The effect of the fall in the stock market is now showing in dividends declared by unit trusts. After the EPF declared dividends of 4.5% (lowest in so many years), PNB now declares its lowest ever payout for the ASM. However PNB has been able to declare a reasonable dividend rate for its fixed-price equity income fund. The 6.25% dividend declared is so much higher than that offered by fixed deposit takers.
KUALA LUMPUR: Permodalan Nasional Bhd (PNB) declared the lowest ever payout for Amanah Saham Malaysia (ASM), 6.25 sen per unit for fiscal 2009, as it decided to keep some money for a rainy day.
It could have paid 7.92 sen but decided on the lower figure, ASM's lowest since the fixed-price equity income fund was launched in 2000.
The payout is still more than double the current 12-month fixed deposit rate of 2.5 per cent.
"We still have a reasonable amount of cash. The ASM fund size is 7.6 billion, of which 2.1 billion is in cash and this can be used to buy good stocks," said PNB president and group chief executive Tan Sri Hamad Kama Piah Che Othman yesterday.
PNB had to contend with a stock market that fell some 40 per cent last year as investors worried a recession would hurt corporate earnings.
Hamad declined to predict how PNB would fare for the year till March 31 next year, but said it would strengthen its investment portfolio. Since last year, the purchase of ASM units has risen by a quarter.
PNB chairman Tun Ahmad Sarji Abdul Hamid said 402,513 unit holders who subscribed to 7.21 billion units of ASM would benefit from the total payout of RM407.58 million.
Last year, a record payout for ASM was declared with income distribution of 7.8 sen, compared with 6.8 sen in 2007. ASM made a gross income of RM440.73 million for fiscal 2009.
Meanwhile, ASM transactions nationwide will be halted from March 25 to 31 for the calculation of income distribution.
Wednesday, March 18, 2009
Tuesday, March 17, 2009
Global meltdown hurt performance, says EPF
This article is from The New Straits Times. The lower rate of dividends declared will cause the amount at retirement of contributors to be reduced.
This dividend rate is however better than most other saving institutions but not as good as those declared by some other investment vehicles such as PNB and government bonds. Contributors who moved their EPF savings into Unit Trusts suffer paper losses instead of getting any dividend.
KUALA LUMPUR: The Employees Provident Fund (EPF) has declared a dividend of 4.5 per cent for 2008, its lowest since 2003, and warned members not to expect more than that for this year.
The EPF's dividend was 5.8 per cent for 2007, 5.15 per cent in 2006, five per cent in 2005, 4.75 per cent in 2004 and 4.50 per cent in 2003.
"Up until September last year, the EPF was doing well in equities. However, with the global financial meltdown, our performance in equity investments recorded a drop of less than 20 per cent, which impacted our dividend pay-out.
"This, however, compares better with that of the Kuala Lumpur Composite Index, which was down approximately 40 per cent from the end of December 2007 to December 2008," EPF chairman Tan Sri Samsudin Osman said in a statement.
Net income for the year was RM14.26 billion, after deducting allowances for the diminution in value of equities and doubtful debts, dividends for withdrawals, investment expenses, operational expenses, and death and incapacitation benefit payments. This represented a decrease of 15.47 per cent over 2007's net income of RM16.87 billion.
EPF made allowances of RM4.69 billion for the diminution in value of both overseas and local equities, compared to only RM520 million in 2007. Of the 2008 provision, RM3.20 billion was allocated for overseas equities.
"The fundamentals of the companies we invested in remain strong and we are confident that this provision will be written back once recovery takes place," said Samsudin.
As at Dec 31 2008, the EPF's total investment funds had grown by RM28.99 billion to RM342 billion compared to RM313.01 billion a year ago.
The three main contributors to EPF's record gross income of RM20 billion in 2008 were loans and bonds (RM6.78 billion), equities (RM6.67 billion), and Malaysian Government Securities (RM4.94 billion).
Dividends will be credited to members' accounts on March 23.
"We are bracing ourselves for a tough year ahead as the effects of the global financial crisis continue to be felt.
"However, we believe that in every crisis, there is opportunity to be seized. The key is to remain vigilant and continue delivering results for the benefit of our members through our prudent investment strategy."
This dividend rate is however better than most other saving institutions but not as good as those declared by some other investment vehicles such as PNB and government bonds. Contributors who moved their EPF savings into Unit Trusts suffer paper losses instead of getting any dividend.
KUALA LUMPUR: The Employees Provident Fund (EPF) has declared a dividend of 4.5 per cent for 2008, its lowest since 2003, and warned members not to expect more than that for this year.
The EPF's dividend was 5.8 per cent for 2007, 5.15 per cent in 2006, five per cent in 2005, 4.75 per cent in 2004 and 4.50 per cent in 2003.
"Up until September last year, the EPF was doing well in equities. However, with the global financial meltdown, our performance in equity investments recorded a drop of less than 20 per cent, which impacted our dividend pay-out.
"This, however, compares better with that of the Kuala Lumpur Composite Index, which was down approximately 40 per cent from the end of December 2007 to December 2008," EPF chairman Tan Sri Samsudin Osman said in a statement.
Net income for the year was RM14.26 billion, after deducting allowances for the diminution in value of equities and doubtful debts, dividends for withdrawals, investment expenses, operational expenses, and death and incapacitation benefit payments. This represented a decrease of 15.47 per cent over 2007's net income of RM16.87 billion.
