Psychology matters a great deal

May 1, 2016

Psychology matters a great deal in determining shifts in the economy.

by Robert J. Shiller
“We don’t know whether any specific event — say, an unexpected spike in oil prices or a decline in the stock market — will help transform any of the current social stories into a truly virulent economic disruption. We don’t know what is coming or when. But history does tell us that human imagination can spontaneously transform discrete events into world-shaking narratives of unexpected colour and force.”– Robert Shiller –Nobel Prize Laureate in Economics 2013

Economists are good at measuring the past but inconsistent at forecasting future events, particularly recessions. That’s because recessions aren’t caused merely by concrete changes in the markets. Beliefs and stories passed on by thousands of individuals are important factors, maybe even the main ones, in determining big shifts in the economy.

That is likely to be the case again, whenever we next endure a global recession. Worries that a big downturn might be imminent seem to have abated, but they still abound. In April, for example, the International Monetary Fund reported in its World Economic Outlook that while very modest growth is likely this year, the world economy was in a “fragile conjuncture.”

It is therefore worth asking what actually sets off a real global recession. Most discussions focus on leading indicators — statistics about economic variables that have preceded recessions. While these kinds of correlations can sometimes be useful in forecasting, they provide little understanding of why major changes are taking place. Leading indicators don’t usually address ultimate causes, nor do econometric models that try to predict events.

In fact, it’s instructive to remember that global recessions have usually begun suddenly and been a real surprise to most people. As I have argued in this column and with George A. Akerlof in Animal Spirits (Princeton 2009), such events can largely be ascribed ultimately to contagious stories of wide significance. Basically, global recessions tend to begin when newly popular narratives reduce individuals’ motivation to spend money. Psychology matters a great deal.

The biggest recession of all, the Great Depression, began suddenly with the stock market crash of October 1929, as Christina Romer, former chairwoman of President Barack Obama’s Council of Economic Advisers, pointed out in a famous paper. Even before 1929 was over, she found, department store sales and automobile registrations had declined, indicating that consumer spending had already dropped sharply. But why?

Economists were alarmed by the crash, she found, and their warnings helped make consumers wary. But let’s not overestimate the importance of these economic forecasts: Most people never actually read them. They received their information from other channels.

Back then, immediately after the market crash, church sermons were a powerful influence. Congregations were told that many business people had behaved like gamblers and hucksters. Through these sermons and other word-of-mouth sources, moralising about the stock market crash spread, affecting mass psychology. Frederick Lewis Allen, in the epilogue to his 1931 best-seller Only Yesterday: An Informal History of the 1920s, wrote that cultural values changed after the crash: People began to dress more modestly, adopting a new formality and religiosity, reviving Victorian sexual taboos. It is reasonable to assume that many of these changes had an economic impact, mainly by discouraging spending.

Similarly in more recent downturns, broad cultural and social changes had big effects, too. Since World War II, there have been four global recessions, according to the International Monetary Fund, which defines such an event very specifically as negative global per capita economic growth over at least one year. In each case, these recessions lasted only one year, although relatively slow economic growth rates were also an issue in periods surrounding them. The recessions ended in 1975, 1982, 1991 and 2009.

As they had with the Great Depression, economists have cited concrete causes for these events. Oil has been named as a fundamental factor in each case, with price spikes blamed on the Yom Kippur war of 1973, the Iran-Iraq War beginning in 1980, the 1990-91 Persian Gulf war and rising energy demand in China and other emerging countries in 2008.

Broader social narratives are sometimes ignored, but they matter, too. Consider the recession of 1975. Along with oil prices, common ways of understanding and describing daily life also changed. The oil crisis was widely said to signal the end of an era of abundance. Lower highway speed limits were imposed to conserve fuel, and cars grew smaller. Americans were told to lower their home thermostats to 68 degrees. In large numbers, people began wearing sweatsuits, flannel leg warmers, thermal underwear and long johns. Among all this austerity, economist E.F. Schumacher’s 1973 best-seller Small Is Beautiful became a global morality lesson.

Let’s jump to the most recent global recession, the one of 2009. Oil prices, subprime mortgages and the freezing up of the financial system after the collapse of Lehman Brothers were all important factors. But why did we have a global recession? The transformation of distinct events into a broad global slowdown occurred through a variety of mechanisms. Reports about financial misdoings, the possible collapse of venerable institutions, rising unemployment caused by advanced technology — all of these affected the psychology of spending.

Where does this leave us now? No single narrative seems to have enough compelling force at the moment to engender a downturn as big as the last one. Many people have been borrowing from older narratives of risk and vulnerability while trying to understand the current economy. Oil prices have been slumping, not soaring, but there are significant worries about outsourcing, downsizing and globalisation, along with deep concerns about rising inequality, refugee and immigrant flows, and what has been called secular stagnation of the economy. Political candidates on both the left and the right have been spinning charged and sometimes disruptive narratives about these issues.

