Events certainly ended on a sour note when the 211 investors who bought DBS High Notes (HN5) lost their appeal for the recovery of about $18 million worth of products linked to bankrupted Lehman Brothers. Chief Justice Chan ruled that "Illiteracy, whether linguistic, financial or general, does not enable a contracting party to avoid a contract whose terms he has expressly agreed to be bound by." Laymen will ask, how can one express agreement to terms he did not understand in the first place?
Johnny's latest fling in town seems to be with CFDs, Contracts For Difference which hinge on the bet on the movement of an asset - stock, currency or commodity - without owning the asset itself. The sweetener is that investors pay only 10 percent upfront for the leap off. But if the CFD shares dive, the full cost of the loss could wipe out that initial outlay, and euphoria of easy money, easily. Those who dabble in shares will recognise the similarity to margin trading. The generous broker who promptly opens a margin account for you will be just as quick to make the margin call, when something interesting like Greece makes the headlines.
The Wall Street Reform and Consumer Protection Act signed by Obama on 21 July 2010 requires derivatives to be traded on an exchange - and subject to regulatory controls that these instruments avoided during the subprime crisis. But greed can never be regulated. When things go horribly wrong, like the credit event kicking in for HN5, the good judge will simply remind you, "We think it appropriate and timely to remind the general public that... a person who signs a contract... is bound by the terms of that contract."