WE’VE BEEN SCORED!

(ABOUT CREDIT AND CREDIT SCORES)

Like a birth mark, each one of us has been tagged with a distinctive numbered marking called credit score! It is a tag that stays with us forever.

But unlike the real static birthmarks, this distinctive numbered tag called credit score is dynamic and changes over time. It depends entirely on our own individual credit histories (or how we manage our credit). Every time we apply for credit, like making a car loan, or a personal loan from a bank, or apply for a mortgage or a new credit card, lenders look mainly on our credit scores to determine the level of credit risks they will have to take with each of us before making their credit decisions.

What is a credit score?

Whether we like it or not, our credit history is being reported to and stored by three major credit reporting agencies in the United States (Equifax, Experian, and Transunion). Lenders who have extended credit to us provide these reporting agencies with details of our credit history such as the type of credit we’ve used, the length of time our account has been open, and whether or not we have paid our bills or not. These are incorporated into individual credit reports which also include information on how much credit we’ve used and other pertinent information like if we are applying for new credit sources.

In making credit decisions, lenders buy these reports from the three credit reporting agencies. However, based only on these credit reports, the credit granting process by lenders were quite slow, inconsistent, and oftentimes biased; up until the Fico Score (more popularly known as credit score) was invented.

Using data from our credit history (as provided by the three credit reporting agencies, which in turn is based on data provided by our lenders), a company called Fair Isaac Corporation (FICO) developed an objective scoring system using advanced math and analytics. The new scoring system allowed for faster credit decision making by lenders, in fact it now only takes seconds for credit decisions to arrive on line. The new system took away personal biases and opinions and made credit decision making fair and objective. On top of these, the new credit scoring system allows our past credit problems to fade away in time especially with the entry of new data showing improved payment patterns. These Fico Scores are now the most widely used credit scoring system worldwide.

The FICO® score is calculated by a mathematical equation that evaluates many types of information from our credit report in any of the three credit reporting agencies. By comparing this information to the patterns in hundreds of thousands of past credit reports, the FICO score estimates our level of future credit risk. Our level of future credit risk is then calculated and expressed as a number which ranges from 300 to 850 where the higher the score means the lower the credit risk and vice versa. However, while many lenders use the Fico scores to help them make their lending decisions, there is no set cut-off range or score for all of them. Each lender has his own strategy and sets his own cut off score based on the level of risk it finds suitable for his own credit product.

Here is the breakdown of how Fico score assesses the data from our credit report:

· Payment History - 35%

· Amounts Owed - 30%

· Length of Credit History - 15%

· Types of Credit in Use - 10%

· New Credit - 10%

Please note that while Fico scores considers only the data contained in our credit reports, lenders may want to also consider other information before making the final lending decisions. The additional information may include our household income, the length of time we have worked at our jobs and the type of credit we are applying for.

It is important to regularly manage our credit health well and maintain a high Fico score at all times because the benefits are enormous such as getting better credit offers, lower rates of interests, and speedy credit approvals. So, if we are planning to make a major purchase such as buying a car on installment, or applying for a mortgage on a new home, it is best to check on our credit scores six months earlier to give us enough time to take actions to improve our Fico scores.

We’ve been scored and there’s nothing we can do about that but to maintain a healthy credit status!

THE DECADE LONG RAPE OF PHILIPPINE INVESTORS BY MIFE

In 1987, after our attempt to make an actual delivery of Copra (dried coconut meat used to produce coconut/vegetable oil and one of four commodities traded at the defunct Manila International Futures Exchange) was blocked with an offer to withdraw our maturing contracts at a nifty profit, the brokerage house I used to work for decided to close the branch where I was assigned. We were offered two options: resign and get a severance pay or be reassigned to the main office in Makati, the country’s premier financial district. I decided to be reassigned, and you wouldn’t believe what I went through next!
Having first-hand knowledge that prices can be manipulated at the exchange, I set out to find out more about this well-hidden secret. With the help of a friend who used to work at the trading floor of the exchange, I learned the hand signals used at the MIFE trading floor (in contrast to the open outcry system used by established exchanges like

