Sunday, September 24, 2006

Not the same when the angmohs do it

The Departed, starring Leonardo DiCaprio, Matt Damon, Jack Nicholson, Martin Sheen and directed by Martin Scorsese:

Infernal Affairs, starring Andy Lau, Tony Leung and directed by Alan Mak and Andrew Lau:

The angmoh trailer (they gotta make it more obvious):

Thursday, September 21, 2006

Perplexing article on HDB scam

The Business Times reported today about a new HDB scam called the "cash-down" scheme. Here's how it is supposed to work:

Someone may have bought his flat for, say, $400,000 during the market peak in 1996. With the drop in price, he may be able to sell it today for $300,000 - but the price declared in the official sales documents is lower at, say, $280,000.

The declared sale proceeds ($280,000) will go straight into the seller's CPF account, but he retains the undeclared $20,000 cash that he receives separately from the buyer.

The buyer may be enticed to agree to such an arrangement if he gets to buy the flat at slightly below the market price. In this case, the flat could have fetched a higher price at, say, $310,000, but the seller agrees to sell it for $300,000, so the buyer enjoys a $10,000 saving if he goes along with the seller's scheme.
All sensible so far, but here's where the logic gets confusing:

The scheme is said to involve mostly sellers suffering from negative equity on their property because they had bought their flats at high prices during the boom years. What they do is under-declare their sale price so as to prevent all of the sale proceeds from being returned to their Central Provident Fund (CPF) accounts.

This happens because many owners would have used up a lot of their CPF savings to pay for their flats and the interest cost involved in servicing their mortgages.

Says an HDB resale market observer: 'Whereas the cashback deals were triggered more by greed or profiteering, cash-down deals seem to be driven by hardship and a need for those suffering from negative equity on their HDB flats to get out of the rut - so they can downgrade to a smaller flat, or move on.'
To clarify, negative equity refers to a situation where the value of an asset (in this case an HDB flat) is lower than the value of its attached liability (in this case a loan from the HDB or bank). Hence, asset - liability = equity is negative.

My question is this - how does the scam help you if you are in negative equity? Take the example above. Say the outstanding loan on the flat is $320,000. Hence the seller is in negative equity of $20,000. He will have to repay the bank or HDB $320,000 no matter what.

If he was not in negative equity, i.e. if the flat could be sold at say $350,000 today, the $320,000 loan will be deducted straight from the sale proceeds, with the remainder going first to CPF to cover withdrawals and interest, then to the seller in cash.

If the seller was in negative equity, as in this case where the flat can only be sold for $300,000, all of the proceeds will go to pay off the loan, and HDB or the bank will come after you for $20,000 more in cash. If you under-declare the sale price they will just come after you for more cash.

The only way all this can make sense is if the loan was from the HDB, and it does not have the practice of requiring the seller to top-up the difference between his outstanding loan and the selling price of his flat, i.e. if it forgave the negative equity. (The banks will never do this.)

I have not found anything in HDB's literature to suggest this, and I find it hard to believe HDB will be so generous. If this was true, there will be many who will exploit this route to erase their negative equity. And negative equity will then not be such a big issue.

So I'm back to scratching my head over the logic of the whole thing. Hmmm...

Hedge fund trouble and the analyst job market

The Business Times reported today that Amaranth Advisors was raising new equity after wrong-way energy bets lost the firm US$4.6b this month. That's quite a chunk of the firm's US$9.5b under management. Apparently, this is the biggest hedge fund loss since LTCM collapsed in 1998.

I'm just looking at this in relation to the huge rise in recruitment by hedge funds in Singapore over the last year. Several of my friends have made the move, lured by lucrative fees, attractive profit-sharing schemes and off course, the potential for outsized gains. Amaranth itself has an office in my building.

Timely reminder... good luck at the tables, guys!

Monday, September 18, 2006

Sunday, September 17, 2006

Scholarship cut-back could be best for all

"PSA, DBS and SLA have cut back on their scholarship programmes. Is this the start of a trend as employers become more wary of bond-breakers?" So asks the Sunday Times in today's edition. The three agencies did not pin down reasons for the change, said the paper. But a PSA spokesman was quoted to say: "The number of scholarships we offer year to year varies and depends on the organisation's needs and how these needs are met by other channels such as direct recruitment."

I think that the quote is more enlightening, and enlightened, than the paper realizes. My read of the situation is this - that the agencies have awarded far more scholarships than they should have, and in so doing have directly contributed to the bond-breaking problem. Intentions were most probably good when the scholarship schemes were conceived. But honestly, how many Ivy League or Oxbridge graduates does an organization like PSA or SLA really need? Do they really need to bond tens of scholars a year?

My hope is that agencies offering undergraduate scholarships are beginning to realize that bonding large numbers of high-calibre individuals does no one any good when there is no clear understanding of how they will be employed. Unless the right challenges are found for these ambitious scholars, you will always have bond-breakers who leave in frustration. Which leaves the agency equally pissed as well. It is better to not have started the process at all.

Mr Wang has lots more to say on the issue, including answers for those who rue the reduced education funding for those who need it.

Voice & accountability in Singapore lowest in 10 years

According to the World Bank, voice and accountability in Singapore is at its lowest in 10 years, as measured against a sample of 213 countries. In its 2006 report on governance, Singapore scored 38.2 in the category, meaning that it beat only 38.2% of all the countries surveyed on this measure. Singapore had scored highs of 63.8 in 2002 and 59.1 in 1996, but has seen its rating fall drastically in the last three years.

The World Bank defines voice and accountability as the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and free media. I'm still digging into the World Bank's comprehensive website on the survey to see if I can find the exact reason for the decline, but by any measure, the result looks pretty dire.

Meanwhile, I pulled a couple of interesting charts from the site. First, a chart comparing the voice and accountability scores of 20 East Asian countries. At a glance, one can imagine calls of "Look at Taiwan! Look at South Korea! Do we want to be like them?!"

Now let's look at the same chart for 20 OECD countries. Will we then say "Look at Switzerland, Australia, UK and Japan! We do want to be like them!" Food for thought. Click here for a basic table of the World Governance Indicators for each country.