EPF made allowances of RM4.69 billion for the diminution in value of both overseas and local equities, compared to only RM520 million in 2007. Of the 2008 provision, RM3.20 billion was allocated for overseas equities.
"The fundamentals of the companies we invested in remain strong and we are confident that this provision will be written back once recovery takes place," said Samsudin.
As at Dec 31 2008, the EPF's total investment funds had grown by RM28.99 billion to RM342 billion compared to RM313.01 billion a year ago.
The three main contributors to EPF's record gross income of RM20 billion in 2008 were loans and bonds (RM6.78 billion), equities (RM6.67 billion), and Malaysian Government Securities (RM4.94 billion).
Dividends will be credited to members' accounts on March 23.
"We are bracing ourselves for a tough year ahead as the effects of the global financial crisis continue to be felt.
"However, we believe that in every crisis, there is opportunity to be seized. The key is to remain vigilant and continue delivering results for the benefit of our members through our prudent investment strategy."
Sunday, March 1, 2009
Problems in Compound Interest
This article from The Star interests me from the point of view of students at USIM who are taking The Actuarial Science & Risk Management Program and The Financial Mathematics Program. It involves practical problems in compound interest. Students can prepare spreadsheets showing the numerical computations involved and provide arguments to support or disagree with the proposal. They can even provide mathematical solutions.
Sunday March 1, 2009
It pays to continue paying the same amount
PETALING JAYA: Should houseowners take advantage of the lower base lending rate (BLR) and enjoy more disposal income with lower monthly home loan repayments? Or should they pay the same amount and complete their loan repayments faster?
Financial planners urge homeowners to opt for the second option if their income level has not been affected by economic downturn.
By shortening the tenure of their loan repayment period, they pay significantly less interest in the long run.
Based on the expected reduced BLR of 0.4% which comes into effect next week, a borrower with a RM200,000 home loan over a tenure of 20 years stands to save more than RM19,000 if he continues to pay the same amount.
On the other hand, he will save only close to RM11,000 if he reduces his monthly payment in keeping with the lower BLR (see chart).
Bank Negara Malaysia reduced the Overnight Policy Rate (OPR) from 2.5% to 2% on Tuesday to allow for more disposable income in the hands of the public, which translates into a lower BLR. This follows a cut in OPR by 75 basis points to 2.5% last month.
Financial planner with MAAKL Mutual Rajen Devadason says individuals who still have their jobs and normal income levels should maintain their monthly repayment sum as each ringgit channelled towards the home mortgage will reduce the interest component.
“However, for those in dire straits, maintaining the loan tenure while reducing the monthly payments will help them reduce their monthly outflow of cash. So, what to do depends upon the current circumstances of the individual,” he adds.
Sunday March 1, 2009
It pays to continue paying the same amount
PETALING JAYA: Should houseowners take advantage of the lower base lending rate (BLR) and enjoy more disposal income with lower monthly home loan repayments? Or should they pay the same amount and complete their loan repayments faster?
Financial planners urge homeowners to opt for the second option if their income level has not been affected by economic downturn.
By shortening the tenure of their loan repayment period, they pay significantly less interest in the long run.
Based on the expected reduced BLR of 0.4% which comes into effect next week, a borrower with a RM200,000 home loan over a tenure of 20 years stands to save more than RM19,000 if he continues to pay the same amount.
On the other hand, he will save only close to RM11,000 if he reduces his monthly payment in keeping with the lower BLR (see chart).
Bank Negara Malaysia reduced the Overnight Policy Rate (OPR) from 2.5% to 2% on Tuesday to allow for more disposable income in the hands of the public, which translates into a lower BLR. This follows a cut in OPR by 75 basis points to 2.5% last month.
Financial planner with MAAKL Mutual Rajen Devadason says individuals who still have their jobs and normal income levels should maintain their monthly repayment sum as each ringgit channelled towards the home mortgage will reduce the interest component.
“However, for those in dire straits, maintaining the loan tenure while reducing the monthly payments will help them reduce their monthly outflow of cash. So, what to do depends upon the current circumstances of the individual,” he adds.
Thursday, February 26, 2009
The World's Economy
I got this from another website. This kind of warning about the world's economy have been going on for quite sometimes. Many take them seriously but most ignore them. They would go about their lives as if everything is normal and things would go back to normal at the end of each cycle.
To me it is just like one of those Ponzi schemes. One day it will just collapse. The only thing is we do not know when it will collapse. We cannot really picture what will happen when the whole thing (the economy of the world) collapses. Perhaps, this together with global warming, and the strange movements of the planets will be the end of the world as promised by Allah in the Quran.
The Monetary Domino Effect
Wednesday, 25 February 2009 23:46
Do not believe what our homespun economists predict about the domestic economy; in fact, don’t believe what any economists predict at all, period.
Consider this scenario. The biggest creditor in the entire world has never ever had a balanced budget before. This is because a central government will not risk stagnating a robust economy just to show that it is capable of balancing its budget. Neither will it risk turning a bullish market bearish. A small deficit is always good for the economy because it exhibits a potential for further growth, money well spent one would say.
Look at the US of A, the biggest importer of finished goods and raw material the world has ever seen. To finance this venture, the banks have to extend credit to the importers as one need to sell off its wares before showing a profit on the bottom line. We are not talking about a couple of billion greenbacks here. American import figures exceed the trillion mark every year. Now, having understood this, one would ask just where do these financial institutions get the money to loan it to these importers? The answer is the US Federal Reserve.
