for foreign currencies’ deposits will rise.
During market crashes, bank assets like loans and investments also fall dramatically in value. Massive banks' failures will make Singaporeans liable for most of the $700 billions deposits. Singapore can become indebted to many wealthy foreign depositors. Britain used anti-terrorism laws to freeze Iceland’s assets. Governments worldwide can also freeze Singapore’s assets.
Let us assume a scenario when Singapore becomes liable for $500 billions of depositors’ money. Our reserves had fallen in value to $400 billion. Singapore becomes indebted by $100 billions.
Blanket guarantee gives the weakest banks' depositors top priority claims to Singaporeans' reserves. This is true even if the weakest banks fall because of frauds, negligences, mismanagements, stupidities or speculations. Several foreign banks were in trouble when our local banks remain strong. This means Singaporeans' savings were placed on the front line for foreign banks' depositors to lay claims on. Lehman Brothers fell even though it had US$691 billion assets in Nov. 2007.
Since foreign banks had the greatest likelihood of failing, foreigners had the greatest likelihood of claiming the greatest amount of money from Singaporeans' sweat stained savings. Thus, the poorest Singaporeans will have to help pay off the richest foreign depositors.
Why did Singapore give a limitless guarantee? Isn’t this a terrible precedent for Singapore to set? Even the United States only raised the guarantee from US$100,000 to US$250,000. Why did the guarantee last till end of 2010? If there was major capital flight into Singapore, this could increase our absolute exposure drastically.
Parliamentary approval should be required to raise the guaranteed deposit above a preset limit. Parliamentary approval should be required before any foreign bank deposits can be guaranteed. Blanket guarantees are NOT sustainable and have led Ireland and Iceland into troubles. Laws must be enacted to ensure that only a limited percentage of our total reserves can ever be used for bank guarantees. PERCENTAGE is the most important word here because value of reserves plunge when markets plummet like waterfalls.
writejt@gmail.com
http://singaporereserves.blogspot.com
Yours Sincerely,
Joseph Tan
http://singaporereserves.blogspot.com
Singapore’s reserves were used to back this guarantee. Our reserves represent the cumulative sacrifices, sweat, toil, tears, heartaches and headaches of numerous Singaporeans both present and past. Our savings are meant for our children, our aged, our beloved, our homes, our medical needs and to protect us from ruthless enemies. Yet, they were all placed in jeopardy by one single decision alone.
The U.S. Stock Market fell 89 percent during the Great Depression. Our reserves will be worth pennies on the dollar if the global economy had collapsed. However, depositors are still entitled to their $700 billion in cash at the click of the mouse. How is Singapore going to raise so much cash so fast? Such pressures will cause Singapore’s currency to fall and devalue our Central Provident Funds. Moreover, our liabilities for foreign currencies’ deposits will rise.
During market crashes, bank assets like loans and investments also fall dramatically in value. Massive banks' failures will make Singaporeans liable for most of the $700 billions deposits. Singapore can become indebted to many wealthy foreign depositors. Britain used anti-terrorism laws to freeze Iceland’s assets. Governments worldwide can also freeze Singapore’s assets.
Let us assume a scenario when Singapore becomes liable for $500 billions of depositors’ money. Our reserves had fallen in value to $400 billion. Singapore becomes indebted by $100 billions.
Blanket guarantee gives the weakest banks' depositors top priority claims to Singaporeans' reserves. This is true even if the weakest banks fall because of frauds, negligences, mismanagements, stupidities or speculations. Several foreign banks were in trouble when our local banks remain strong. This means Singaporeans' savings were placed on the front line for foreign banks' depositors to lay claims on. Lehman Brothers fell even though it had US$691 billion assets in Nov. 2007.
Since foreign banks had the greatest likelihood of failing, foreigners had the greatest likelihood of claiming the greatest amount of money from Singaporeans' sweat stained savings. Thus, the poorest Singaporeans will have to help pay off the richest foreign depositors.
Why did Singapore give a limitless guarantee? Isn’t this a terrible precedent for Singapore to set? Even the United States only raised the guarantee from US$100,000 to US$250,000. Why did the guarantee last till end of 2010? If there was major capital flight into Singapore, this could increase our absolute exposure drastically.
Parliamentary approval should be required to raise the guaranteed deposit above a preset limit. Parliamentary approval should be required before any foreign bank deposits can be guaranteed. Blanket guarantees are NOT sustainable and have led Ireland and Iceland into troubles. Laws must be enacted to ensure that only a limited percentage of our total reserves can ever be used for bank guarantees. PERCENTAGE is the most important word here because value of reserves plunge when markets plummet like waterfalls.
writejt@gmail.com
http://singaporereserves.blogspot.com
Yours Sincerely,
Joseph Tan
http://singaporereserves.blogspot.com
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