We don’t know whether any specific event — say, an unexpected spike in oil prices or a decline in the stock market — will help transform any of the current social stories into a truly virulent economic disruption. We don’t know what is coming or when. But history does tell us that human imagination can spontaneously transform discrete events into world-shaking narratives of unexpected colour and force.


Governor Zeti Aziz –Where is Integrity?

April 26, 2016

Bank Negara Malaysia: Questions for Zeti Aziz –Where is Integrity?

by Dr. Lim Teck Ghee

If I can anyway contribute to the diversion or improvement of the country in which I live, I shall leave it, when I am summoned out of it, with the satisfaction of thinking that I have not lived in vain.Stephen Grellet

Did the much quoted line attributed to Grellet (he escaped from execution during the French Revolution and went on to a new life as a Quaker reformer in the United States) run through Governor Zeti Aziz’s mind when her staff in Bank Negara Malaysia (BNM), monitoring the suspicious movement of unusual sums of money making their way through the nation’s banking system, drew her attention to the enormous funds making its way surreptitiously into the country through the Prime Minister’s personal account?

Leaving Bank Negara (Central Bank) Malaysia with a severely battered reputation

Perhaps she had been alerted by the Prime Minister himself earlier. So it may not have come as a surprise. It is possible that she told her staff : “Don’t worry; I am taking care of the matter myself”.

What is the explanation for the internationally lauded BNM’s top official’s inaction or inability to respond to what in any other part of the world would have triggered off alarm bells on the possibility of money laundering, and other concerns of illegal money transfer and corrupt practices arising from a massive and unprecedented deposit from abroad into the nation’s banking system?

It could not have been because of ignorance, negligence, oversight or incompetence. Then what? Only Governor Zeti can answer that. Zeti, and BNM, have on numerous occasions stressed the importance of ensuring the integrity of the country’s financial system.

In its latest press statement on cyber security BNM said that “it continuously reviews and enhances the resiliency of its control measures, governance and adopts best practices which involves robust defence mechanisms with timely transactions monitoring”.

In Accord with International Best Practice?

According to foreign reports, between opening his account at AmBank on January 13, 2011 and April 10, 2013, Mr. Najib received a total of more than $US1 billion — or, more precisely, $US1,050,795,451.58 — including a series of individual deposits that ranged between $US9 million and $US70 million. So much money was flowing into the account that it is supposed to have triggered money laundering alarm bells in AmBank which is part-owned by Australia’s ANZ Bank


The initial money transfers would probably have been made known to Zeti perhaps even before their actual movement was effected. And discreet approval may have been granted well in advance. Nobody in his or her right mind would attempt to receive such hefty sums without making sure that the banking authorities will approve. Besides, the country’s gossip mill is notoriously tireless on money matters so that it would have been crucial that the transaction should remain a secret.

Najib Razak–A Leader of Unimpeachable Integrity?

Perhaps Zeti decided to close one or both eyes to the transfer because she was convinced that the Prime Minister is a leader of unimpeachable integrity doing the best for his country. And following the wisdom of Grellet, since she is passing through the world but once, her act of kindness towards Najib would be recognized for its goodness.

The Prime Minister may have confided to Zeti that the enormous sum deposited in his account was a personal donation from a member or members of the Saudi Royal Family. He may also have explained why the donation was made and what it was to be used for.

Zeti may have agreed that it was in the national interest that the deposit be permitted without the need for investigation, clearance or publicity; and that it was best to keep it as hush-hush as possible in view of the misgivings and misconceptions that would arise if the news was ever leaked.

Various versions of the use of the money and its intentions have now emerged. They include:

  • helping the Prime Minister win the 2013 elections by paying off politicians and projects

  • enlisting Malaysia’s help in the fight against ISIS

  • influencing the direction of the country’s Islamic development by keeping it firmly anchored with the Saudi-led Wahhabi camp

We can only speculate which is the correct one that persuaded Zeti to jettison the independence from political influence and other values and ethics that Bank Negara and other central bank authorities are supposed to swear allegiance to.

Was it to ensure victory for the Prime Minister beleagured by forces of bad intention and chaos from within? Or was it to help Najib preserve Malaysia’s standing as a moderate Islamic nation and to defeat the forces of evil and darkness from outside?