Money does not grow on trees and a government cannot just run it off the printing press as need be. There is after all such a thing called inflation. The more cash flooding the market, the higher the purchasing power and when demand outstrip supplies, the intrinsic value of goods escalates and henceforth inflation. So, in order to finance this endeavor without inflating the economy, the US Federal Reserve created Treasury Securities (TS), which are in fact governmental public debt financing instruments. There are four types of TS, namely Treasury Notes, Treasury Bills, Treasury Bonds and Treasury Inflation Protected Securities (TIPS). All in all, money is suddenly created from debt.
First, we look at T-Bills. Maximum one-year maturity zero-coupon bonds (no interest upon maturity) that are traded at a discount to create a positive yield. T-Notes and T-Bonds have a longer maturity period but these possess a market-controlled coupon payment twice a year. TIPS are basically inflation-indexed bonds whereby the constant coupon rate is adjusted to the Consumer Price Index.
So, who buys these TS to create the money for the US Federal Reserve to loan to the banks? In the US, it is these same banks that purchase them. The other major investment firms that acquire them also finance these purchases through their banks. All national central banks also invest in them to hedge their currencies against the US Dollar. Suddenly un-backed money is literally created from thin air. Not too bad a thing because these debts are created to expand the economy and to generate more income.
TS are also the means for the government to finance their budgetary deficits and here is the start of all our current troubles. When we mention US Budget Deficits, we are looking not at a few tens of billions US dollar but rather something like 800 billion greenbacks for 2008 alone. To provide a perspective of what USD800B is like, the entire Malaysian Budget for the last decade (2000-2009) is only worth RM1,290.3 billion or USD368.7 billion – less than half of what the US 2008 Budget Deficit is. Still cannot visualize it? Imagine winning the Big Sweep (RM3 million) every month without fail for the next 77,778 years. Get it now? Imagine just how big a hole the US Government had dug for themselves and in the same process, for the rest of the world as well.
Because of these baseless funds used to finance their imports, the exporters from all over the world enjoyed more profits. Trade surpluses are evident once a nation exports more to a country than it imports from. When a nation earns more than it spends, the monetary value of its currency grows stronger and inflation creeps up as well. To offset this, more new local money is introduced into the system to balance things up a bit and to ensure that the value of its exports remain low and stable. This mirrors exactly what the US is doing, albeit for different reasons, but with the same consequences.
Come one fine day and the US faces an Economic Tsunami because there is only so much “unwarranted” money that the system can withstand before it breaks down. Well, that day has arrived and henceforth the credit crunch, and when the US economy goes downhill, all global economies follow suit. Domestic economist might say that the Malaysian economy is decoupled from the US economy and henceforth the impact will be minimal. BS! During those years of trade surpluses and high growth, the Ringgit became stronger. Bank Negara Malaysia (like all other central banks in Asia) had to keep it low to sustain the growth rate that was primarily propelled by exports. This is achieved by the introduction of new money into the Malaysian market. Now that the exports are no longer there, this “new money” is still floating around, fiat money not backed by gold, an almost exact scenario replicating the US economy. Will it affect Malaysians the same way it affected the Americans? Definitely so because the Laws of Economics follow the same principles no matter where it is applied and doubly so because BNM would have also invested in these American TS instruments – the major factor because US Dollars are the defacto international trading currency.
The ultimate conclusion is that there is no avenue of escape from the impact of the US credit crunch and its thereafter consequences no matter what anybody tells you. It is akin to a domino effect whereby the first toppled domino will take out the next in line and so forth. Malaysia might be way down the line but the effects will be encountered here nonetheless. It is just a matter of time. Subsequently, what are the consequences?
Next stop, hyperinflation.
- Hakim Joe
To me it is just like one of those Ponzi schemes. One day it will just collapse. The only thing is we do not know when it will collapse. We cannot really picture what will happen when the whole thing (the economy of the world) collapses. Perhaps, this together with global warming, and the strange movements of the planets will be the end of the world as promised by Allah in the Quran.
The Monetary Domino Effect
Wednesday, 25 February 2009 23:46
Do not believe what our homespun economists predict about the domestic economy; in fact, don’t believe what any economists predict at all, period.
Consider this scenario. The biggest creditor in the entire world has never ever had a balanced budget before. This is because a central government will not risk stagnating a robust economy just to show that it is capable of balancing its budget. Neither will it risk turning a bullish market bearish. A small deficit is always good for the economy because it exhibits a potential for further growth, money well spent one would say.
Look at the US of A, the biggest importer of finished goods and raw material the world has ever seen. To finance this venture, the banks have to extend credit to the importers as one need to sell off its wares before showing a profit on the bottom line. We are not talking about a couple of billion greenbacks here. American import figures exceed the trillion mark every year. Now, having understood this, one would ask just where do these financial institutions get the money to loan it to these importers? The answer is the US Federal Reserve.
Money does not grow on trees and a government cannot just run it off the printing press as need be. There is after all such a thing called inflation. The more cash flooding the market, the higher the purchasing power and when demand outstrip supplies, the intrinsic value of goods escalates and henceforth inflation. So, in order to finance this endeavor without inflating the economy, the US Federal Reserve created Treasury Securities (TS), which are in fact governmental public debt financing instruments. There are four types of TS, namely Treasury Notes, Treasury Bills, Treasury Bonds and Treasury Inflation Protected Securities (TIPS). All in all, money is suddenly created from debt.
