This is the video of my address to the 4th Biennial Business Banking and Finance Conference (BBF4) held at the Trinidad Hilton from 22 to 24 June, 2011. The session I participated in was devoted to ‘Lessons from the Financial Crisis: The Resolution of Failed Entities.’ [See the acknowledgement letter from the conference convenor here.]Video courtesy UWI
Before:
This is what I submitted to be made evidence: Download The CL Financial Bailout PowerPoint presentation
or view below
The Bailout Timeline aroused great concern, with one attorney going so far as to call for the removal of the photos since they might be seen “…as a rogue’s gallery…” Another area of concern was the inclusion of the phrase “…final and fateful…” to describe the CL Financial AGM on 23 January 2009…yes, folks, that is the same one that gave a glowing account of the group’s plans to find opportunity in the global storm, a mere 10 days after writing to the Central Bank for urgent financial assistance and only 7 days before the MoU was signed. Of course, all of those objections ignore the fact that this timeline was published here in ‘CL Financial Bailout – Retirement Planning‘ on 28th April 2011
The Governor of the Central Bank slide was also the source of tremendous concern as no-one even wanted to call his name or the title of his office…VS Naipaul really had it right when he spoke of ‘…a thing with no name…‘ Again, the fact is that every one of the statements cited in this slide come from the Governor’s prepared statements, as shown in the footnotes.
After:
The Commissioner, Sir Anthony Colman ruled that the requested changes would be made and that slideshow can be seen here on the Commission’s website.
Continuing from last week’s critique of the revised bailout and its implications, I have further concerns as to the process by which the legislation was passed.
I am aware that the Members of Parliament were given a briefing, so that they would be better informed on this complex matter. That briefing was conducted personally by the Minister of Finance and the Governor of the Central Bank, together with their advisers and certain CLICO officials.
The briefing provided background information on these areas –
I am also told that the Members of Parliament were not given copies of the presentations, which seems to have effectively limited them to gaining certain impressions or the limited notes they would have been able to take during the briefing.
That account of events, given to me by more than one Parliamentarian, seems to suggest that the very rationale of the exercise, said to be the elevation of public rights over private ones, could have been subverted.
The reality is that, despite the extensive debate on the matter, this is the position –
The Parliament benefits from briefings on complex and important matters, but it is unacceptable that those briefings should be somehow shrouded in secrecy. The Minister of Finance and Governor of the Central Bank need to publish their full Parliamentary briefing, without delay, to remove any lingering doubts. Good governance, transparency and accountability demand no less.
Another aspect of the emerging situation is the recent reports that the Board of Inland Revenue is investigating the three top CL Financial executives for alleged non-payment of taxes. The report in the Sunday Express of 13 November stated that the tax filings of Lawrence Duprey, Andre Monteil and Gita Sakal were under official scrutiny, incredibly enough, it was also stated that Duprey’s chauffeur was in receipt of up to $3.9M in a particular year.
I had always wondered at whether people who enjoyed favour at the highest level really paid all their taxes. I have pointed out that in the case of Clico Investment Bank (CIB) there are serious and unanswered questions on that point arising from the affidavits of the Inspector of Financial Institutions in the CIB winding-up action. It seems that fresh and serious doubts are now arising on the tax compliance of some of the top CL Financial officials, so we will see. In view of the relaxed stance taken in relation to Anti-Money Laundering and Tax Evasion in the revised bailout process, we should not be surprised if these BIR cases slip into obscurity.
We need to be alert to the costs and other consequences of this crisis. Huge sums of taxpayers’ money are being spent to rescue companies who do not appear to have complied with our tax laws and there are no accounts being discussed.
Last week Wednesday and Thursday I appeared before the Colman Commission to give my testimony in this matter. On Wednesday afternoon there was a very negative reaction to my attempts to introduce a Power-Point presentation as a way to better illustrate some of the points I have been making. It was a frustrating and comical experience for me to hear supposedly learned men asking ‘What is this?’ and one of them even saying that he had no idea what it was…Here, in Port-of-Spain in 2011, we have learned men saying that they don’t know what a Power Point presentation is for. Of course, I am all for transparency, so their patently transparent ‘blocking tactics’ were most welcome, because they showed the viewers on TV just ‘Who is Who and What is What’. Thank you, colleagues, for doing a better job than I ever could have. The public is not stupid and your behaviour has had a clear impact on those who were viewing. That said, the Commissioner ruled that my evidence would be taken the next morning and so it was.
