Guilt-edged investments: Singapore’s latest ponzi scheme explosion

I like to think that all of JRE’s readers would be smart enough to run a mile if they saw an investment advertising returns of “20-25% per year guaranteed!”. 

Unfortunately, a phenomenally large number of Singaporeans and Malaysians weren’t: 

KUALA LUMPUR – A gold-trading business shut down [in October] by Malaysian authorities for suspected illegalities may have raised as much as US$3 billion (S$3.66 billion) from its clients, a government official said Wednesday.

Authorities raided trading firm Genneva Malaysia on October 1 on suspicion of taking deposits illegally, money-laundering and tax evasion, and later expanded the crackdown to three other firms.

[…]authorities have defended the crackdown, and Deputy Finance Minister Awang Adek Husin told lawmakers on Wednesday that Genneva Malaysia alone had taken in some 10 billion ringgit (S$4 billion) from customers.

Genneva Gold was an explosion that Blind Freddy could have seen coming. Their business model – which ran from at least early 2009 to late 2012 – was to sell gold to gullible retail buyers at a 30% markup, and then offer a “buyback” programme that paid 2% a month interest to the buyer on the marked-up amount. This pretty much reduces to funding their overpriced-gold-selling business via loans at 27% (1.02^12) p.a., which is not exactly a sustainable interest rate. 

When the customers stopped buying overpriced gold, Genneva stopped repaying the loans, and this was the end result

PETALING JAYA – The police, Bank Negara, the Companies Commission of Malaysia and the Ministry of Domestic Trade, Cooperatives and Consumerism jointly raided gold trading firm Genneva Malaysia Sdn Bhd and its affiliates in the country for various suspected offences.

Singapore’s Commercial Affairs Department also conducted a similar operation against Genneva Pte Ltd in the republic.

In a statement released yesterday, Bank Negara said the raid was to probe suspected offences under the laws administered by the agencies.

Some particularly ballsy investors were just depositing their money with Genneva, rather than taking possession of the gold, which changes the story from an unsustainable business model to an explicit Ponzi scheme.

The ending count, across the Singaporean and Malaysian arms of the business, adds up to somewhere around $30 million of assets and $300 million of liabilities (including four tonnes of gold that was promised to investors but never delivered, which… yikes), which would make it one of the biggest frauds in Singapore or Malaysia’s history.

Singapore, in particular, seems to have a real problem with transparently fraudulent investment schemes (c.f. the $40m-ish Profitable Plots blowup, which you can’t have missed if you ever watched ESPN in Singapore; and the $25m Sunshine Empire blowup)… so what are they going to do to make sure this doesn’t happen again? 

Basically nothing. 

The MAS is going to tighten its advertising rules for investment products – which wouldn’t affect these gold-buyback schemes because they’re not regulated by the MAS. 

Singapore’s Deputy Prime Minister has also explained that the MAS will “will continue to monitor market practices and refine its regulatory framework if necessary”, rather than actually taking any action. 

And meanwhile, these schemes are still out there and still taking customers. This piece – basically unpaid advertising for a rival “gold buyback” scheme” – made it past the editors at the Straits Times less than a week after the Genneva raids:

The Gold Guarantee and Asia Pacific Bullion gold trading firms have been preparing for the Genneva bailout for many months, said the firms’ owner yesterday.

Mr Lee Song Teck told The Straits Times that he had heard of Genneva’s woes almost a year ago and he is offering his “rescue plan” to help out Genneva customers.

[…] Mr Lee said that his companies have received about 300 calls from stranded Genneva customers over the past few days and expects about 200 of them to take up his “rescue plan”.

[…]The Gold Guarantee said it will buy the gold from Genneva’s customers, who must then join the firm’s own scheme. […] While the two gold bullion purchase plans seem to work the same way, Mr Lee explained that the two companies are very different operationally.

