SINGAPORE RESERVES: ONE DECISION TO BANKRUPT SPORE
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Saturday, 9 July 2011
ONE DECISION TO 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.
(References: Monetary Authority of Singapore Press Release on 16 Oct. 2008 and Deputy Chairman of MAS Minister’s Lim Hng Kiang’s statement on 20 Oct. 2008)
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 $100 billion. Singapore becomes indebted by $400 billions. Ironically, our $100 billion savings will be paid to the foreign banks that fail first.
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.
Yours Sincerely,
Joseph TanTaken from:http://singaporereserves.blogspot.com/
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Sg flexing its economic prowess by guaranteeing?
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Whoever wrote this is trying to be smart by stating the obvious. But for those who have done modelling of economic crises, this is like saying: You know, I just discovered that since money cannot leave earth, therefore there must be a money cycle. Eureka!
There's no such thing as "guaranteed". You know that. I know that. But there are times it is necessary to make such "guarantees".
Here's why:
If nobody panicks, and everyone goes down the exit in single file, nobody will get burnt to death.
If someone starts a stampede, everyone dies. That's the simplified analogy.
In other words, if I don't assure you that your savings are safe indefinitely (there are not), YOU are going to start the stampede in the worst case scenario and when everyone demands withdrawal, bank loans that have yet to mature will have to be withdrawn.
There could have been enough money to go around if everyone was patient and the bank recovers the principal sums + the interests, but if everyone panicks and the bank has to liquidate, there obviously won't be enough to go around.
So here's why a strong govt that can "hoodwink" and assure people is VERY important in the banking sector....as well as other portions of the economy for the matter.
The government is not lying about the guarantee....but its on the implicit reasoning that a bank run would not occur.
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it's all e psychological effect tat comes into play
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Oh yeah, that's why we have traditionally used precious metals as store of value as well.
No?
Its value is GUARANTEED by its scarcity.
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whatever singapore or iceland go bankrupt, as long as I dun go bankrupt can liao
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Singapore only back up to S$150 billion using its reserve and the guarantee have ended in 2010.. so money is safe... So why that guy now then talk about it?
Cut and paste message from the minister Mr Lim Hng Kiang
Why the Guarantee is Sufficient and Prudent
7. The deposits of individuals and non-bank customers with banks, finance companies and merchant banks in Singapore amount to about S$700 billion. In view of MAS’ stringent regulations and close supervision of financial institutions in Singapore, their strong capital and asset positions, and the potential support that foreign institutions in Singapore can avail themselves of where necessary under the government guarantees provided by their home jurisdictions, MAS and the Ministry of Finance have assessed that the backing of S$150 billion of the Government’s reserves provided to the guarantee would be more than sufficient.
8. Let me explain. First, the likelihood of a bank failure as a result of problems in Singapore is small as our banking system is sound and closely supervised, even though it is possible that problems elsewhere will affect a bank’s operations in Singapore.
9. Second, even if a bank were to fail here, it should still have substantial assets to meet its liabilities to depositors. Under the law non-bank depositors enjoy priority in being paid, ahead of other unsecured creditors. This makes it more likely that the failed institution will have sufficient assets to pay out to depositors. Hence, for the guarantee to be called, two things have to happen: a bank has to fail, and at the same time its assets must be worth so little that there is not even enough to repay its depositors. Even then the draw on the guarantee should only be for the shortfall, which should be a fraction of the deposits outstanding.
10. Hence we have calculated that the S$150 billion backing is an amount that will be ample to meet any eventuality except the most remote. S$150 billion does not in any way reflect an estimate of the likely draw over the two years of the guarantee. On the contrary, we expect the actual draw to be small or if we are fortunate even zero. Instead, the S$150 billion reflects the Government’s confidence in the banking system, and its intention to give all depositors that same confidence.
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Doomsday Scenario.
PAP cadres always like to present a Doomsday Scenario to cow Singaporeans into line.
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Seriously, if there happens to be a huge bank run in SG (choi!).....the ministar will have to eat his words.
That much he implicitly meant when he said:
On the contrary, we expect the actual draw to be small or if we are fortunate even zero. Instead, the S$150 billion reflects the Government’s confidence in the banking system, and its intention to give all depositors that same confidence.
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if you dun make doomsday scenario, you think we would be self sufficient in water today?
Forget abt Marina Barrage, say NEWater & desalinisation...
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Originally posted by sbst275:
if you dun make doomsday scenario, you think we would be self sufficient in water today?
Forget abt Marina Barrage, say NEWater & desalinisation...
The water issue is not a "doomsday scenario", it's an impending threat with high probability of occuring.
I hope you can distinguish between the two.
You do know what a doomsdays scenario is right?
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Also in a doomsday scenario like global depression, every country in the world would be affected, it's not just limited to Singapore.
Depositors withdraw all their funds from Singapore and shift to which other country (since all countries are affected).
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I worry for the majority of Singaporeans, they are not brought up to think independently and objectively, a product of our rote learning system.
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Also have to ask the Minister what happened to all our funds (whose pocket is it in now), our total money supply is not enough to offset the foreign "monetary deposits".
Singapore still has a shortfall of at least 50% of $700 billions to satisfy the foreign depositors' so called "cash claims".