For those who are interested and want to know what all the fuss was about, stay tuned to www.afraraymond.com for a full article on this situation, including the so-called ‘offensive’ slides.
With respect to the method of presenting the evidence in the Colman Commission, I have some serious concerns as to the effect of relying only on written or oral testimony. The volume and complexity of the material and the fact that a wide audience, beyond the attorneys, is watching this Public Enquiry, means that there needs to be an upgrade in the way in which the information is presented. I have written to the Commission on this already and was shocked to learn that a request for further funding for multi-media was apparently rejected at the highest level.
There have been two Power Point presentations to the Colman Commission – my own and Ms. Maria Daniel of Ernst & Young, who was just before me – and in both cases the witnesses had to rent their own equipment.
The purpose of this Public Enquiry is to bring some light and justice to this very shadowy and crooked episode. I am here asking the Prime Minister, Minister of Finance and the Attorney General to take proper leadership on this issue. The people need to see the evidence if they are to understand.
I can well remember the Prime Minister’s campaigning words, echoing in my mind “Serve the People! Serve the People! Serve the People!”.
Finally, I am writing to the Integrity Commission this week to request, again, that they obtain declarations from the Directors of CL Financial, as required under the Integrity in Public Life Act.
If you are not outraged, you haven’t been paying attention…
The new bailout formula was approved, as two new Acts, by our Parliament on 14 September –
The first one prevents any lawsuits against the Central Bank by claimants, while the second gives the Minister of Finance the right to borrow up to $10.7Bn and places the Republic Bank Ltd. (RBL) shares formerly held by CLICO into a new investment vehicle, NEL 2.
These seem to represent what I am calling the Final Solution, in that the clamour and protest which had marked the last year seems to have been fading away. There have been queries from the various ‘Policyholders’ groups’, but those have been limited.
Whatever one thinks of the actual bailout, which I maintain is a perversion of our Treasury, there are valuable lessons to be learned from all this. The main lesson for me is the Power of the Few. In that although only about 16,000 investors were affected, they were able to mount a successful campaign to improve their position. We need to note that lobbying and campaigning can be effective in gaining benefits for limited groups. To all the weak-hearts who say nothing ever changes, please take note.
We also saw the position set out by the PM in her important speech on 1 October 2010 being reversed, in that the claimants’ rights to sue the Central Bank have been extinguished. There are rumblings about a challenge to the constitutionality of that restriction, but we will have to wait on that one to play out. The fact that the right to challenge the Central Bank’s actions in respect of the bailout has been removed opens fresh dangers in terms of the payout process.
We have all had bad experiences of what usually happens when serious unrestricted power is held by someone who does not have to answer for their actions. My concern is that there does not seem to be any avenue for oversight of or appeal/redress against the Central Bank, in the event that claimants feel they are receiving unfair treatment. That concern will have to be addressed at some stage.
Even as an account of the payout, we have deficient reporting with no true profile of the wealth being returned having been presented for public consideration. The Central Bank and Ministry of Finance is in possession of this critical information as to the amounts of money to be returned to claimants, but that is being suppressed, for whatever reason. This episode has been a real stain on our stated ambitions towards accountability, transparency and the ever-distant ‘Good Governance’.
A related point is that the PM gave a clear commitment to revealing who benefited from the first wave of bailout funds, said at the time to be of the order of $7.3Bn. The PM’s speech is at pages 19 to 34 of Hansard – at pg 24 –
…The previous administration injected $5 billion into Clico and they spent $2.3 billion to bail out the other distressed entities such as CIB in particular, so coming to a total of $7.3 billion has gone into that hole and yet today the Government and, therefore, the taxpayers of this country have been called upon to come up with another $16 billion to $19 billion. So what happened to that $7.3 billion? Where did it go? Who are the people that were paid? How was it utilized? What happened to that $7.3 billion?…
The concern here is that we are not at all sure that this new arrangement will in fact yield the required information as to who are the real beneficiaries of this bailout. In view of the fact that the entire deal is a burden on our Treasury, this opaque arrangement is unacceptable.
