By the Singapore Democrats, 12 Feb 2009

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CNN reported today that Merrill Lynch paid a total of $121 million (amounts in USD unless otherwise stated) to its top four bonus recipients in 2008 just before it went out of business. The next top for bonus recipients received $62 million, and the next top six bonus packages totalled $66 million. In other words, 14 people in the US were given nearly $250 million.

The list goes on: nearly 700 of the company’s top executives (out of a total of 39,000 employees) walked away with at least $1 million each in bonuses bringing the grand total  paid out to a cool $3.6 billion.

These benefits were dished out last December, just days before the bank announced that it had made a $15-billion loss in the 4th quarter ($27 billion for the year). A few days later, the company was sold to Bank of America.

The Merrill saga would make for fascinating reading if not for the fact that we Singaporeans were the ones paying for this scam.

And who was behind the fiasco? In December 2007, Temasek Holdings bought into Merrill Lynch and paid $4.4 billion for a 9.4 percent stake, making it the biggest shareholder even though the bank was already losing money then. By July 2008, Merrill reported another two quarters of losses and announced that it needed more capital –- $8.5 billion to be exact.

Normally this would have been seen as a warning signal that something was amiss. But the bright sparks at Temasek, chief among them Ms Ho Ching, unbelievably chose to up its stake to 14 percent in the flailing and failing bank. Temasek did this because it believed that Merrill had a “great franchise”. It even announced that it had “great confidence” in the bank’s CEO John Thain, who was fired from BoA earlier this year for not disclosing Merrill’s losses.

But you wouldn’t know about the tumult by looking at Temasek’s website because it carries no news about Merrill. The website does say, however, that Temasek is “built on professionalism and robust processes”.

All that professionalism and robustness under Ms Ho’s leadership led the group to declare a 31 percent loss last year in its portfolio of S$185 billion -– and that was just between March and November. Temasek has invested 40 percent of its budget in financial services. Put together, we are probably staring at an even greater loss.

The S$58-billion loss incurred by Temasek works out to, based on 3 million citizens, S$20,000 per Singaporean. If this money had been returned to the people instead of lining the already bulging pockets of the fat cats in Wall Street, each Singaporean household would have an average of S$80,000 to fall back on in these hardest of times.

As it was, Mr John Thain spent $1.2 million of company money to renovate his office and we ended up helping to pay for, among other things, a $35,000 toilet-bowl and a $1,400 wastebasket.

The scary bit about all this is that the GIC has yet to announce its losses.

In the meantime, the Government tells Singaporeans to further tighten their belts. Wonderful advice for the thousands who stand in line everyday for free food.


A summary of my critique of the CPF Life scheme ST letter: Vital to question

  1. Much is being of the frauds orchestrated by Madoff and Stanford through cheating investors by offering unrealistically high rates of return. These frauds are nothing new. This is what precisely happened on a gigantic scale with mortgage-backed securities which reputed banks on Wall Street sold to gullible investors promising much higher rate of return than what was earned by the banks themselves as interest on the underlying mortgage assets. It has not yet dawned on the self-styled experts who claim to be the financial wizards in Washington, DC that mortgage payment defaults and the resulting foreclosures only brought forward and accelerated the inevitable financial melt-down. Even if there had been no defaults in mortgage payments and no foreclosures, the negative NIM (Net Interest Margin, to the financially challenged) itself, resulting from the unfavorable (to the banks) disparity between the mortgage interest rates and the rates of return assured by the banks on the securitised derivatives (which are now appropriately labeled as ‘toxic cocktail’) they sold to ignorant investors, would have, in any case, sunk the banks in dire straits sooner than later.

    In effect, the banks were borrowing money (leveraging themselves, to use the Wall Street jargon) at higher rate of interest and lending it to the mortgagees at a lower rate. The banks had cleverly used the convoluted, complex way the mortgage-backed security derivatives were structured to hide this basic fact and blind the investors who bought these securities to the perilous situation they got themselves into. It was not without reason that Warren Buffet, the Sage of Omaha, had described these derivative instruments, way back in 2002, as the “financial Weapons of Mass Destruction”. Here is the link to what Buffet said about derivatives: http://www.fintools.com/docs/Warren%20Buffet%20on%20Derivatives.pdf. Why, then, are these crooks on Wall Street also not arrested and charged with fraud? But, on the contrary, these rascals are being showered with billions of dollars of taxpayer’s money for bailing them out of the hole they have themselves dug themselves into!

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