Zeti has not directly responded to the many questions asked of the personal donation as well as of the 1MDB scandal. She has left it to her mainly UMNO defenders who have brushed off accusations that she failed in her duty as the chief regulator of Malaysia’s financial system and financial adviser to the Government. Also the accusations that she is guilty of partisanship in the country’s politics, complicity in money laundering, and perhaps also looking after her own interests by striking a deal with a tainted regime in view of her husband’s alleged involvement in a corruption scandal and other alleged shady family businesses.

Because questions and accusations remain unanswered, Zeti will be leaving office with her reputation, and that of Bank Negara, damaged and tarnished.

But we may not need to wait long for some light to emerge. The links between 1MDB, where the official story line is unraveling rapidly and the personal donation are like a hydra. Official stonewalling and whitewashing may temporarily decapitate one of the heads but another soon re-emerges.

And hopefully, soon, Zeti Aziz’s part in the personal ” donation” scandal, and possibly also the 1MDB debacle, will become more clear to all even if she chooses to remain silent. Silence is not golden.

Malaysia: Azalina and Tomb of Lies

April 22, 2016

READ THIS: Singapore Banker charged in connection with 1MDB scandal for money laundering:

Tomb of Lies

by Rihaku (received vi e-mail)


Lina O wants to know: Who lied?

Answer: You did, Lina. And so did Najib Razak, and Zahid Hamidi, and Adnan, and Apandi, and Arul…. and, of course, Chubby Low. Unfortunately, very unfortunately, you were being human.

1MDB was built on a tomb of lies

Dear Azalina/Lina:

You’ve been lying and lying and lying, but you can’t help it. How can you? You don’t even know your own lies.

Let’s begin with the Saudi Foreign Minister, whose remarks centered on two ingredients. One, the Saudi government is ‘aware’ of investigations into a certain ‘donation’, amount unstated, source anonymous, and so on (see Chedet: Money Trail). Two, the ‘donation’ was unconditional.

Now, contrast those remarks against the unknown and the unstated. The minister’s remarks are actually regurgitation, vomit, that on countless occasions had been recycled by Najib Razak’s ministers (‘recycle’ is Arul’s favorite red herring word used to throw our scent off from getting straight answers). As a result, those words resurrect old problems that hadn’t been addressed before.

One, when is a ‘donation’ a donation? An example in this question: ‘A’ steals from Bank X then transfers to ‘B’ who in turn deposits half the loot into A’s Bank Y. Is B donating to A — technically? Two, why don’t those towel head Saudis come straight, right out to say it: “Here’s the donor, here is proof of yearly earnings, in USD billions, here’s the remittance receipt, here is the money back. We consider the case closed.” Instead, the minister actually recycles Najib’s Arulian spittle. Why?

The worse for the inanity is this, Lina: with those remarks, you went to town gloating, and that in writing, too. Why? There was nothing new in them. On the contrary, the Saudi man doesn’t even say the donation is a ‘political fund’ which, if you remember, Lina, you said late last year was the purpose of the US$681 million. First, there was no such money, after that the money was a form of Islamic ‘reward’, then ‘political funding’, and now it’s a ‘genuine’ personal donation.

Can you, Lina, sense the lie on the lie on the lie on the lie? Said so often, you are beginning to believe your own lies. You can’t even tell one lie from another, much less the truth from them. You can’t even tell when a donation ceases to be a donation and, therefore, see that a donation can be a form of gratification — words contained in the  MACC Act. Look it up, since you are lawyer, ableit a kaki ampu bodek.

Then there is the matter of conditionality. For someone to drop US$681 million into your bank account, expecting nothing in return, is an un-human feat and, worse for it, when this is done in the name of your God. Think about it for a minute, Lina: Why is it un-human?

But to pass around embezzled money, whether this is done by thieves or politicians, is pure human reaction. Consequently, it has to be unconditional. In colloquial terms, it is called splitting the loot. What need is there to expect anything in return when the money hadn’t originally come from nor does it belong to the donor? Nor recipient.

Lina, can you not see? Your lies cloud your judgment. After which, you mentioned of a letter published by the Australian Broadcasting Corporation which you say reaffirms the Saudi’s remarks. Is this it?


Click on image for an enlarged view.

It was with that letter plus two consecutive findings you cited from Apandi Ali and parliament’s Public Accounts Committee (PAC) that led you to believe Najib is innocent of all the accusations. So, let’s go into your arguments. Apandi (A-G)first.

Essentially, the A-G says (a) there is ‘no evidence’ to trace money going from 1MDB to Najib. Instead, (b) there is evidence to show that money went from a Saudi national to Najib. Therefore, no crime.

Before going further, a little history. But, re-read the Saudi letter above, dated 2011, alongside the two statements from International Petroleum Investment Co, below, five years later.