After all –
Expenditure of Public money – Accountability – Transparency = CORRUPTION
Quite apart from those concerns, the fact is that provisions should have been made for Anti-Money Laundering and Tax Evasion screening. The Treasury must not be used for Money-Laundering and the proper safeguards need to be put in place to prevent this.
The lack of accounts for the CL Financial group, after 31 months under State management, is also unacceptable. The essential terms of the bailout are being sidelined, since the original agreement was for the State injections of cash to be repaid via asset sales. Both 2009 agreements – the January MoU and the June CL Financial Shareholders’ Agreement – also spoke to the preparation of accounts and provision of information.
The perturbing aspect is that there continues to be a uniform silence as to the preparation of these overdue accounts, so the taxpayer must wonder just how, or if ever, these vast sums of bailout money are to be recovered. This is the burning question which is at the root of my outrage.
The new arrangement is also silent as to the position with respect to other creditors of the CL Financial group, so there is no certainty as to how those claims would be treated. On 31 October, Trinidad and Tobago Newday reported on ‘CLICO Bahamas seeks $365M from CL Financial’. There are substantial regional and local claims outstanding, so the entire cost appears is an unknown quantity at this time, given the lack of accounts.
As I pointed out previously, the Directors and Officers of the CL Financial group and its subsidiaries ought to be subject to the provisions of the Integrity in Public Life Act, by reason of its being a State-controlled company. The Integrity Commission needs to demand the required declarations from those persons, if we are to secure the required level of transparency.
The continuing failure of the Central Bank to make rulings as to the extent to which CL Financial’s Directors and Officers at the time of the collapse are ‘fit and proper persons’ is the final piece of the sorry picture.
The State’s period controlling the CL Financial group, ends on 11 June 2012 – a mere 7 months away – at which time the group will return to its owners. Given the fact that the Central Bank has not made an adverse ‘Fit & Proper’ finding against Lawrence Duprey, in the absence of accounts and with a significant part of the RBL shares divested in this fashion, what will be the out-come? Is the stage now set for Lawrence Duprey to return?
I spent last Wednesday afternoon in New York’s Zucotti Park, with so many points to share on that experience. For now, I leave this striking slogan of the Occupy Wall Street movement –
If you are not outraged, you haven’t been paying attention…
Afra Raymond is interviewed on the “Centre Stage” show on Power 102 FM in Trinidad and Tobago, hosted by Chris Seon, Cliff Learmond and Sherma Wilson, on the Colman Commission and the revelations and possible consequences.
Following my last article on the Colman Commission –Balancing the Scale – in which the recent private meeting of Attorneys was discussed, I wrote the following to its Secretary.
From: Afra Raymond <afraraymond@gmail.com>
To: judith gonzalez <comsecclfhcu@gmail.com>
Sent: Wednesday, September 21, 2011 9:02 AM
Subject: To the Colman CommissionTo – Judith Gonzalez, Secretary to the Colman Commission
Dear Ms. Gonzalez,
I was perturbed to learn, only recently, that the Commission had convened a meeting on Friday 8th July at which one of the items discussed was whether my various submissions should be admitted as evidence and if so, what should be the ‘status’ accorded it.
Here we had the situation of a Public Enquiry into a matter of Public concern, convening a private meeting which discussed as one item of business my inclusion as a witness. As a participant in the Enquiry, not a party, I was excluded from the discussion as to whether my evidence should be omitted…I was not invited to that meeting and only found about this afterwards, almost in passing. I also understand that the various parties are to be given the opportunity to make submissions on those issues on my testimony, on which the Commissioner can make a ruling.
My work on this matter of grave public concern has been a solo exercise, except for the occasional assistance of friends. I am without legal representation at this important forum.