…after all, as the FTC explains, the most fertile targets for a scam are the people who’ve already fallen for it once

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The Dating Game: Singapore Edition

In yet another desperate attempt to prop up its declining birthrate – and unlike Mentos’ hilarious bow-chicka-bow-bow National Night campaign, this is not a viral marketing stunt – Singapore has resorted to bribing its youth to go on dates with each other. Here’s the scoop: 

Family members and friends will now be able to gently encourage their loved ones, who are still single, to meet new people by buying them dating vouchers.

Available in $10 denominations, the vouchers can be bought online at, and used at events and services offered by accredited dating agencies across Singapore.

The “Love Gifts” are gift vouchers for dating agencies

[…]Dating agencies said that these gift vouchers should be given with good intention. “Do it tactfully,” said Mr Kelvin Ong, director of dating agency Singles Mingle.

It’s sort of adorable that anyone would think this is “tactful”. Even compared to the old cliché of “why haven’t you found a nice girl and settled down yet?”, it’s hard to think of anything less tactful than “here’s a ten dollar gift voucher for a dating agency!”. 

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Thought for the day

…or, Why The NT News Won A Walkley Award:

I STUCK A CRACKER UP MY CLACKER – that’s reporting.

WHY I STUCK A CRACKER UP MY CLACKER – that’s journalism. 

I think there’s something in that for all of us. 

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Darwin’s NT News (“all the news that’s fit to print – and all the news that’s not!”) has kicked up a minor diplomatic incident by calling Singapore “a place where people think shopping is a sport and are so materialistic that they’ve stopped having children” and “zzzzzzzzzzz”.

Fortunately for the NT News: in Australia, truth is an absolute defence to libel.

That was nine months ago. This week, Bloomberg Businessweek joined the pileon

Singapore ranks as the most emotionless society in the world, beating out Georgia, Lithuania, and Russia.

Singaporeans are unlikely to report feelings of anger, physical pain, or other negative emotions. They’re not laughing a lot, either. “If you measure Singapore by the traditional indicators, they look like one of the best-run countries in the world,” says Jon Clifton, a Gallup partner in Washington. “But if you look at everything that makes life worth living, they’re not doing so well.”

To be fair, Singapore has realised that raising a nation of robots might not be a great idea, so after forty years of robotitude they’re trying to do something about it. Lee Kuan Yew would turn in his grave (wait, he’s not? Never mind) if he heard his son saying this: 

The country’s leaders want to promote a more free-wheeling society. In a speech last August, Prime Minister Lee Hsien Loong told Singapore’s Tiger Moms and Dads, “Please let your children have their childhood! No homework is not a bad thing.”

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It’s like the last flight of Concorde… except not.

I was more than a little disappointed to hear that Singapore Airlines (one of the good things about living in Disneyland-with-the-death-penalty) is pulling the plug on SQ21-SQ22, its 18-hour nonstop over-the-top flight between Singapore and Newark (the best airport in the world and the worst? Quite possibly!). 

I’ve flown that route a couple of times, and sometimes – if you’re lucky – it will take you further north than any other regularly scheduled flight in the world. The universe has to cooperate for this to happen: you can’t go too far north in the northern winter because nobody wants to ditch on the icecap in minus-40-degree twilight; you can’t go too far north if there are storms over the North Pole; and you can’t go too far north if the sun is too active (as it’s been for the last year or so), because your passengers will get fried by solar radiation.

But if you’re flying in summer, on a clear day, with no storms (terrestrial or extraterrestrial) to get in your way, your track can go as far as 89 degrees north, less than 200 miles from the North Pole, and if you have a window seat you can look down on Severnaya Zemlya from above:

None more northerly

And, three hours later, you look down on Greenland’s unearthly northern coast, utterly devoid of anything but rock and ice – a part of the world that only a handful of people will ever see: 

Greenland glaciers

So I get that jet fuel prices are making the route uneconomical, and I get that Singapore Airlines would rather focus on its lower-cost routes and its one-stop intercontinentals instead of its marquee nonstop flights. But I’ll still miss SQ21/22 – the most impractical and most spectacular airline route in the world. 