First, we look at T-Bills. Maximum one-year maturity zero-coupon bonds (no interest upon maturity) that are traded at a discount to create a positive yield. T-Notes and T-Bonds have a longer maturity period but these possess a market-controlled coupon payment twice a year. TIPS are basically inflation-indexed bonds whereby the constant coupon rate is adjusted to the Consumer Price Index.
So, who buys these TS to create the money for the US Federal Reserve to loan to the banks? In the US, it is these same banks that purchase them. The other major investment firms that acquire them also finance these purchases through their banks. All national central banks also invest in them to hedge their currencies against the US Dollar. Suddenly un-backed money is literally created from thin air. Not too bad a thing because these debts are created to expand the economy and to generate more income.
TS are also the means for the government to finance their budgetary deficits and here is the start of all our current troubles. When we mention US Budget Deficits, we are looking not at a few tens of billions US dollar but rather something like 800 billion greenbacks for 2008 alone. To provide a perspective of what USD800B is like, the entire Malaysian Budget for the last decade (2000-2009) is only worth RM1,290.3 billion or USD368.7 billion – less than half of what the US 2008 Budget Deficit is. Still cannot visualize it? Imagine winning the Big Sweep (RM3 million) every month without fail for the next 77,778 years. Get it now? Imagine just how big a hole the US Government had dug for themselves and in the same process, for the rest of the world as well.
Because of these baseless funds used to finance their imports, the exporters from all over the world enjoyed more profits. Trade surpluses are evident once a nation exports more to a country than it imports from. When a nation earns more than it spends, the monetary value of its currency grows stronger and inflation creeps up as well. To offset this, more new local money is introduced into the system to balance things up a bit and to ensure that the value of its exports remain low and stable. This mirrors exactly what the US is doing, albeit for different reasons, but with the same consequences.
Come one fine day and the US faces an Economic Tsunami because there is only so much “unwarranted” money that the system can withstand before it breaks down. Well, that day has arrived and henceforth the credit crunch, and when the US economy goes downhill, all global economies follow suit. Domestic economist might say that the Malaysian economy is decoupled from the US economy and henceforth the impact will be minimal. BS! During those years of trade surpluses and high growth, the Ringgit became stronger. Bank Negara Malaysia (like all other central banks in Asia) had to keep it low to sustain the growth rate that was primarily propelled by exports. This is achieved by the introduction of new money into the Malaysian market. Now that the exports are no longer there, this “new money” is still floating around, fiat money not backed by gold, an almost exact scenario replicating the US economy. Will it affect Malaysians the same way it affected the Americans? Definitely so because the Laws of Economics follow the same principles no matter where it is applied and doubly so because BNM would have also invested in these American TS instruments – the major factor because US Dollars are the defacto international trading currency.
The ultimate conclusion is that there is no avenue of escape from the impact of the US credit crunch and its thereafter consequences no matter what anybody tells you. It is akin to a domino effect whereby the first toppled domino will take out the next in line and so forth. Malaysia might be way down the line but the effects will be encountered here nonetheless. It is just a matter of time. Subsequently, what are the consequences?
Next stop, hyperinflation.
- Hakim Joe
Thursday, February 19, 2009
Ponzi Scheme Victim
This article, also from The Time Magazine tells of one case where a person and his family got wiped out financially through participation in the Ponzi scheme created by Bernie Madoff. The interesting thing is that, even with the tight regulatory situation in the US and the supposedly highly educated nature of the rich there, such scheme is still able to operate and convince people to participate in it.
Beware Malaysians!!! Such schemes are also going on in Malaysia.
How I Got Screwed by Bernie Madoff
By Robert Chew Monday, Dec. 15, 2008
The call came at 6 p.m. on Thursday, Dec. 11. I had been waiting for it for five years. When the call finally arrived, it was my wife Sarah who answered. What the person said on the other end of the phone was both simple and devastating: we were financially wiped out.
Of course, I knew this instantly from the look on my wife's face. Her words to the caller, the person handling our financial matters, grew insistent: "You're joking? This is a joke, right?"
We didn't know it yet, but we had been playing in the Bernard Madoff Investment Securities LLC Fantasy Financial League. It began when we sold our home at the peak of the market, collected what was left from an old divorce, found other monies and then, with a combination of pleasure and trepidation, handed over our life savings to someone named Stanley Chais, the Los Angeles network organizer for a man named Bernard Madoff.
Of course, we never heard the name Madoff — which has a peculiarly Dickensian ring now — and had no idea how he achieved such fantastic returns over the past 40 years. All we knew was that my wife's entire family had been in the fund for decades and lived well on the returns, which ranged from 15% to 22%. It was all very secretive and tough to get into, which, looking back, was a brilliant strategy to lure suckers. Unlike the usual Ponzi mechanics, the fund even stopped investments into accounts a few years back, at least in our network. There were the usual warnings prior to investing — we all knew it was a risk, we were told to make sure we were diversified, blah-blah — but, my God, it had been going strong for so long and with such fantastic returns, we had to get in. The Securities and Exchange Commission even gave Madoff a clean bill of health several years ago, we now find out. Well, maybe not a clean bill, but it didn't shut him down either. In the topsy-turvy world of investment, we were quietly, richly safe. Until the call. (See the top 10 worst business deals of 2008.)
I think everyone knew the call would come one day. We all hoped, but we knew deep down it was too good to be true, right? I mean, why wasn't everyone in on this game if it was so strong and steady? We deluded ourselves into thinking we were all smarter than the others. When it came to the investment game, we had it figured. And what was the game anyway? The way it was vaguely described to us was that the "New York people" had a system whereby they placed a series of instant trades — at once with futures, currencies and stocks — and out of this magic recipe fell a tiny 1% guaranteed, no-risk profit for the group. You do that 20 times a year, take away management fees and, voilà, a steady 15% return. Man, these guys were good.