Given the substantial parties involved – all of whom are represented by attorneys – and the limits placed on my input by the Commission’s decision to deny me the status of a party, one can scarcely imagine a more lop-sided scenario than this one. Natural Justice is not negotiable.
All that said, the meeting in question has already taken place, so I am requesting that you give proper consideration to inviting my participation when this matter is next to be discussed.
Thank you for your consideration.
Afra Raymond
The Colman Commission into the failure of CLF Financial and the Hindu Credit Union is just about to move into its second round of Hearings and the public can expect to have further testimony on the losses suffered by people who deposited monies with CL Financial.
I have made several submissions to the Commission and have been invited to give evidence. I am reliably informed that there have been strong and unanimous objections to my participation in the Colman Commission. It would seem that only the Commission itself is interested in having my testimony go onto the record.
It is not surprising to me that objections of that sort would be arising now, but readers need to have a context.
The Colman Commission was established to find out how this fiasco occurred, recommend methods to stop a recurrence and also to identify responsible people who are apt for lawsuits or criminal charges. The main parties can be expected to give self-serving evidence, designed to exonerate themselves from any blame. We can also expect to hear more attempts to put the blame onto Wall Street, despite the claims in the CL Financial 2007 Annual Report– this is from the preamble –
…“The Next Wave of Growth” is the theme of this annual report, highlighting, to quote our Chairman, “that out of any crisis opportunities will emerge and our progress during the year under review prepares us to seize those opportunities and unlock value.” We have confidence in our ability to not only navigate this financial storm but to find fresh and profitable opportunities within it…
That Annual Report was published on 23 January 2009 – yes, that is 10 days after Duprey wrote to the Central Bank Governor for urgent financial assistance and one week before the bailout was signed on 30 January.
The Colman Commission is a Public Inquiry into a matter of major importance; it was approved by the Cabinet and installed by the President of the Republic. A Commission of Enquiry can only make findings on the evidence submitted to it, so it would be very important for some people to have certain evidence omitted.
One of the most outrageous aspects of the entire Uff Enquiry was the use of public money by UDECOTT to attempt to block certain documents coming into evidence. Those various attempts to limit the scope of the Uff Enquiry were disgusting to all right-thinking people and seemed to be a straight case of the ‘tail wagging the dog‘.
It is unacceptable that the Ministry of Finance could be taking a position which is seeking to exclude my evidence from the Commission. If that were so, it would mean that Ministry is acting in a manner which effectively dilutes the Commission and what is more, appears to be incompatible with the intention of the Cabinet to have a full public enquiry into this matter of national concern. In addition, the Central Bank is also reported to have objected.
The Colman Commission needs to be robust in getting at the truth of this financial disaster.
At the time of writing I have no details of the new bailout plan, proposed to be laid in Parliament for debate on Wednesday 14 September. According to a report in the Trinidad and Tobago Guardian, the proposed plan is in two limbs, the first includes the issuance of new bonds to raise monies for the payment of policyholders, while the second is the creation of a prohibition against lawsuits against the Central Bank.
The three concerns I have at this stage are –
As a result we have two insurance companies operating in our country without any accounts, which is in breach of the very regulatory framework of the Central Bank.
The Finance Minister must address these relevant concerns if this proposal is to gain any support. It brings to mind the recent point made by Independent Senator Subhas Ramkhelewan, in debating the recent proposals to increase the State borrowing limits, that the Parliament needs proper details of the ways in which those monies are proposed to be spent, because no person could borrow money from a diligent lender without giving details. We need, as a country, to insist on these higher standards.
We need to move away from the black box and the magician’s hat, towards a more transparent situation in which large-scale public spending decisions are based on a solid series of rationales.
…2. To make such findings, observations ad (sic) recommendations arising out of its deliberations, as may be deemed appropriate, in relation to:
(i) whether there are any grounds for criminal and civil proceedings against any person or entity; whether criminal proceedings should therefore be recommended to the Director of Public Prosecutions for his consideration; and whether civil proceedings should be recommended to the Attorney General for his consideration;
It seems to me that the result of these proposals could be to thwart that part of the functions of the Colman Commission as they relate to the Central Bank.