CBOT and NYSE). I would visit MIFE’s viewing deck and take down notes. I noted which big broker protects certain price levels in each commodity traded at the exchange. With this knowledge, I would scamper back to the office to place my orders. Guess what? Every time I place a limit order, the price would be off by a pip or two, making me more convinced that indeed I am trading in the right direction. But, my orders were not getting hit (the market wasn’t going to give me a free ride). In the succeeding sessions I decided to put in a market order (at any price order). Usually, this kind of order would be immediately confirmed. But lo and behold, my order for merely 2 contracts moved the price limit up for two consecutive sessions. In a limit up situation your order will not be confirmed even if you place a market order, meaning even if you are willing to take the order at any price. The convenient excuse they gave to justify the situation is that there were more buyers than sellers and so my order cannot be filled! Bullshit my ass, as if I didn’t know that the volume of trade in the exchange is a farce. Anyway, I could sense that I am being watched closely by then.
Finally, realizing that I can wreck havoc to the company and to the exchange itself, the head trader (a HK-based Chinese) talked to me and told me outright that if I want to make money I must place my orders with another brokerage house. He told me he would even help me and gave me a list of brokers who are not that closely linked to our company. He gave me specific instructions to open accounts and place orders only with the brokers he had just shortlisted. And sure enough my orders were getting hit and my clients were making money for a while, until it stopped once again. My orders were not getting hit once more. I later realized that this must have been the times when no new orders were coming in to the member brokers of the exchange. Then, one day the head trader approached me and talked to me heart to heart. He asked how many new accounts I could immediately open and when I told him I could open as many as he wanted, he finally made me an offer! He wanted 25% of the profits from my trades in exchange for information he would provide me (when to get in, what commodity to trade, what price to write, what specific session to enter). Not only that, he gave me his own money to open an account for him with another broker and I was to get 25% this time while he gets the rest. I fell for it, besides who wouldn’t? It was sure money for me and my clients. We did make a killing then!

Later on, I learned from the guy himself that there was a huge order from China (they were operating sweat shops in China too) and they simply were bucketing this huge placement. We merely took a free ride with them, in the process hitting the other unfriendly, or uncooperative brokers of the exchange. It was all dirty! And, they have been doing this for the past 10 years…milking Philippine investors dry.
I knew then that I needed to stop. Innocent investors were getting duped dry of their hard earned savings. This was not the kind of career path I wanted to take. So, when an offer to work with a forex broker came along, I and my group made a plunge without hesitation, thinking then that the forex market cannot be manipulated as with MIFE. I was wrong because I encountered more surprises after that.
In the light of renewed efforts to re-establish the Manila International Futures Exchange by some known figures in the banking industry here in the Philippines, I am compelled by conscience to blog about my real life experiences in this industry hoping that similar pitfalls can now be avoided by both investors and the regulatory authorities alike. Extra effort must be spent to unmask who the real people behind the revival of MIFE are. My blog site shall serve as a watch dog for similar investment undertakings. It shall be a forum to expose those who are out there to scam innocent investors. Big daddy will be vigilant and this is now his newfound advocacy.

Earth,Wind, and Fire..Live in Davao, August 24, 2008!

Yup! For the first time in the history of that famed city of the south, residents there got the thrill of their lives when a band of known international fame and caliber, the highly popular Earth, Wind and Fire did a live performance at the sprawling parking lot of SM Davao City.

The city celebrates its famous annual thanksgiving festival called “Kadayawan Festival” at about this time of the year. It is a yearly festival to celebrate and showcase the bountiful harvests and other blessings that the almighty has bestowed on the residents. Aside from the  regular colorful street dancing competitions, this year’s celebrations will be the most remembered because the undying and truly adored group that has entertained the world for decades now, the Earth, Wind and Fire, joined the festivities and performed live in the city.

But hey, I have an even better scoop for you. There were fans who could not afford the stiff Php2,500 ticket per head for the concert, so they settled (and at least they were allowed) to watch at the back of the walled venue. Since the stage was elevated, the ecstatic fans were still able to get glimpses of the night’s highly anticipated concert. And you know what, the band members took notice of the poor fans at the back portion of stage who were yelling, and dancing, and singing along as the group performed on stage. So, they would occasionally turn towards them all throughout the night’s performance, to the satisfaction and delight of this backstage crowd. My whole family and some of our neighbors were there with that crowd to try to get a free view of the concert. They got more than what they expected!

Here now is the biggest scoop of the night!

What must have been a planned picture taking session with the fans after the concert was botched…but not after a concert staff made a call for some of the backstage fans to come in for some pics… and hey, not after my youngest daughter, Carlota, on hearing the call, made an immediate bee line to where the band members where standing. It was too late for anyone to stop her ‘coz she was already hugging no less than Philip Bailey, one of the lead singers of Earth, Wind, and Fire. And guess what? She got her picture taken with the guy! Out of the thousands of fans who were there that night, Carlota was the only fan lucky enough to get a picture taken with Philip, also the only photo session of the group that night at the concert venue. This is one memory thread that my daughter will be so proud to recall for the rest of her life. On coming home, she got into the computer and excitedly sent me these pictures via ym photoshare.