But of course the call did come, as it always does with such things. It was not an ordinary Ponzi scheme we were all part of; it was the biggest in the history of the world, valued at some $50 billion. Lucky us. Small investors, institutions, hedge funds, global banks, pension funds — all fell victim to usual suspects: a smooth huckster and greed.
You never want to hear the words that come with such a phone call. "We are all wiped out." But they came, and we went numb. We lost, on paper, $1.2 million. My wife's family's combined losses are close to $30 million. We're talking old ladies and men, lawyers, children with Madoff trusts, students in college and an array of others who thought they had the world beat — and they did, at least for a time.
Now, we, they, everyone in this fraud, are all wiped out. Even Stanley says he's lost everything. It's the kind of news that's been known to cause shortness of breath, sudden cardiac arrest, revolvers pulled from bedside drawers. It harks back to December of 1929 and the image of bodies falling from buildings. But what can you do? (See the top 10 scared stock traders.)
There's a line from The Shawshank Redemption that is apropos. It's spoken by Tim Robbins' character: "Get busy living or get busy dying." We've lost it all, but we're choosing to get on with living.
Robert Chew, a former Madoff investor, lives in Colorado
Beware Malaysians!!! Such schemes are also going on in Malaysia.
How I Got Screwed by Bernie Madoff
By Robert Chew Monday, Dec. 15, 2008
The call came at 6 p.m. on Thursday, Dec. 11. I had been waiting for it for five years. When the call finally arrived, it was my wife Sarah who answered. What the person said on the other end of the phone was both simple and devastating: we were financially wiped out.
Of course, I knew this instantly from the look on my wife's face. Her words to the caller, the person handling our financial matters, grew insistent: "You're joking? This is a joke, right?"
We didn't know it yet, but we had been playing in the Bernard Madoff Investment Securities LLC Fantasy Financial League. It began when we sold our home at the peak of the market, collected what was left from an old divorce, found other monies and then, with a combination of pleasure and trepidation, handed over our life savings to someone named Stanley Chais, the Los Angeles network organizer for a man named Bernard Madoff.
Of course, we never heard the name Madoff — which has a peculiarly Dickensian ring now — and had no idea how he achieved such fantastic returns over the past 40 years. All we knew was that my wife's entire family had been in the fund for decades and lived well on the returns, which ranged from 15% to 22%. It was all very secretive and tough to get into, which, looking back, was a brilliant strategy to lure suckers. Unlike the usual Ponzi mechanics, the fund even stopped investments into accounts a few years back, at least in our network. There were the usual warnings prior to investing — we all knew it was a risk, we were told to make sure we were diversified, blah-blah — but, my God, it had been going strong for so long and with such fantastic returns, we had to get in. The Securities and Exchange Commission even gave Madoff a clean bill of health several years ago, we now find out. Well, maybe not a clean bill, but it didn't shut him down either. In the topsy-turvy world of investment, we were quietly, richly safe. Until the call. (See the top 10 worst business deals of 2008.)
I think everyone knew the call would come one day. We all hoped, but we knew deep down it was too good to be true, right? I mean, why wasn't everyone in on this game if it was so strong and steady? We deluded ourselves into thinking we were all smarter than the others. When it came to the investment game, we had it figured. And what was the game anyway? The way it was vaguely described to us was that the "New York people" had a system whereby they placed a series of instant trades — at once with futures, currencies and stocks — and out of this magic recipe fell a tiny 1% guaranteed, no-risk profit for the group. You do that 20 times a year, take away management fees and, voilà, a steady 15% return. Man, these guys were good.
But of course the call did come, as it always does with such things. It was not an ordinary Ponzi scheme we were all part of; it was the biggest in the history of the world, valued at some $50 billion. Lucky us. Small investors, institutions, hedge funds, global banks, pension funds — all fell victim to usual suspects: a smooth huckster and greed.
You never want to hear the words that come with such a phone call. "We are all wiped out." But they came, and we went numb. We lost, on paper, $1.2 million. My wife's family's combined losses are close to $30 million. We're talking old ladies and men, lawyers, children with Madoff trusts, students in college and an array of others who thought they had the world beat — and they did, at least for a time.
Now, we, they, everyone in this fraud, are all wiped out. Even Stanley says he's lost everything. It's the kind of news that's been known to cause shortness of breath, sudden cardiac arrest, revolvers pulled from bedside drawers. It harks back to December of 1929 and the image of bodies falling from buildings. But what can you do? (See the top 10 scared stock traders.)
There's a line from The Shawshank Redemption that is apropos. It's spoken by Tim Robbins' character: "Get busy living or get busy dying." We've lost it all, but we're choosing to get on with living.
Robert Chew, a former Madoff investor, lives in Colorado
Ponzi Schemes
The following article from Time Magazine has hit the limelight recently. It should be read by all Malaysians who have been known to participate in similar schemes in Malaysia. My previous posting told of Malaysian government servants being involved in such schemes.
There are, however genuine multi-level marketing schemes that encourage participants to market genuine products. These would be similar to setting up stalls to sell the products. However schemes that promise extremely high returns are definitely designed to attract a larger crowd and the final outcome is usually the benefit of the few at the expense of the many.