It is at moments like this that a responsible and long-term approach to these huge issues is in the interest of the entire nation.
In this article, which was published on September 13th 2011, I stated that there were unanimous objections to my appearance as a witness at the Colman Commission. I wrote that on the basis of certain reports given to me by persons who were present at those meetings, but after receiving a challenge from the attorneys for the Trinidad & Tobago Securities & Exchange Commission (TTSEC), it was impossible to corroborate that aspect of the article – i.e. that the TTSEC had objected to my appearance.
This notice is to correct the record in that respect, I do regret any inconvenience or damage caused to the TTSEC by my publication of those allegations. – a Correction with similar effect was published in the Business Guardian of 18th November and I do regret the delay in publishing this one here for blog-readers.
Afra Raymond
The Colman Commission held its first session of Hearings in the last week of June, so we were able to have moving reports from witnesses who had lost-out from various investments with the Hindu Credit Union (HCU).
I read those transcripts and it was painful to see the shape of this problem. The most striking aspect for me was that the various attorneys seemed to have struck a compromise as to the parts of that evidence which would form part of the public record.
The main concession was that those witnesses did not have to state the amount of their investments for the record. The reasoning seems to have been a stated fear of crime, but it is my view that this concession will compromise the effectiveness of the Colman Commission. Given that the Commission is scheduled to resume its Hearings on 19 September, it seems timely to put these matters forward now.
To begin with, the two Golden Rules of investment are –
From these time-honoured ‘Golden Rules’, we derived the ‘Prudential Criteria’ which guide how financial institutions balance risk and reward.
Yet, despite the ‘Golden Rules’ the CLF and HCU chiefs were able to devise products which tempted tens of thousands of people to abandon those basic safeguards and invest in their products. People who were normally sensible were tempted to abandon good sense and break both ‘Golden Rules’. That is the measure of this tragedy.
Another point is that it was not only individuals who made that type of error, there were other people, with responsibility for managing monies, who also gave into the various temptations. The sidebar has details on that.
Let us be clear that the scope of this fiasco is as broad as it is deep, with boundaries stretching from the delayed and misleading accounts to the mismatched funding/investment practices of the core companies, from the absence of proper corporate governance described by Dr. Euric Bobb to the negative impact of the extensive political donations made by the CLF group. The Executive Flexible Premium Annuity (EFPA) is at the heart of the tragedy – the most successful investment product ever designed and built in the Caribbean, while being, at one and the same time, arguably the most toxic.
The duty of the Colman Commission is to probe how this fiasco occurred, recommend methods to stop a recurrence and also to identify responsible people who are apt for lawsuits or criminal charges.
We are now contemplating an inquiry into a large-scale financial collapse, which appears to have conceded the right of witnesses to withhold details about their investments. We are able to read the name and age of the witness, but effectively barred from information as to the size of their investment or the proportion of their total portfolio that figure represents. A Public Enquiry into a financial failure has conceded the right of the public to the basic financial information. I say basic, because the fact is that without those thousands of EFPA and INC investments, there would not have been the cashflow to allow CL Financial to embark on that fateful journey.
This appears to me to be a cloudy concession, to say the least, since it might represent the thin edge of the wedge in setting a precedent to allow subsequent witnesses to try obscuring or omitting financial details. More importantly, the effect of that kind of concession is that it will almost certainly mask the extent to which the basic financial rules were violated. That is not a philosophical question, because the CLF disaster only attained this scale and consequence as a result of these basic rules being broken. Ergo, it is not at all possible to credibly examine the causes of the crisis, if one has conceded that those are areas which will not be publicly examined.
There was public campaign to persuade people to make these risky investments. That campaign was calculated to have them set aside the norms of good sense – the ‘Golden Rules’ were abandoned. The Agents, many of whom masqueraded as ‘Investment Advisors’, appealed to people to close-off their other accounts and sell other investments so as to put as many eggs into that one basket as possible. After all, the more money you put with them, is the more interest CL Financial was offering. We all know that is how the thing went.