On September 2009, Najib signed a deal with the Saudis, creating the 1MDB-PetroSaudi joint venture (JV) with Malaysia putting in US$1 billion. Then from March 2011 onwards, barely 18 months after the JV, 1MDB began raising US$3.5 billion in two bond tranches through Goldman Sachs (there was a third in Mar 2012, raising US$3 bn). If Goldman were to raise that kind of money, it needs guarantees. So Najib goes not to his business partners, the Saudis, but their neighbors, the UAE, IPIC to underwrite both deals.

Some Saudi may give to Najib US$681 million for nothing, but not IPIC. It has shareholders and the London Stock Exchange (LSE) to answer to. So, in its turn, IPIC asks Malaysia for collateral but at that early stage, year 2010, what has 1MDB got other than MYR1 million as paid-in capital? Nothing, not the JV, no Argentinian oil fields, no Turkmenistan. Nothing, except this: a lien on the power assets — later known as Edra Energy — with which US$3.5 bn was supposed to buy, starting with Tanjung Power.

Most of the money never went to those power plants anyway but transferred instead to some island bank accounts. Now, worse for IPIC, Arul has sold all of Edra, alongside the Bandar Malaysia land (used partly as justification to raise the third, US$3 bn tranche of bonds). Those sales left the Emirate holding what for collateral? Nothing, but a worthless piece of promise on paper.

This train of affairs isn’t a matter of speculative conjecture but constitutes an easily traceable chain of events but are now unraveling. And this event series is documented, such as with bank transactions and, now, the Saudi letter and IPIC’s most recent two LSE statements (below). IPIC statements are most revealing, saying as if they had had enough not only of 1MDB but also — and get this right — the Ministry of Finance. Meaning, Najib. They must have reasoned, ‘why is it that Najib can, at the snap of finger, get up to a billion but can’t show us any money to honor 1MDB deals with us? Have we been exploited — no, cheated — to cover a scam?

IPIC statements exposed the terrible experiences they had in making deals with Malaysians: Above, 1MDB lied to us, IPIC says, and in their accounts. We didn’t get the money. Below, IPIC to MoF in a statement for the London Stock Exchange, all deals are off, we might sue.

1MDB Debt Settlement Arrangements

On 28 May 2015, International Petroleum Investment Company (IPIC), Aabar Investments PJS (Aabar), Minister of Finance, Inc., Malaysia (MOF) and 1Malaysia Development Berhad (1MDB) entered into a binding term sheet that provides for the following principal matters:

·    on 4 June 2015, IPIC provided US$1 billion to 1MDB for 1MDB to utilise immediately to settle certain of its liabilities (the Cash Payment);

·    from 4 June 2015, IPIC has assumed the obligations to pay (on an interim basis) all interest due under two IPIC guaranteed 1MDB financings amounting to US$3.5 billion in aggregate principal amount (the Notes);

·    upon the completion of the transfer of assets as described below, IPIC will directly assume liability for all payment obligations under the Notes (the Assumption of Debt) and forgive certain financial obligations of the 1MDB Group to the IPIC Group (the Debt Forgiveness); and

 ·    by 30 June 2016, IPIC is to have received a transfer of assets with an aggregate value of an amount which represents the sum of the Cash Payment, the Assumption of Debt and the Debt Forgiveness.

 1MDB and MOF have agreed to perform the obligations contemplated in the binding term sheet and to indemnify IPIC and Aabar for any non-performance, and vice versa.

 IPIC has met the Cash Payment and will meet the interim interest payments under the Notes from existing liquidity available to IPIC.


The point is this: Apandi finds what he wants to find, sees what he wants to see. He won’t find evidences if he isn’t interested to look. Yet, if he did then recent developments made him looked like a fool, contradicting his exoneration of Najib and, paradoxically, showed that he lied in that judgment. The way out for Apandi, is simply to turn around and blame the MACC for failing to come up with those evidences. But this would be disingenuous.

Consider evidence from IPIC and from the PAC.

Apandi Ali

One, IPIC’s statements this April tell, in bottom line language: ‘we hold Najib ultimately responsible to give us back our money (US$1 billion) and we hold 1MDB complicit in lying to us, and in lying in their accounts about a payment that never arrived‘. After receiving the 1MDB money, Aabar BVI was wound up in June 2015. Yet this evidence means nothing to Apandi. You don’t think this strange, Lina?

Two, the US$1 bn owed to IPIC is just 14% of US$7.04 billion (MYR28 bn) the PAC has documented to be unaccounted for, a disappearance that started in Sept 2009 with US$1.03 billion and then continued until 2014. That is, for five years, evidences piled up to show not only a pattern in which money was siphoned out of 1MDB but they also pointed to fraud on an international scale. If a bunch of politicians closeted in a parliament room with little time, limited resources and limited access to documentary evidences can come close to such a conclusion how could the expert AG lawyers and Apandi himself see nothing?