Ponzi Schemes
By Alex Altman Monday, Dec. 15, 2008
The $50 billion Ponzi scheme allegedly masterminded by former Nasdaq chairman Bernard Madoff punctuated a miserable year for Wall Street in the worst possible way: by underlining, yet again, that savvy market-makers can harness arcane financial instruments as weapons of mass destruction. Left in Madoff's wake are bankrupt investors, mortified regulators and a raft of unnoticed red flags. Madoff's methods previously had been investigated by the SEC, and in 2001, a prescient article raised questions about his inscrutable strategies: "Madoff's investors rave about his performance — even though they don't understand how he does it," wrote Barron's Erin Arvedlund, who quoted a "very satisfied investor" as conceding, "Even knowledgeable people can't really tell you what he's doing." But for investors pocketing windfalls, the lure of easy money outstripped suspicions raised by Madoff's shroud of secrecy. When that shroud was lifted, however, Madoff's investment fund stood revealed as a classic Ponzi scheme: a con game in which the illusion of solvency was created by paying off early investors with capital raised from later entrants. As long as new investment continued to come in the door, the earlier adopters reaped fat rewards; once markets tumbled and investors withdrew, however, the whole thing collapsed like a house of cards.
Though a Boston businessman named Charles Ponzi was the scam's namesake, he wasn't its original practitioner. According to Mitchell Zuckoff, a Ponzi biographer, the reigning king of the "rob Peter to pay Paul" scam was a New York grifter named William Miller, who bilked investors out of $1 million — nearly $25 million in today's dollars — in 1899. After drumming up interest by claiming to have an inside window into the way profitable companies operated, Miller — who earned the nickname "520 percent" due to the astonishing rate of return he promised investors over the course of a year — salted his scam by paying out the first few investors. After his racket was exposed by a newspaper investigation, he was sentenced to 10 years in prison. According to Zuckoff, his creditors got just 28 cents back for every dollar they'd invested. (See the top 10 scandals of 2008.)
Ponzi was a charismatic Italian immigrant who, in 1919 and 1920, coaxed thousands of people into shelling out millions of dollars — including a staggering $1 million in a single three-hour period — to buy postage stamps using international reply coupons. This strategy, Ponzi promised, enabled one to purchase postage at European currencies' lower fixed rates before redeeming them in U.S dollars at higher values. "For instance," Zuckoff explained in a Dec. 15 article for FORTUNE, "a person could buy 66 International Reply Coupons in Rome for the equivalent of $1. Those same 66 coupons would cost $3.30 in Boston," where Ponzi was based. But there weren't enough coupons in circulation to make the plan workable. The ploy bore the hallmarks of both Miller's scheme and others to follow it: it trumpeted the possibility of massive gains (Ponzi promised a 50% return in just 90 days), parried questions about its legitimacy by paying out the first few investors, and collapsed when Ponzi couldn't rustle up enough fresh marks to keep up with the money going out the door.
Ponzi, who was released from prison and deported back to Italy in 1934, set the standard in the genre. But the golden age of Ponzi and pyramid schemes didn't arrive for decades. (The two highly similar cons are often conflated, though in Ponzi schemes, a ringleader facilitates the entire enterprise; in a pyramid scheme, rungs of collaborators recruit new investors.) In the boom years of the 1980s and '90s, as traders developed increasingly sophisticated investment vehicles, the cons cropped up with increasing regularity. In 1985, a San Diego currency trader named David Dominelli was revealed to have fleeced more than 1,000 investors to the tune of $80 million. During the 1990s, a Florida church called Greater Ministries International bilked nearly 20,000 people out of $500 million in a pyramid scheme hatched by leader Gerald Payne, who claimed God would double the money of pious investors. (Dominelli pleaded guilty and was sentenced to 20 years in prison, while Payne was convicted and sentenced to 27.) The spate of incidents wasn't limited to the U.S., either. When communism crumbled in Eastern Europe, one of the earliest side effects of free-market capitalism was the proliferation of people looking to get rich quick. In Albania, under Communism the poorest nation in Europe, citizens sank some $1.2 billion dollars into pyramid schemes in 1996. When they collapsed the following year, investor outrage brought down the government.
This ignominious group has had some high-profile recent entrants, including Democratic fundraiser Norman Hsu, who was charged in October with operating a $60 million Ponzi fraud, and former boy-band impresario Lou Pearlman, who in addition to foisting N'Sync on an unsuspecting public also stole $300 million in investor capital over two decades. Earlier this month, Minnesota businessman Tom Petters was indicted by a federal grand jury on 20 counts of fraud, conspiracy and money laundering stemming from his alleged role in a 13-year, $3.5 billion Ponzi ring. Still, the $50 billion fraud Madoff allegedly perpetrated is the most egregious Ponzi scheme to date—unless you subscribe to an argument advanced by financial consultant Janet Tavakoli. In a neat summary of the anger millions of people are channeling toward Wall Street, Tavakoli wrote on her company website: "The largest Ponzi scheme in the history of the capital markets is the relationship between failed mortgage lenders and investment banks that securitized the risky overpriced loans and sold these packages to other investors—a Ponzi scheme by every definition applied to Madoff." By comparison, she wrote, the fallen fund manager is just "a piker."
There are, however genuine multi-level marketing schemes that encourage participants to market genuine products. These would be similar to setting up stalls to sell the products. However schemes that promise extremely high returns are definitely designed to attract a larger crowd and the final outcome is usually the benefit of the few at the expense of the many.