At the same time, these agents were busy telling people that their product offered these tremendous rates of return and complete security of funds, etc. etc. I bet everyone reading this heard those lyrics, at least once.
This concession is short-sighted and I am urging the Colman Commission to reconsider its position urgently. There must be no easy concession to allow less light.
Sunlight is the best disinfectant.
The depth of this tragedy can only be plumbed if we are able to see the true extent to which the ‘Golden Rules’ were broken.
The Colman Commission has to keep its focus. That concession needs to be renegotiated, if it is not already too late.
Apart from the individual investors who suffered from their misplaced faith in the CL Financial and HCU Products, there are others who also need to be examined by the Colman Commission if we are to have a proper picture of those events.
Firstly, there are the Credit Unions, who were acting for many small and relatively unsophisticated investors. Several Credit Unions placed heavy investments into these EFPA products, which of course was a product approved for individual investors. The nature and extent of those Credit Union investments need to be a living part of this enquiry.
Secondly, there were yet another species of large-scale investors who were the chiefs of the State-owned National Gas Company (NGC) and the nation’s largest pension plan, the National Insurance Board. Those two companies were reported to have invested the sums of $1.1Bn and $700M, respectively, in a Clico Investment Bank (CIB) product called the Investment Note Certificate (INC). This was another ‘gravity-defying’ product which offered attractive rates of interest along with the guarantee of being backed by good-quality investments. Like a close relative of the EFPA. In ‘Taking in Front’ published here on 25th April 2010, I examined the NGC’s involvement in those CIB products. At one point, up to 40% of NGC’s money was with the CL Financial group, so it is clear that its own Board policy on the placement of large-scale, short-term deposits did not insulate that State Enterprise from the temptations which afflicted others.
Given that the highest levels of commission were paid to the agents for these products which yielded so much cash for the CL Financial group, Colman has to ask whether inducements were ever offered to these people in positions of trust. Apart from the question of possible inducements, the real question is whether the kind of over-concentration of deposits which exists is at all compatible with the proper execution of one’s fiduciary duty. Colman will never know unless he withdraws that fatal concession.
This is an edited version of my address to the 4th Biennial Business Banking and Finance Conference (BBF4) held at the Trinidad Hilton from 22 to 24 June, 2011. The session I participated in was devoted to ‘Lessons from the Financial Crisis: The Resolution of Failed Entities.’ [See the acknowledgement letter from the conference convenor here.]
Thanks for the invitation to speak at this forum, it was last-minute, but welcome, since our local Institutions of Higher Learning have not spent the necessary time to explain and analyse this financial fiasco. I have been very critical of the Institute of Business, the Institute of Social and Economic Research, the Faculties of Economics and Management and the Caribbean Centre for Money & Finance, so it is great to see you making a start on this overdue work. It is my pleasure to participate in these proceedings.
I want to start by shifting focus to the arena of the mind and the existence of elements such as moral and ethical values, as well as social standards. In 1971 there was a famous series of psychological experiments in which selected students entered a two-week role-play as prison-guards in control of other people who were playing the role of prisoners.
That experiment was conducted at Stanford University in California and the results were that most of the prison guards adopted cruel behaviour with most of them being upset when the experiment was stopped after only six days. The entire experiment was filmed and the prisoners suffered from regular acts of wickedness, abuse and sheer perversity – one-third of the guards acted sadistically.
The Stanford Prison Experiment as it is now known, was heavily criticised as being unethical and unprofessional. Of course the other aspect is that it re-opened the perennial discussion into the nature of things. The nature of our nature, as it were – ‘Are we humans naturally evil and cruel?‘ The learning seems to be that well-adjusted and reasonable people can very quickly lose their moral compass in a situation with a lack of the conventional controls such as disapproval and laws.
No surprise to those familiar with history and politics, but the lesson for us in T&T is that if you let people get the idea that they can never be punished, there is virtually no limit to the rules they will break. Asset-stripping, Bribery and Corruption can become the new norms of a governing class and that is what has happened in our country.