New Regulatory Requirement For Forex Brokers at CFTC – Good News To Investors,Bad News To Scammers

One of the reasons why the Philippines is the favorite milking cow of forex boiler room operators for more than two decades now is the fact that the government regulators and legislators here have not taken concrete steps to plug the loopholes in the Securities Act of the country, not to mention the fact that some of them can be bribed into complacency and indifference. Thus, all that these shrewd manipulators need to do is to let things cool off for a while only to strike again when the issue has died down. I’ve seen it happen over and over again! – (chuckle!)

I am posting herewith excerpts from a Public Notice issued by the US Commodity Futures Trading Commission entitled “Proposed Changes to Net Capital Requirements for Forex Dealer Members” , datelined July 23, 2008 which I lifted from the web site of the National Futures Association of the US (http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=2165).

Notice I-08-20

July 23, 2008

Proposed Changes to Net Capital Requirements for Forex Dealer Members

The CFTC Reauthorization Act of 2008 (Reauthorization Act) increases the adjusted net capital requirement for certain forex counter party Futures Commission Merchants and Retail Foreign Exchange Dealers to $20 million. This increase is phased in, with the first increase scheduled for 120 days after enactment or at such later date as the Commodity Futures Trading Commission (CFTC or Commission) proposes and finalizes rules regarding retail forex transactions. If implemented under the 120 day schedule in the Reauthorization Act, NFA’s Forex Dealer Members would be required to have $10 million as of September 19, 2008, $15 million by January 17, 2009, and $20 million by May 16, 2009.

RAISE THE NET CAPITAL REQUIREMENT! A simple solution to this plaguing problem!

This requirement filters out the scam operators from the ranks of the legitimate brokers. A surefire measure adapted earlier by the Hong kong Securities and Futures Commission in the early ’90s.

Hong kong was where most of these scrupulous operators started a long time ago. So, when these fly-by-night scam artists could no longer operate there (HK)because of the stringent capital requirement, they farmed out to the neighboring countries to include the Philippines, Singapore, Malaysia, Thailand, India, and even Australia. But these countries except the Philippines, followed Hong Kong’s example immediately and raised the net capital requirements of forex brokers in their own countries forcing these scam artists to migrate once more elsewhere. A lot of them tried to operate in the U.S. and for a while they were sprouting like mushrooms in the West Coast. Everywhere they went in the “land of milk and honey”, they were leaving behind a trail of lawsuits and a heap of shattered dreams. Now, US authorities are seriously after them and are constantly making it harder and harder for them to operate there. This new regulatory requirement and the US authorities’ vigilance on the issue are indeed a welcome break for all forex investors.

In the meantime, back in the Philippines where they feel secured behind the protection of corrupt officials, blanketed by a platoon of known top legal personalities, and fronted by known business figures, these scam artists continue to stalk Philippine investors, lurking like hungry vultures waiting for an opportune time to strike again. Some are still operating in the open seemingly taunting the helpless authorities. In the meantime, authorities and legislators have remained complacent to the issue and will only show up in the media only to grandstand when another scam puts the issue once more in the limelight.

HOW CAN YOU TELL WHETHER AN ONLINE FOREX BROKER IS A FAKE OR NOT

(PHILIPPINE BASED PERFORMANCE FOREIGN EXCHANGE CORPORATION IN REVIEW)

Speaking of on-line forex brokers, who can be called “fakes” or “scammers” , and who are not?

A business registration in the country where it holds office surely is not enough basis for anyone to conclude that a company is operating above board, or is not engaged with anything illegal. Having several accounts with prestigious and known banks is also not a guarantee of one’s business propriety. We’ve seen this happen over and over again in the past. We’ve seen how PIPC, a duly registered entity established in the like manner by the same person (Michael Liew), and operates in the same way as the “now-still-existing” Performance Foreign Exchange Corporation, (the company which shall be the subject of my critical blog review today) duped Filipino investors.

Many people would want to invest in the foreign exchange market anonymously for various reasons of their own. They are those who’d prefer to open accounts incognito (known only to the servicing company they deal with). There are also those who invest through the “hard sell” tactics of some forex brokers who utilize the services of marketing representatives with well- heeled family and social connections. More often than not, in their haste to establish foreign currency trading accounts, and in their effort to keep their identities concealed, they forget about doing a due diligence on the company at the onset ( a must-do prerequisite for all prospective investors).

