24 February 2009

7. PURGATIVE: A sense of déjà vue!

When mulling over en bloc issues vis-à-vis the current credit crisis, I get this sense of déjà vu. Failure by regulators. Failure by industry players. Failure by end-customers. Failure of the entire financial market! Sounds familiar, eh? How damning can it get, I ask you?

Let’s draw just one parallel here, using the example of en bloc legal fees.

Where Singapore has rejected ambulance-chasing lawyers who are paid a certain percentage of the judgement award to accident victims, we have conveniently closed one eye to the en bloc industry standard of “no sale, no fee” for lawyers (and marketing agents).

On the one hand, if an ordinary person appoints a law firm to issue a Letter of Demand for some minor dispute, it is standard practice to require an upfront retainer of a few hundred bucks.

On the other hand, if a motley bunch of ordinary persons in a Sale Committee appoint a law firm in an en bloc sale running into hundreds of millions of dollars (if not a billion), not a single cent is paid upfront.

Worse still, after doing all the work throughout the 12+12 = 24-month window period for en bloc sale, if the deal falls through, the lawyer (and the marketing agent) gets nothing!

Having introduced legislation to deliberately let loose market forces from so many angles to facilitate en bloc sales in the name of urban renewal, a lot of us are in connivance by NOT counter-balancing the relentless ferocity of those same market forces.

In reviewing the legislation, the Ministry for Law did not see it fit to provide for a legal retainer fee of even 0.1% of the expected apportionment amount based on the stated Reserve Price to be paid upfront by each Sale Committee member and each signatory of the Collective Sale Agreement. Failure by regulator?

The legal fraternity did not step up to preempt the market’s exploitation of their own kind. Lawyers are consensual in such exploitation. Their self-preservation and survival instincts naturally kick-in and they resort to embedding and burying all kinds of latent cluster bomblets in the Collective Sale Agreement to trip up even Majority Consenters or conveniently omitting key verbal representations made in their presence to induce signature of such Collective Sale Agreement. Lawyers do collective sale tie-ups with marketing agents to offer a package deal and there is precious little transparency and open competition to enable owners to make an informed decision and exercise freedom of choice between different law firms. Even for a modest $15mn loan syndication, agent banks typically get three competitive legal fee quotations. Yet for a $500mn en bloc sale, no competitive quotes are obtained with any seriousness (although there are occasional cases with some semblance of multiple quotes helpfully "sourced" by the marketing agents who themselves float-or-drown together with the lawyers in the same "no sale, no fee" yacht). Failure by industry players?

Property owners bargain for the cheapest possible legal package, get “clever” (so they thought) by making the Developer-buyer pay the marketing agent’s commission, delay or default in paying whatever nominal fees are stated in the Collective Sale Agreement. Whatever these property owners can get away with, they will. “They want it cheap; they want it fresh/beautiful!” – depending on the dialectic Chinese version you choose! Often times, property owners forget the cardinal rule that “if it sounds too good to be true, it probably is”. Failure by end-customers?

The ugly spectre of “serial condo raiders” or “en bloc flippers” is slyly covert in some estates and brazenly overt in other estates! Yet our Ministry of Law has a hands-off approach to this destructive and disruptive element. I do not know enough of the intricacies of the American housing market and how President Barack Obama’s efforts will pan-out in unravelling the present mess by means of the upcoming Housing Mortgage Program.

But I'd like to draw a parallel between our Gahmen’s hands-off attitude towards en bloc flippers and that of President Obama’s guiding principles as encapsulated in his 18 Feb 2009 speech:
"But I also want to be very clear about what this plan will not do: It will not rescue the UNSCRUPULOUS or IRRESPONSIBLE by throwing good taxpayer money after bad loans. It will not help SPECULATORS who took risky bets on a rising market and bought homes not to live in but to sell. It will not help dishonest lenders who acted irresponsibility, distorting the facts and dismissing the fine print at the expense of buyers who didn't know better. And it will not reward folks who bought homes they knew from the beginning they would never be able to afford. In short, this plan will not save every home.” In concluding his above speech, President Obama said: "It will not be easy. But IF WE MOVE FORWARD WITH PURPOSE AND RESOLVE – with a deepened appreciation for how fundamental the American Dream is and HOW FRAGILE IT CAN BE WHEN WE FAIL IN OUR COLLECTIVE RESPONSIBILITIES – then I am confident we will overcome this crisis and once again secure that dream for ourselves and for generations to come.” [Capitalization emphasis is by The Pariah. And don't you just luv Straits Times Graphics' clever caricature of Obama???]

President Barack Obama repeated the SAME THRUST in his first address on 24 Feb 2009 to the joint session of the House of Congress since taking office: “It is time to put in place TOUGH, NEW COMMON-SENSE RULES of the road so that our financial market rewards drive and innovation, and PUNISHES SHORT-CUTS AND ABUSE.” [Capitalization emphasis is by The Pariah.]

Wow! How Obama's Neo-Communitarianism and Progressive Government (NOT Progressive Corporatism) resonates in our soul! It is about “Doing Right”, man!


Mid-life Crisis 3 said...

If only we have a Singapore Obama - how shiok!

The Pariah said...

Well, President Obama sets the tone on a world stage ...

I may be wrong but, personally, I reckon that it is no longer acceptable to take the approach of "business as usual". I give you 3Cs: Complacency Carries a Cost.