(The new winner for “longest regularly-scheduled nonstop”, incidentally, is Qantas’s daft Sydney-to-Dallas nonstop. It’s a comparatively quick 15-hour flight, but the route only works one way: the return flight from Dallas to Sydney fights headwinds the whole way, and has to stop in Brisbane for fuel before the final one-hour hop to Sydney. Sometimes, if they cock up the headwind calculations, it even has to stop in Noumea as well as Brisbane – which really stretches the definition of a “non-stop” flight.)

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The canary in the coal mine

Aussie non-bank lender Banksia Securities (S&P: unrated; Moodys: unrated; Fitch: unrated; Dagong: AAA+++++ WOULD BUY DEBENTURES AGAIN) has abruptly shut down and called in the receivers as of late last week. 

it looks like the rural finance company’s mortgage book started turning sour and ate through the company’s wildly optimistic bad-loan provisions, which would make it an early casualty of the slow melt in Aussie housing over the last two years. The Age speculates:

a sudden realisation by a new management team about a long-term decline in the quality of loans, rather than a single large event, triggered the decision to freeze assets. 

Banksia has more than 1000 loans, mostly to farmers, families and small companies in regional Victoria. It does not make loans over $10 million.

It does report high levels of overdue mortgage repayments. More than 10 per cent of $500 million worth of mortgages were more than 90 days overdue at June 30, 2012. 

>10% of your loan book being more than 90 days overdue smacks of some – ahem – subprime underwriting decisions: compare it to this chart from the Richmond Fed, showing delinquency rates through the peak of the US housing meltdown.

Banksia’s turf was the working-class farming towns of Victoria’s Goulburn Valley, which has been hit relatively hard by the end of Australia’s 20-year uninterrupted run of housing price growth. They were lending to the subprime end of a subprime market, so it’s not entirely surprising that they sank beneath the waves without much provocation (though it was a bit surprising that they sank just four weeks after the auditors had given them a clean bill of health, and took $660 million of investors’ money with them).

But if this little company was able to run up 10% delinquencies in a bad corner of the market, it’s not unreasonable to expect the big four banks’ mortgage books to start degrading soon as well – especially since the first shakeout of nonbank mortgage lenders in 2008 left the big four banks (ANZ, NAB, Commonwealth and Westpac) as the 80-90% majority providers of mortgages, right as the market peaked. 

(Disclosure: I don’t own a house in Australia, and I’d rather like to move back there one day but housing is SO BLOODY EXPENSIVE, so you could probably say I’m net short Aussie housing and seriously talking my book.)

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Angels Over Alcatraz

Angels Over Alcatraz, originally uploaded by Shiny Things.

The Blue Angels make a low pass over Alcatraz as part of their San Francisco Fleet Week show.

(Bonus: here they are, flying in over the Golden Gate Bridge.)

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Blue Angel

Blue Angel, originally uploaded by Shiny Things.

More Blue Angels photos to come, but here’s the first of a few cracking photos.

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…first as tragedy, then as farce

The country that gave us bubbles in real estateequitiesjadepaintingsshares in paintingstable saltfermented teafake French wine19th-century stampssilver, dead-caterpillar fungus and walnuts has just seen the collapse of a bubble in chrysanthemum tea

The excellent Sinocism blog has the story, mostly untranslated; non-Chinese-readers can hit this Google Translate link for the sad but entirely unsurprising story of “Xinjiang snow daisy 20,000 per kg fell 30 yuan enterprises teeth to be the turning point”.

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Bubbles in everything, or, chronically negative real interest rates will mess you up

The country that gave us bubbles in real estate, equities, jade, paintings, shares in paintings, table salt, fermented tea, fake French wine, 19th-century stamps, silver, and dead-caterpillar fungus is now inflating a bubble in… walnuts? Reuters Insider has the 24fps scoop: 

And, of course, “walnuts go up [in price] every year”. What could possibly go wrong, etc etc etc.

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