Investing - stay away from the toxic products! (Part2)
The setup of toxic product trap is more perverse now than ever. Take for example the US mortgage sub-prime crisis leading to the financial crisis in 2009 - greedy banks mis-sold poor quality mortgage loans packaged as MBS (mortgage backed securities) to investors all over the world right under the nose of the US banking & insurance regulators.
It is the primary responsibility and function of banks to assess the risk profile of its borrowers and extend credit. If a bank issues sub-prime loans, it needs to suffer the consequence of not getting its loan paid back and no one else. This way only those banks that extended poor quality loans would have failed & busted. Instead, the banks decided to pass over their losses to a larger market by manipulating the product and selling them under the disguise of AAA-ratings with rating agencies as their accomplice . By doing this, the banks have maliciously passed over the underlying (institutional) risk to retail investors - all under the vigil of regulators!
Institutions have humongous amount of manpower, tools, process and knowledge to assess risks and carry out operations. How could institutional risk be passed over to retail investors who have none of the capabilities that the big institutions possess? In investment parlance, returns should be commensurate with risk. How ethical is it to pass over risks of one class (institutions / government) to another class (retail investors) especially when the latter has no clue of the risks involved. Is it not the job of the regulator to intervene in such cases and protect the investor interest, especially retail investors? What actions have been taken against regulators for failing to do their job?
The new fancy kid in town is REITs in India. Real estate is the biggest money laundering and black money mongering sector in India filled with the most dis-honest practices with the sole intention to evade tax. This is the sector which has no transparency, not subject to audit at state or central level and has political nexus at all levels. How could such an opaque sector be trusted to generate sufficient returns, make profits and distribute 90% of the declared profits to its investors?
When a policy is formulated without being accompanied by good regulatory oversight, it is equivalent to closing an eye so as to allow retail investors to be bullied. The hidden agenda could be anything from gaining access to cheap funds for funding government's fiscal deficit or the single-minded profit-maximization motive of the financial institutions. Hence in light of today's investment climate, the entire responsibility of protecting one's savings & wealth lies with none other than oneself. So, ensure to engage a competent financial planner who acts solely in your interest, ask for details of risks involved & then make a sound investment decision - do not be lured by marketing & sales pitch for EXTRAORDINARY returns!
It is the primary responsibility and function of banks to assess the risk profile of its borrowers and extend credit. If a bank issues sub-prime loans, it needs to suffer the consequence of not getting its loan paid back and no one else. This way only those banks that extended poor quality loans would have failed & busted. Instead, the banks decided to pass over their losses to a larger market by manipulating the product and selling them under the disguise of AAA-ratings with rating agencies as their accomplice . By doing this, the banks have maliciously passed over the underlying (institutional) risk to retail investors - all under the vigil of regulators!
Institutions have humongous amount of manpower, tools, process and knowledge to assess risks and carry out operations. How could institutional risk be passed over to retail investors who have none of the capabilities that the big institutions possess? In investment parlance, returns should be commensurate with risk. How ethical is it to pass over risks of one class (institutions / government) to another class (retail investors) especially when the latter has no clue of the risks involved. Is it not the job of the regulator to intervene in such cases and protect the investor interest, especially retail investors? What actions have been taken against regulators for failing to do their job?
The new fancy kid in town is REITs in India. Real estate is the biggest money laundering and black money mongering sector in India filled with the most dis-honest practices with the sole intention to evade tax. This is the sector which has no transparency, not subject to audit at state or central level and has political nexus at all levels. How could such an opaque sector be trusted to generate sufficient returns, make profits and distribute 90% of the declared profits to its investors?
When a policy is formulated without being accompanied by good regulatory oversight, it is equivalent to closing an eye so as to allow retail investors to be bullied. The hidden agenda could be anything from gaining access to cheap funds for funding government's fiscal deficit or the single-minded profit-maximization motive of the financial institutions. Hence in light of today's investment climate, the entire responsibility of protecting one's savings & wealth lies with none other than oneself. So, ensure to engage a competent financial planner who acts solely in your interest, ask for details of risks involved & then make a sound investment decision - do not be lured by marketing & sales pitch for EXTRAORDINARY returns!
Comments
Post a Comment