Malaysians  made Stupid by UMNO Lies

Today, even Arul concedes that some of the monies have disappeared, adding that 1MDB might have been scammed. This is a startling admission which contradicts numerous, earlier statements of his own. In particular, are his repeated assertions (a) that everything in 1MDB have been accounted for, (b) that assets exceed liabilities, and (c) rationalization, meaning the sale of nearly everything 1MDB once owned, will put a clean slate to 1MDB. Now, it looks like 1MDB will never, never, never come out clean.

So Lina, tell us, who has been lying?

For Apandi to say there are no evidence that traced 1MDB’s money back to Najib is not the same as saying the money never went to him. This raises a question: If the money is not with Najib, where the fuck is it? How about the like of Jho Low, with a turkey for a prince, and the Emirates men? How about those dodgy companies created to look like the real. How about Blackstone BVI, mentioned in the letter by the Saudi ‘prince’?


blackstone2013Click on image to read.

For you to appreciate the depth and the severity of the 1MDB scam, begin with names: Blackstone, Merryl Capital, Bridge. These aren’t just ordinary names, chosen for no good reason, then registered in some far-flung Caribbean  islands. But, in taking on those names, Jho Low, Tarek Obaid, et al, gained overnight reputation and credibility they hadn’t earned.

The original companies — the Blackstone Group LP, Merrill Lynch (since 2009 renamed as Ridgemont Equity Partners) and Bridge Equity Partners — are US-registered private equity (PE) and venture capital (VC) firms. They act like banks without being subjected to banking laws because, instead of funding a corporate or an individual person they lend directly to projects with money they themselves had raised from banks, insurers and pension funds. Last year, Blackstone was managing assets worth US$311 billion, making it one of the world’s top three largest PE firms, and drawing 2014 revenues of US$7.5 billion.  This makes it wealthier than Petronas.

It was, therefore, not without reason that Jho Low and the ex-Aabar and PetroSaudi officials, Badawy al Husseiny, Khadem al Qubassi, Tarek Obaid should pick those names for their island companies. It is called, fraudulent misrepresentation; more commonly known as lying. Aabar BVI wasn’t the only, nor their first, dummy company. There were: Blackstone BVI (as opposed to Blackstone Group), Merryl Capital (v. Merrill Lynch), Bridge Partners International Investment (v. Bridge Equity).

Riza Aziz–Rosmah’s Son

Yet, Apandi sees nothing wrong in all that: a string of dummy companies, all set up at short notice by the same clique, all short-lived, all resident in some Caribbean island, all shell companies.

Take Blackstone Real Estate that’s mentioned in the letter from the ‘prince’. It was registered in the British Virgin Island (BVI) on Nov 2010, stating at the time that foreign exchange was its business. Seven months later, it changed its name to Blackstone Asia Real Estate and in 2013 wound up barely 2 years and a half into its existence — and note, the year after money was remitted to Najib. In short, a bogus company set up for laundering money.

You see, Lina, Apandi didn’t want to know all that. Not wanting to know, not wanting to find evidences, Apandi would deny all MACC request for foreign assistance to inquire into those companies as well as the people behind them and the money deposited in them. The creation of these dummy companies, made to look identical to reputable ones, are the clear, irrefutable evidences of fraud.

But why did Apandi, and others like you, deny their existence? Or, deny that something seriously is amiss, lying instead? This is not some boys peddling cigarettes behind a schoolyard. Bogus princes, bogus companies, bogus ventures, bogus assets, bogus oil fields, bogus accounts, and bogus lovers are a dime a dozen in the World of Fraud. Even money may not be real, Lina. Ask Arul or Jho Low.

Inside secret desert and island places, the like of Arul  mirror the sweet, Wharton business school talks of Jho Low, so hiding their fraudulent conduct. Fact is, US$7 billion is now formally acknowledged to have disappeared.

But Arul lied about that from the beginning, producing fancy charts and hiding their disappearance in financial jargon. (Bet you this, Lina: you had never heard of ‘Level 3 assets’ or financial ‘units’ before 1MDB.) Arul also says his work at 1MDB is done. What ‘work’ would that be? Cover up? In offering to resign over money vanished, he lies farther, suggesting that 1MDB is the victim when all the evidences point to it being the conduit and the vehicle in an international scam.


Arul’s statements, and those by the Saudi Minister, by your statement and your peers, as well as by Apandi himself have collectively become the evidences that demonstrated a concerted, deliberate attempt calculated to hide a scam, and the money and its trail leading — irrefutably — to Najib Razak. In repeatedly lying, Lina, you become complicit to the crime even though you might have no part of it.