Ponzi Schemes
By Alex Altman Monday, Dec. 15, 2008
The $50 billion Ponzi scheme allegedly masterminded by former Nasdaq chairman Bernard Madoff punctuated a miserable year for Wall Street in the worst possible way: by underlining, yet again, that savvy market-makers can harness arcane financial instruments as weapons of mass destruction. Left in Madoff's wake are bankrupt investors, mortified regulators and a raft of unnoticed red flags. Madoff's methods previously had been investigated by the SEC, and in 2001, a prescient article raised questions about his inscrutable strategies: "Madoff's investors rave about his performance — even though they don't understand how he does it," wrote Barron's Erin Arvedlund, who quoted a "very satisfied investor" as conceding, "Even knowledgeable people can't really tell you what he's doing." But for investors pocketing windfalls, the lure of easy money outstripped suspicions raised by Madoff's shroud of secrecy. When that shroud was lifted, however, Madoff's investment fund stood revealed as a classic Ponzi scheme: a con game in which the illusion of solvency was created by paying off early investors with capital raised from later entrants. As long as new investment continued to come in the door, the earlier adopters reaped fat rewards; once markets tumbled and investors withdrew, however, the whole thing collapsed like a house of cards.
Though a Boston businessman named Charles Ponzi was the scam's namesake, he wasn't its original practitioner. According to Mitchell Zuckoff, a Ponzi biographer, the reigning king of the "rob Peter to pay Paul" scam was a New York grifter named William Miller, who bilked investors out of $1 million — nearly $25 million in today's dollars — in 1899. After drumming up interest by claiming to have an inside window into the way profitable companies operated, Miller — who earned the nickname "520 percent" due to the astonishing rate of return he promised investors over the course of a year — salted his scam by paying out the first few investors. After his racket was exposed by a newspaper investigation, he was sentenced to 10 years in prison. According to Zuckoff, his creditors got just 28 cents back for every dollar they'd invested. (See the top 10 scandals of 2008.)
Ponzi was a charismatic Italian immigrant who, in 1919 and 1920, coaxed thousands of people into shelling out millions of dollars — including a staggering $1 million in a single three-hour period — to buy postage stamps using international reply coupons. This strategy, Ponzi promised, enabled one to purchase postage at European currencies' lower fixed rates before redeeming them in U.S dollars at higher values. "For instance," Zuckoff explained in a Dec. 15 article for FORTUNE, "a person could buy 66 International Reply Coupons in Rome for the equivalent of $1. Those same 66 coupons would cost $3.30 in Boston," where Ponzi was based. But there weren't enough coupons in circulation to make the plan workable. The ploy bore the hallmarks of both Miller's scheme and others to follow it: it trumpeted the possibility of massive gains (Ponzi promised a 50% return in just 90 days), parried questions about its legitimacy by paying out the first few investors, and collapsed when Ponzi couldn't rustle up enough fresh marks to keep up with the money going out the door.
Ponzi, who was released from prison and deported back to Italy in 1934, set the standard in the genre. But the golden age of Ponzi and pyramid schemes didn't arrive for decades. (The two highly similar cons are often conflated, though in Ponzi schemes, a ringleader facilitates the entire enterprise; in a pyramid scheme, rungs of collaborators recruit new investors.) In the boom years of the 1980s and '90s, as traders developed increasingly sophisticated investment vehicles, the cons cropped up with increasing regularity. In 1985, a San Diego currency trader named David Dominelli was revealed to have fleeced more than 1,000 investors to the tune of $80 million. During the 1990s, a Florida church called Greater Ministries International bilked nearly 20,000 people out of $500 million in a pyramid scheme hatched by leader Gerald Payne, who claimed God would double the money of pious investors. (Dominelli pleaded guilty and was sentenced to 20 years in prison, while Payne was convicted and sentenced to 27.) The spate of incidents wasn't limited to the U.S., either. When communism crumbled in Eastern Europe, one of the earliest side effects of free-market capitalism was the proliferation of people looking to get rich quick. In Albania, under Communism the poorest nation in Europe, citizens sank some $1.2 billion dollars into pyramid schemes in 1996. When they collapsed the following year, investor outrage brought down the government.
This ignominious group has had some high-profile recent entrants, including Democratic fundraiser Norman Hsu, who was charged in October with operating a $60 million Ponzi fraud, and former boy-band impresario Lou Pearlman, who in addition to foisting N'Sync on an unsuspecting public also stole $300 million in investor capital over two decades. Earlier this month, Minnesota businessman Tom Petters was indicted by a federal grand jury on 20 counts of fraud, conspiracy and money laundering stemming from his alleged role in a 13-year, $3.5 billion Ponzi ring. Still, the $50 billion fraud Madoff allegedly perpetrated is the most egregious Ponzi scheme to date—unless you subscribe to an argument advanced by financial consultant Janet Tavakoli. In a neat summary of the anger millions of people are channeling toward Wall Street, Tavakoli wrote on her company website: "The largest Ponzi scheme in the history of the capital markets is the relationship between failed mortgage lenders and investment banks that securitized the risky overpriced loans and sold these packages to other investors—a Ponzi scheme by every definition applied to Madoff." By comparison, she wrote, the fallen fund manager is just "a piker."
Wednesday, February 18, 2009
Britain's First Islamic Motor Insurance
This article appears on Islamonline.net and should interest many students of insurance. The Islamic insurance product is marketed online as many insurance products nowadays are. In Malaysia, more and more people are turning to Islamic insurance for their motor insurance and many insurance companies now offer takaful (Islamic insurance) motor insurance.