We have never had a strong tradition of detecting and punishing White-Collar Criminals, so if we are to make a start in terms of the resolution of failed entities, that has to be the starting-point. We cannot reconstruct or resolve the failed entities if we do not change that aspect of our culture – the absence of consequence has to be abolished.
The absence of consequence is inimical to any development – personal, national or regional. It is no point bringing new regulations or ‘approaches’ to this huge problem, until and unless the basic culture changes.
So that is the challenge for us – we have to change the way we think and behave around these issues of White-Collar Crime. It is a very damaging type of crime which can affect the lives of many, many people – as we have seen in the CL Financial fiasco. But we have to make that choice to change our culture around these issues.
The current financial disaster amounts to the greatest ever destruction of capital in peacetime – these are literally epochal events, but we do need to be careful as there is yet another big lie out there. It suits the CL Financial chiefs to promote a version of events that has the blame attached to the Wall Street events of 2007/2008. The people promoting that version are buffoons, whose story is unable to withstand serious examination. I call it the Wall Street hoax and it is useful since it allows the CL Financial chiefs to escape the reality of their failure, to put it charitably, by blaming events way beyond their control.
Nothing could be further from the truth. We need to be very clear on the scale of this particular lie and the public mischief it represents. Even close examination of CL Financial’s 2007 audited accounts shows only tiny exposures to Wall Street But what is worse is that the entire CL Financial pattern of behaviour and the burning question of the extent to which the CLF chiefs were ‘fit and proper’ are not new issues. If we consider the 15 July 1996 ‘Circular Letter to Shareholders‘ issued by Republic Bank Limited under the hand of then Chairman, the late Frank Barsotti, it is all there. Fifteen years ago we knew the threat to which we were exposing this country by letting CLICO take over Republic Bank…it is 66-pages long, but very important to read – it is on my blog.
We don’t have a Wall Street problem, what we have here is a St. Vincent Street problem. Yes, from the Central Bank (at the foot of the Street) to the Treasury (paying for the whole entire wretched bailout) to the Red House (where the real discussion has never taken place), right up to #29 – the CL Financial headquarters. Yes, is a real St. Vincent Street problem we suffering from. This is we own creation we fighting with.
The CL Financial fiasco is estimated to be costing at least ten times as much, as a proportion of GDP, as the Wall St. crisis. Yet we still have mischief-makers who want to make misleading comparisons between the two, to justify the bailout.
A powerful parallel with the Wall Street crisis is the fact that the CL Financial fiasco was also characterized by ‘Shadow Banking’, meaning vast sums of money solicited from investors and being traded outside of the conventional regulatory umbrella.
Here are some extracts from the Financial Crisis Inquiry Commission’s Final Report (the FCIC is the US government’s official Commission of Inquiry into the Wall St crisis) –
From pg. XX (20) of the ‘Conclusions’ section –
“…Within the financial system, the dangers of this debt were magnified because transparency was not required or desired. Massive, short-term borrowing, combined with obligations unseen by others in the market, heightened the chances the system could rapidly unravel. In the early part of the 20th century, we erected a series of protections—the Federal Reserve as a lender of last resort, federal deposit insurance, ample regulations—to provide a bulwark against the panics that had regularly plagued America’s banking system in the 19th century. Yet, over the past 30-plus years, we permitted the growth of a shadow banking system—opaque and laden with short-term debt—that rivaled the size of the traditional banking system. Key components of the market—for example, the multitrillion-dollar repo lending market, off-balance-sheet entities, and the use of over-the-counter derivatives—were hidden from view, without the protections we had constructed to prevent financial meltdowns. We had a 21st-century financial system with 19th-century safeguards…”
Every line of that paragraph rings true to our local situation. We are grappling with a shadow banking threat to the savings of the nation. Our national wealth has been pledged to rescue adventurers at the very edge of the financial universe and that is what is wrong with the bailout.