You see, when you enter a profession such as the government Cabinet there is in it the means to do good to society. But even a greater temptation to do harm. You may encourage genius, you may chastise the incompetent, expose falsehood, correct error, and guide the lives of this age in no small degree by the speeches you make and the actions you recommend. Yet you commit to everything the precise opposite….

What are you, Lina? Why do you make a big deal out of the tongue of a towel head? Because, you know, no one believes Apandi? That being so, why should the few words of an Arab, minister or no minister, make a difference?

The problems surrounding Najib don’t rest in matters of beliefs. It is in a simple fact: the reality of a theft, billions. That has been Najib’s secret for a long time, which a thousand more Arab tongues can’t change nor erase. Is far too many secrets also weighing you down, Lina? You have a secret life you live? A secret nest somewhere, like Najib’s secret Mongolian women and secret deals?

Scaffolds don’t support buildings. It only looks like that; in truth it’s the other way around. Therefore, understand this, Lina: you are but a piece of scaffold around an edifice called 1MDB after — and this part is critical — it had been wrecked and laid to waste. You stand holding on to nothing.

1MDB is today way past been a legal and a political issue that you, Najib, et al have been flogging to no end. It is an ethical issue, which explains why all the Apandis and all the towel heads in the world, won’t make go away. As an ethical problem — that is, a question of being right or wrong, being true or false — it must have an ethical resolution. Guess what’s that?

Yours truly,



Above, is the sort of language of Seet Li Lin and the kind of Wharton business talk, the Wolf of Wall Street culture, you’d hear from Najib (recall him saying: ‘you help me, I help you’; ‘this is the deal…’) and Arul and Jho Low and Tim Leissner — all those financial scammers, gaming the system: “big on fluff, light on content, says a lot yet very little“.

You see, Lina, duplicity is characteristic hallmark of a scam. And guess who uses, who deploys, such language with so much frequency and regularity? Arul Kanda top the list. Next, Najib Razak. Recall him telling The Star: “Yes, the bank account is in my name. But, understand, although the account is my name, it is not personal.”

This sort of gobbledegook is the language of snake oil salesmen — and financial salesmen as well, people like Jho Low, and Tim Leissner, and Seet, and Goldman Sachs, and Tarek Obaid and their band of Arabian camel traders masquerading as sheikhs and princes.

Then there are ministers, people like you and that Saudi bloke.  Who’s been lying, Lina? You. You have been scammed, deceived, lied to, after which you repeat their lies. Can you feel your own lies moving the earth… (see Seet’s email below)?

The earth began moving on September 30 2009. But why? That was the opening bid in the Great Malaysia Scam — starting with US$700 million, now way past US$4 billion, all gone, and still rising. Two years later, Seet would be gloating: ‘he and others had gamed the system’.

This ‘gaming the system’ went on for five straight fucking years, billions upon billions, all right under Najib’s nose while you, Lina, holds up his flag with the gall to say he told the truth. But the truth is you, Lina, don’t want to know — to know that Najib Razak, human as he is, is capable of thievery on an unprecedented global scale in such a short time, unmatched by any head of government, democrat or dictator, dead or alive.


It began with MYR 2.6 bn; now it’s going through the roof. Why, Zaid, is that so hard to understand, even by the kampung?

*Altantuya All Over Again & the 1MDB Calculus



Variants of the above calculus, the Black-Scholes financial equation, are circulated in stock and financial trading halls. This is done by constructing ready-to-use formulae then bundling them into the hand-held calculators for Wall Street bankers and derivatives, options and bond traders like Nick Leeson.

Those equations are rarely in use today, victim of Black-Scholes fallibility and incipiency. Here is a list of its victims: Metallgesellschaft, Orange County, Sears Roebuck, Proctor & Gamble, all came to near collapse from heavy derivatives trading losses before and during 1994.

A year later there were Daiwa and Barings Bank and the latter’s employee Nick Leeson, the Briton in Singapore who relied on those equations to buy and sell bonds and Japanese index options, that is, ‘I-owe-you’ debt papers based on the high and lows (volatility is another word) of the country’s stock exchanges. Bank Negara’s losses in the 1990s’ sterling-USD-ringgit trades follows a similar pattern.

Barings was a century-old when it collapsed, done in single handedly by Leeson, whose losses wiped out the bank’s entire 1 billion Pound capital base. But this was not because Leeson, a high school dropout (like Petra Kamarudin), couldn’t fathom Black-Scholes. What is there to understand anyway? It was because high finance, like Las Vegas, has no morality, no God.