Britain's First Islamic Motor Insurance
By IslamOnline.net & Newspapers
CAIRO — A London-based Islamic insurance firm has hit UK roads with a Shari`ah-compliant car insurance product that immediately attracted Muslim and non-Muslims for its ethical nature.
"There has been a lot of interest," Kaye Pimblett, motor insurance manager at the price-comparison Moneysupermarket.com site, told The Independent on Sunday, February 15.
"During its first seven days on Moneysupermarket.com, Salaam Halal returned more than 37,000 quotes," she added.
"And when they returned a quote, they appeared in the top three positions on over a third of occasions."
Salaam Halal Insurance has launched the new motor policies through Moneysupermarket.com and its own website.
The new product is based on the Takaful principle, which requires all participants to share risk equally and addresses key features associated with conventional insurance that is incompatible with Shari`ah.
Instead of premiums, people taking out a policy with Salaam Halal pay contributions into a pool and that money is then put into Shari`ah-compliant investments.
The central pool of funds is used to pay any claims that arise, and at the end of the year, if the pool is over-funded, the surplus will be redistributed to policyholders through a discount on their next premium.
But if claims outweigh contributions, shareholders pay excess claims and they recover their money in times of profit.
Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Ethical
The new product has been a great welcome to British Muslims, who were longing for insurance product that complies with their faith.
"Salaam Halal car insurance appealed to me as it is competitively priced, but most importantly, it's compliant with the Muslim faith, something a have never had before," said Hassan Ahmed, a Muslim client.
Britain is home to a sizable Muslim minority of nearly two millions.
Salaam Halal Insurance, Britain's first Shari`ah-compliant insurer, was launched last July to offer policies in line with the Muslim faith.
The nascent firm also plans to launch home insurance policies shortly.
The ethical nature of the Salaam Halal product has proved appealing to non-Muslims as well.
"What is unique is the ethical nature of what we do," Bradley Brandon-Cross, the chief executive of Salaam Halal Insurance, told The Independent.
"It's a transparent process and the opportunity to get something back is attractive to customers, both Muslims and non-Muslims alike."
Emile Abu-Shakra, a spokesman for Lloyds Banking, said the new product attraction is part of the popularity of Islamic finance services.
"Although as a market UK Islamic finance is in its infancy, it's still set to become big business," notes Abu-Shakra, whose bank has pioneered Islamic finance in the UK.
"We offer Islamic current and business accounts, mortgages and investment funds," she added.
"We piloted these in just five branches in 2005 but that quickly expanded to all 2,000 the following year."
In recent years, London has established itself as a hub of Islamic finance.
There are four licensed wholesale Islamic banks - the only ones in the European Union - in Britain.
There are also 21 conventional banks offering Islamic banking products, the newest of which is Gatehouse, which has received its license in April.
Britain's First Islamic Motor Insurance
By IslamOnline.net & Newspapers
CAIRO — A London-based Islamic insurance firm has hit UK roads with a Shari`ah-compliant car insurance product that immediately attracted Muslim and non-Muslims for its ethical nature.
"There has been a lot of interest," Kaye Pimblett, motor insurance manager at the price-comparison Moneysupermarket.com site, told The Independent on Sunday, February 15.
"During its first seven days on Moneysupermarket.com, Salaam Halal returned more than 37,000 quotes," she added.
"And when they returned a quote, they appeared in the top three positions on over a third of occasions."
Salaam Halal Insurance has launched the new motor policies through Moneysupermarket.com and its own website.
The new product is based on the Takaful principle, which requires all participants to share risk equally and addresses key features associated with conventional insurance that is incompatible with Shari`ah.
Instead of premiums, people taking out a policy with Salaam Halal pay contributions into a pool and that money is then put into Shari`ah-compliant investments.
The central pool of funds is used to pay any claims that arise, and at the end of the year, if the pool is over-funded, the surplus will be redistributed to policyholders through a discount on their next premium.
But if claims outweigh contributions, shareholders pay excess claims and they recover their money in times of profit.
Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Ethical
The new product has been a great welcome to British Muslims, who were longing for insurance product that complies with their faith.
"Salaam Halal car insurance appealed to me as it is competitively priced, but most importantly, it's compliant with the Muslim faith, something a have never had before," said Hassan Ahmed, a Muslim client.
Britain is home to a sizable Muslim minority of nearly two millions.
Salaam Halal Insurance, Britain's first Shari`ah-compliant insurer, was launched last July to offer policies in line with the Muslim faith.
The nascent firm also plans to launch home insurance policies shortly.
The ethical nature of the Salaam Halal product has proved appealing to non-Muslims as well.
"What is unique is the ethical nature of what we do," Bradley Brandon-Cross, the chief executive of Salaam Halal Insurance, told The Independent.
"It's a transparent process and the opportunity to get something back is attractive to customers, both Muslims and non-Muslims alike."
Emile Abu-Shakra, a spokesman for Lloyds Banking, said the new product attraction is part of the popularity of Islamic finance services.
"Although as a market UK Islamic finance is in its infancy, it's still set to become big business," notes Abu-Shakra, whose bank has pioneered Islamic finance in the UK.
"We offer Islamic current and business accounts, mortgages and investment funds," she added.
"We piloted these in just five branches in 2005 but that quickly expanded to all 2,000 the following year."
In recent years, London has established itself as a hub of Islamic finance.
There are four licensed wholesale Islamic banks - the only ones in the European Union - in Britain.
There are also 21 conventional banks offering Islamic banking products, the newest of which is Gatehouse, which has received its license in April.
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