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EDITORIAL - Government must untangle investment schemes
published: Tuesday | January 8, 2008
Many people will be surprised that Prime Minister Bruce Golding has had to mandate his Cabinet members in the Finance Ministry to convene discussions with the Financial Services Commission (FSC) as well as the Government's legal advisers to begin to fashion a response to the emerging crisis with the so-calle investment schemes.
That crisis, after all, was long in the making, well before last week's declaration by the FSC that it believes Cash Plus Limited to be insolvent and Higgins Warner, ostensibly a foreign exchange trading club, snuck out of Jamaica, either to Argentina or somewhere in the Gulf.Indeed, the FSC was in court in the case involving Olint Corporation and LewFam to determine whether it has regulatory authority over these institutions - which a ruling says it has - many months before Mr. Golding's administration came to office last September. So, it is not unreasonable to assume that Mr. Golding would have had the outline of a response even before the election, and particularly in the last few months, given the Prime Minister's statement in November that investors in schemes, with their promise of extraordinarily high returns, could expect no bailout from the Government should they go bust.
Mr. Shaw, nominally the senior man in the Finance Ministry, may perhaps have been constrained by his public support, while in opposition, of these schemes and his rebuke in Parliament of the FSC for attempting to bring them under its regulation. It is never too late, however, to be responsible.
The Government in approaching this matter must have at least two points of reference. The most immediate, of course, must be, where required, facilitating the disengagement of investors from those schemes that have failed or may have been conceived from the start to be financial mirages. The other matter for the agenda is renewed dialogue on the continued evolution of Jamaica's financial market.
The first issue first. The Government must untangle the investment schemes, separating those which were engaged in real businesses - perhaps trading on the international currency markets or in high-risk derivatives but were not licensed - and those which the FSC believes were Ponzi schemes, or worse. In the latter scheme, it may be an idea that 'investors' who went in early and received 'interest' beyond their capital would have their capital written off. Any prevailing assets would then be shared, on a pro-rata basis, among later 'investors'.
On the other hand, the administration should empanel a group of 'wise men' to review not only existing financial regulations, but the global marketplace and Jamaica's place within it. For instance, Marjorie Seeberam, the head of the National Commercial Bank's corporate banking unit, has, for instance, raised relevant questions about the inability of banks to securitise, to any significant extent, near cash assets, such as receivables, to back loans. This negatively impacts the capacity of banks to structure big, sophisticated deals. Such matters demand rigorous debate, as does the need to build awareness of the market about the range of financial products and the risks attendant with them.
The controversy over th investment schemes demonstrates not only the ignorance of investors as some would suggest. The phenomenon highlights, among other things, a distrust for traditional institutions by a risk-taking people who are on the search for opportunities.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.
published: Tuesday | January 8, 2008
Many people will be surprised that Prime Minister Bruce Golding has had to mandate his Cabinet members in the Finance Ministry to convene discussions with the Financial Services Commission (FSC) as well as the Government's legal advisers to begin to fashion a response to the emerging crisis with the so-calle investment schemes.
That crisis, after all, was long in the making, well before last week's declaration by the FSC that it believes Cash Plus Limited to be insolvent and Higgins Warner, ostensibly a foreign exchange trading club, snuck out of Jamaica, either to Argentina or somewhere in the Gulf.Indeed, the FSC was in court in the case involving Olint Corporation and LewFam to determine whether it has regulatory authority over these institutions - which a ruling says it has - many months before Mr. Golding's administration came to office last September. So, it is not unreasonable to assume that Mr. Golding would have had the outline of a response even before the election, and particularly in the last few months, given the Prime Minister's statement in November that investors in schemes, with their promise of extraordinarily high returns, could expect no bailout from the Government should they go bust.
Mr. Shaw, nominally the senior man in the Finance Ministry, may perhaps have been constrained by his public support, while in opposition, of these schemes and his rebuke in Parliament of the FSC for attempting to bring them under its regulation. It is never too late, however, to be responsible.
The Government in approaching this matter must have at least two points of reference. The most immediate, of course, must be, where required, facilitating the disengagement of investors from those schemes that have failed or may have been conceived from the start to be financial mirages. The other matter for the agenda is renewed dialogue on the continued evolution of Jamaica's financial market.
The first issue first. The Government must untangle the investment schemes, separating those which were engaged in real businesses - perhaps trading on the international currency markets or in high-risk derivatives but were not licensed - and those which the FSC believes were Ponzi schemes, or worse. In the latter scheme, it may be an idea that 'investors' who went in early and received 'interest' beyond their capital would have their capital written off. Any prevailing assets would then be shared, on a pro-rata basis, among later 'investors'.
On the other hand, the administration should empanel a group of 'wise men' to review not only existing financial regulations, but the global marketplace and Jamaica's place within it. For instance, Marjorie Seeberam, the head of the National Commercial Bank's corporate banking unit, has, for instance, raised relevant questions about the inability of banks to securitise, to any significant extent, near cash assets, such as receivables, to back loans. This negatively impacts the capacity of banks to structure big, sophisticated deals. Such matters demand rigorous debate, as does the need to build awareness of the market about the range of financial products and the risks attendant with them.
The controversy over th investment schemes demonstrates not only the ignorance of investors as some would suggest. The phenomenon highlights, among other things, a distrust for traditional institutions by a risk-taking people who are on the search for opportunities.
The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.