Who then can we call fake forex brokers?

Trust, more than anything else, is the most important, yet the most abused word in all business transactions (specially so with on line investing). It is imperative that trust and confidence is present in any transaction between the investor and his broker. And, in online foreign currency trading, it is imperative for the forex broker to go out of his way to prove the legitimacy of his business through the published pages of his web site. ( I have always maintained that the burden of proof always lie in the hands of the soliciting broker.) To gain the trust and confidence of its prospective investors, an on line broker must therefore make a full disclosure of all the relevant facts pertaining to their company and the conduct thereof. All these must be clearly stipulated and can be easily found in their websites. Pertinent data such as bank references, accreditations and affiliations with respectable and acceptable financial institutions must be published prominently in their web sites. Failure to do so, to me, is intentional concealment of pertinent facts needed by a prospective investor to make a fair and square assessment of the company. In my opinion, non publication of these pertinent data on a website is equivalent to misleading the public and is no different from the malpractice of providing false information to their clients.

Bank References

If a broker deals directly with a bank (meaning if it courses all its forex transactions directly to a bank), then the broker must publish verifiable information about his account (and about the bank as well) in his website. (For all you know, the particular bank may not even have a foreign currency trading window, or, the account opened is not a trading account but merely a standard depository account.) Should issues of confidentiality be raised, the least that the broker must do is to publish a statement in the web site stipulating that such documents are available on request. Given this, prospective investors will have the chance to fairly decide whether to take the risk or not with the broker.

Verifiable Accreditation

Brokers, by definition are intermediaries. They act as agents of certain financial institutions such as banks, currency exchanges, large financial investment houses. Also, they often are required to submit to the jurisdiction and supervision of regulatory agencies in such established countries like in the U.S., Australia, Great Britain, Germany, Singapore, Malaysia, and Hongkong. Legitimate on line brokers must surely have at least one such verifiable affiliation, membership, or accreditation. Those without should be suspects and immediately discarded from your list. Those who make false claims can now be more easily exposed and avoided.

IN FOCUS:PERFORMANCE FOREIGN EXCHANGE CORPORATION-A critical review of the website http://www.eforex-asia.com/

If I were to invest money on online foreign currency trading and PFEC happens to be one of the many brokers I am considering, this is how I assess their website http://www.eforex-asia.com/:

Pros: <a href=”http://www.sweetim.com/s.asp?im=gen&ref=11″ target=”_blank”><img src=”http://content.sweetim.com/sim/cpie/emoticons/00020074.gif” border=0 ></a>

• Has an attractive, professional looking web-site (makes you stay longer and do a deeper snooping of the site)
• Offers practically all the necessary tools and services an investor needs to be able to manage his own account.
• easy to navigate website with a fast download link to its user friendly trading platform interface

Cons <a href=”http://www.sweetim.com/s.asp?im=gen&ref=11″ target=”_blank”><img src=”http://content.sweetim.com/sim/cpie/emoticons/00020063.gif” border=0 ></a>

• misleading claim #1: “PERFORMANCE FOREIGN EXCHANGE CORPORATION (PFEC) was registered with the SEC on 23 June, 1998 primarily to operate as an agent between market participants in transactions involving but not limited to foreign exchange, deposit,..” Due diligence would easily ferret out the truth that this company is registered as as information, service and facilities provider only and not as a broker.(I still don’t know how they got away from with these with the SEC when the website clearly states they are engaged in brokering services (a business activity requiring a different licensing requirement)
• misleading claim #2:Testimonials“The following are testimonials of clients of Performance Foreign Exchange Corporation or any of its country affiliates/subsidiaries. As a rule these testimonials are unsolicited gratis from people we do business with.” Easily, one will sense a deliberate ploy to mislead readers here with the inclusion of its “affiliates and subsidiaries. The testimonials may be from other sources and not theirs but the inclusion of such rejoinder is a ploy to be able to publish favorable testimonials from other sources and make it appear as their own.
• misleading claim #3: PFEC has claimed affiliation with this company “SolidGold Financial Services, Inc. (U.S.A.) , Registerered: Futures Commision Merchant, Commodity Trading Pool Operator, Commodity Trading Advisor.” The claim is false! No record of this company exists with the CFTC or with NFA. Anyone can easily get this information from the websites of both agencies.

I still have much more to discuss, but again because of limited space, I need to end this blog for now. Besides, if I were the investor, what I have so far discussed is enough for me to decide not to deal with a company that deliberately mislead its prospective clients and make false claims about its accreditation.

(This is my opinion. What is yours? Please feel free to post your comment below.)