That amorality — no, immorality — underlies the same Wall Street culture taught in Wharton business school, driving the energies in the like of Tim Leissner and Low Taek Jho and Arul Kanda and their schoolmate hangers-on and underlings like Sharol and Tiffany, and like Casey Tang and Seet Li Lin.

Zaid Ibrahim made the observation that Malays, unable to understand the workings of Wall Street and high finance, turns readily to God, Zakir Nair being their conduit to Heaven. If only that is true: we, too, would queue up to get some of the Zakir holy sprinkles.

But Zaid was wrong on two counts. High finance being impenetrable to common people is a myth: just ask Leeson. And that, in its turn, leads to Zaid’s second error, which is that God is far more readily accessible than Black-Scholes, which for those still puzzled by it is actually a third-level differentiation of this; just two steps up:

A derivative (from the root word, differ) is simply the measure of a slope or its steepness:


Give the above equation a formula, the result is this:


Add many more variables other than x and y, insert a time-line into the chart, you will get the Black-Scholes’ formula. At its root it is algebraic, a third-level differential calculus. That is, it being derived from the difference in the steepness of slope and, of that, one more difference. In sum, a differential three times over. Another way of saying the same thing: the change over a change over a change. There is nothing incomprehensible about that.

If Zaid is indeed wrong, then his task, in speaking to the kampung, isn’t to teach Malays how Goldman Sachs created, then bought and sold bonds through a Black-Scholes formula. That would be completely unnecessary, and it would be fallacious as well.

Rather, it is to speak simply of the immorality in 1MDB and SRC, the godlessness of its people, Najib and Arul in particular. Worse than the godlessness, is today the trade of lives — Najib himself breaking even his own ‘you-help-me, I-help-you‘ credo. And this godlessness is in spite of his frequent Saudi visits, there trading the souls of Malay soldier-boys for princely Arab favors.

Now, with formal admission that up to US$7 billion might have been embezzled (vanished is the polite word), Najib’s sycophants, beginning with Azalina, are clearly attempting to completely severe the man from any association with 1MDB. After which — and you can see it coming — they will help Najib wash his hands clean of the affair by throwing out the rest of 1MDB people under the bus, beginning with Sharol Halmi.

Such a thing is the trade of lives; buying and selling people, first with cash and now it is with god and piety, or the pretense of it.

All this charade follows the same pattern in the Altantuya Shaariibuu’s murder. It is Mongolia all over again. Recall Najib texting Razak Baginda: ‘be cool’, things are being sorted out. And, lo and behold, Razak, after some minor inconveniences, gets to live out the rest of his life in the UK; Sirul Azhar Umar gets to slip out to Australia from under his jailers’ noses, plus that of an entire police force and all Immigration. Nobody gets hanged.

In Malaysian morality, if you can get away with murder you can get away with US$7 billion — and still counting. That’s the godless morality message for the kampung, Zaid, not Black-Scholes, and not how bonds are created and traded. Those are just money in the form of an A4 letterhead. In a word, a derivative.

Now, Zaid, is all that so hard to understand? As humans we can only take in so much. Malays in the kampung are so filled with gods there is really little room left in them for this world. Take out the god then you, Zaid, might just make some room for them to know Black-Scholes and its worldliness, both ugly and beautiful. This eagerness to tackle the world, if you hadn’t been told, occupies much of Chinese philosophical thinking…

To put the politics technically: We’ll have to get rid of God, then to take back our morality and return it to politics with the primacy it deserves over other basic forces, including Law, Money and King. Cash must be defeated as the King of Politics. Long live the Revolution!

Austerity as the new Normal: For Malaysia?

February 23, 2016

Austerity as the new Normal: For Malaysia?

Can the nation knuckle down to the new normalcy of low commodity prices, sharp currency depreciation and reduced dependence on foreign labour?

by Dr. Lim Teck Ghee

Increasingly the short and medium term outlook is showing that the days of wine and roses are over for the government, businesses and ordinary Malaysians.

Everyone in the country needs to knuckle down to the fact that we are not going to see any quick recovery from the present double whammy of low commodity prices which has drastically reduced oil and gas revenues especially and the accompanying sharp currency depreciation.

Nouriel Roubini and Friends: Brand New Economics

Part of the reason for pessimism is that the global economy whose fortunes we are intertwined with is entering into not a short period but a possible era of sluggish, even mediocre growth. As Nouriel Roubini, the widely followed analyst sees it: “potential growth in developed and emerging countries has fallen because of the burden of high private and public debt, rapid aging (which implies higher savings and lower investment) and a variety of uncertainties holding back capital expenditure.”

