Win some, lose some

I disagree with Sai Kor’s diatribe on how Town Councils invest their funds.

First, we should understand why Town Councils have large amount of funds. While many expenses are regular and routine (e.g. pay cleaners and gardeners, lift maintenance fees), there are bigger ticket items that come only once in a longer period (e.g. painting, re-paving) as well as ad hoc (some upgrades, repair costs).

To accommodate the latter, part of the conservancy fees are proportioned into sinking funds. Good planning requires that you set aside a regular saving towards each major predictable expense.

For example, to plan for a 100k expense in 10 years (say for repainting a building), the Council would have to set aside 10k a year.

The thing is, with inflation, the cost of the repainting, which is budgeted at 100k today would cost more, possibly 150k. But at the same time, the 10k being set aside each year would amount to more than 100k if it is put in the bank, possibly more than 150k if it is invested.

Just a year ago, everyone’s concern was that inflation far exceeded the fixed deposit rate. The 10 year scenario would be that the accumulated funds (say 120k) would fail to meet the 150k cost, and the funds would need to be topped up. At some point, the difference would need to come from the residents.

In this scenario, I can imagine residents referring Council members to the Parable of the Talents in the bible, and imply that they are irresponsible stewards if they do not invest to ensure that the funds are not eroded by inflation. In these turbulent times days, however, “invest” and “gamble” have an overlapping connotation.

But what is the alternative?

Win some, lose some, I say.

DBS retrenchments – Broken social contract or misplaced loyalty?

The media is awash with reports and commentary on the recent retrenchment of 500 DBS staff in Singapore, and the blogosphere/grapevine is that other local banks are similarly wielding the axe, albeit more discreetly.

DBS’ management has attracted criticism from many quarters, including a Minister, no less, for their approach. (Some have pointed that that as advisor to the DBS staff union, the Minister Lim had a vested interest/obligation to do so, but that’s a separate story).

Few cried foul when Lehman Brothers, Merrill Lynch and Citibank announced their cuts – people understand that foreign banks have to meet their bottom lines and consequently, it is almost expected that jobs in those establishments will come and go. On the other hand, local banks – and DBS in particular – appear to be bound by an unwritten social contract.

This “social contract” implies there should be some degree of loyalty between employee and employer. Companies are expected to look after their employees’ interests, and in this environment, job security probably tops the list.

In any contract, there is quid pro quo, and employees are likewise expected to return that loyalty and consider the company’s interests i.e. not simply jump ship any time a better offer comes along.

In reality, however, employer/employee loyalties are guided not by social contract but driven by dollars and cents, and people in the finance industry should be particularly enabled to make such distinction. Many had jumped ship/ changed employers (to and from local banks as well) in the preceding bull run. I think it safe to assume that most enjoyed higher salaries with each move. Little mention was made of this social contract then.

Logically, therefore, employers – including the local banks – are likewise not obliged to adhere to this “contract”.

IMO, by offering one month salary for every year of service, DBS has actually reinforced the concept of the social contract. Long-serving (and therefore by definition, loyal) DBS staff who got retrenched get a golden handshake (some of whom I understand were quite happy with their retirement package). However, those who had joined DBS mid-career (hence breaking their social contracts with their previous employers?) would be short-changed.

Gambling in the Town Councils?

I am shocked to realise that Holland-Bukit Panjang and Pasir Ris-Punggol Town Councils invested and probably lost a combined S$12 million in the failed Lehman Brothers products. And who knows, that is only the tip of the iceberg. Would Town Councils share the fate of the Titanic, sinking because of lack of diversification and uneducated assessment in a product that was mis-sold?

Conspiracy Theories Abound

With conspiracy theory in mind, the reason becomes crystal clear on why the government perhaps showed its hand and pushed DBS to have a compensation plan for those burnt by minibonds. That is because they knew since September that the Town Councils which gambled in the minibonds were in trouble and DBS had to be squeezed to return the money in some form, or else the peasants would get angry.

But only in the past few days was the severity of the damage revealed by our nation-building press. If there were no pleas to whistle-blow, would the Town Councils, behaving like GLCs, have come forward and be honest? Or would they have tried to salvage their Titanic wreck quietly behind the scene, all the while simultaneously piously openly berating DBS for mis-selling. They were not acting for the retired uncles and aunties as a priority, the government and the town councils might have acted to protect their loses.

Looking the Other Way

The astute observer would point out the likely double standards in this mini-Temasek saga over the Lemon products. If Potong Pasir or Hougang Town Council had invested in minibonds and lost the money, you bet the media would have went to town about gambling and squandering of the residents' sinking fund. As it is now, the reporting is a boring matter of fact without the character assassination of high profile council members.

What other skeletons are still in the closet? Let the truth prevail.