I am no supporter of the Peoples’ Partnership, but what is right is right and the fact is that our Minister of Finance, Dookeran, is spot-on with this part of his analysis and action. When Dookeran spoke in his inaugural budget speech on 8 September 2010, he took the approach of combining the assets and liabilities of both CLICO and British-American Insurance, which showed an insolvency in the order of $7.3Bn.
More to the point, the approach showed ‘traditional insurance‘ liabilities – i.e. Health, Pension and Life – of the order of $6Bn and ‘non-traditional/investment’ liabilities – i.e. EFPAs – of the order of $12Bn.
So what we are seeing is insurance companies whose non-insurance business is twice the size of their insurance portfolio and what is more, the supposedly guaranteed investment is nowhere to be found, hence the tremendous problem in repaying the EFPA holders. That is the dilemma facing the country now and that is what Dookeran was explaining to us – a Shadow Banking arena that has grown to eclipse the core business and threaten the entire nation.
Another important part of the false discourse in all this is the promotion of the utter nonsense that there is any such thing as a ‘Guaranteed Investment’. Absolute and complete lies. There is no such thing and that is the fact. Yet we have had CL Financial’s Boards of Directors of the ‘Great & Good’ promoting that kind of deceptive dangerous nonsense. You Investment Professionals need to find the courage of your convictions to speak-out on this smartman behaviour.
We had a product being promoted as offering twice the market rate of interest and also your entire investment is guaranteed and blah blah blah. The Central Bank and the Supervisor of Insurance sat there and allowed that deceptive advertising to take place and it was a campaign, with thousands of letters. A straightforward assault on good sense and the gatekeepers stood silent.
The final point we need to drive home is that, whatever the temptations, we must not lay the entire blame onto Lawrence Duprey & Andre Monteil. It took plenty more than the main CL Financial chiefs to get us to this point. There is a network of lawyers, accountants, agents who pretended to be financial advisers and of course, the many Board Directors. That network is hundreds of people all of whom share a responsibility, quite probably culpability, for this crisis.
The Colman Commission has to work very hard to preserve its effectiveness.
This is a rapid look at some of the news coming out of the Colman Commission – the first live evidence was given on Monday 4th July.
That evidence has so far been into the Hindu Credit Union (HCU) and already some peculiar things are emerging. I do not follow it on TV and just read the newspaper reports –
Farid Scoon, Attorney-at-Law – Was expected to explain how he could be representing a group of HCU depositors and the former HCU chief, Harry Harnarine, at the same time.
There also seems to be a strange situation on CL Financial, since I am told that none of the affected people are willing to come forward to testify. I am not very surprised at that and it is yet another indication of the extent of that toxic ‘Code of Silence‘.
What a shame! 25,000 policyholders said to be affected by the failure of CL Financial, yet only one is willing to testify. Only One! I wrote before in this space about the probability that a high proportion of those EFPA monies had never been screened by rigorous Anti Money Laundering (AML) procedures. I suggested to the Minister of Finance that provisions be made in the payout agreements for the applicants for bailout monies to have the source of their funds vetted for compliance with VAT, PAYE, Income and Corporation taxes. The Minister did not adopt those proposals.
So, what we now have is the spectacle of the Colman Commission set up by the government to examine the causes of the collapse and finding that few want to speak, very few. I don’t know if it’s dirty money, or ‘keeping it in the family‘ or what…but I do hope that Colman takes a robust approach by using his powers to sub-poena people to appear and testify.
The Colman Commission needs to deploy more resources in getting info up onto its website in a timely fashion. Just as a simple example, the opening arguments which were heard last week have been posted onto the website in very erratic, delayed fashion. The session of Monday 27th June was posted on Tuesday 28th June, but the sessions of Wednesday 29th and Thursday 30th June were posted on Tuesday 5th July, no explanation given. If more resources are required those need to be deployed. The Colman Commission must not be allowed to become an orphan in our land of grandiose schemes and projects.
Of course we have seen the expected attempts by Lawrence Duprey to remove himself from being enquired into or even being required to answer questions. At this time those attempts appear to have been thwarted, but we can surely expect more spoiling tactics and not just from Duprey, either.
AfraRaymond.net 