He ended his most recent article on”the Global Economy’s New Abnormal” with these words

“Welcome to the New Abnormal for growth, inflation, monetary policies and asset prices, and make yourself at home. It looks like we will be here for a while.” (

Biting the Austerity Bullet as the New Normal

What is being done about this new normalcy in Malaysia? Can the major stake players and holders in our economy and society respond to this creatively and judiciously? Or are we going to see foot dragging and incoherence making for a more difficult transition and dire future?

One of the key strategies of responsible governments during a period of economic downturn or economic deceleration such as the one which we are presently experiencing is to pursue a program of austerity.

Economists define austerity as a state of reduced spending and increased frugality in the financial sector. In our context austerity measures need to include spending cuts, tax increases and other unpopular measures to reduce government expenditure so as to ensure that we do not face a financial and economic crisis in the way that recent governments in Greece, Ireland and Spain have had.

Economic Management by Prayer, Not Austerity

On January 28, the Government was compelled to unveil revisions to the 2016 budget in response to plummeting oil and commodity prices and slowing domestic and global economic growth. In introducing the revised budget, the Prime Minister said that the country would maintain its fiscal deficit target at 3.1 per cent of gross domestic product and announced a series of restructuring steps expected to save the government 9 billion ringgit (US$2.1 billion).

It is important to note that the Prime Minister in his speech did not use the word “austerity” in referring to government cuts in expenditure. This is because no cuts are being proposed to the size of the civil service or salaries of civil servants which comprises the major part of the federal budget. It is planned to maintain the the additional salary increase for civil servants on 1 July 2016 whilst the services of contract staff for the public sector will continue.

Instead of introducing the austerity budget that the current situation calls for, the Prime Minister has introduced a slightly leaner and clearly politically motivated budget aimed at shoring up support for him and the Barisan Nasional government ahead of the next election which some observers now expect to take place in 2017. Although this move may provide the Barisan the edge that it desperately needs to hold on to power, whether it will pay off in strengthening the country’s economic defense during this period of challenge must be in doubt.

Meanwhile another equally disruptive economic factor is now emerging to make the continuation of the free spending status quo in our government budget and policy making look more risky and imprudent.

Reduction in Foreign Labour as Part of New Normalcy

Add to the challenges Roubini has identified the additional Godzilla sized one not found in neighbouring or competing countries. This is the foreign labour element which Government and the business sector have, for the past three decades, consistently ignored, turned a blind eye to, or taken the easy way out in managing.

For the longest time possible much of the profits of the business sector; and many of the comforts and good things that the middle and upper class presently enjoy have come as a result of the easy and relatively cheap access to foreign workers.

This will have to change.

Partly as a result of the need to fill the government’s depleted coffers arising from the sharp fall in Petronas’ contribution to the national budget, government is proposing to substantially increase the levies imposed on hiring of foreign workers. Although that decision has been temporarily shelved following the outcry from key affected industries it is clear that the era of easy access to foreign labour is coming to an end.

In the new normalcy hitting our shore, Malaysians will have to take up the 3D jobs that we have depended on the free flow of foreign workers to perform. It will be a difficult transition but one that seems inevitable. What is also certain is that the reduction in foreign labour numbers in the country will have to mean a more frugal, modest and austere lifestyle and operations for all those addicted to cheap exploited labour.

TPPA is good for Malaysia–Tan Sri Sheriff Kassim

January 16, 2016

TPPA is good for Malaysia–Tan Sri Sheriff Kassim


Let’s hope you are right, Tan Sri Sheriff Kassim

I agree with our Honourable Prime Minister that in view of the challenging economic scenario for 2016, a recalibration of the federal government budget is inevitable to take into account the continuing drop in the world price of crude oil.

Thankfully, due to the fiscal reforms introduced last year with the introduction of the goods and services tax and removal of fuel subsidies, the country is now better prepared to address the sharp fall in the price of crude oil and its impact on government revenue.

We can expect that while the calibration may involve expenditure cuts to the budget for this year and possibly next year too, the adjustment will not be too drastic – not like in previous economic downturns.

Malaysia is today confronted with poor sentiments among consumers due to the anticipated one-time effects of the GST and the depreciation of the ringgit, all feeding into the cost of living. There is a wait-and-see attitude in the private sector about how the 1Malaysia Development Bhd (1MDB) issues will be resolved and when the political infighting will end.

At the same time, the external economic outlook is not looking better. There are fresh worries about the sustainability of growth in the two largest economies in the world – the US and China, and with the geo-politics in conflict zones getting more complicated, there is likelihood of greater volatility in the world economy.

Despite these short-term worries, several Malaysian corporations are planning to increase their investments abroad in search of bigger markets and higher returns, as seen in the announcement from Khazanah Nasional Berhad recently.

The President of the Federation of Malaysian Manufacturers (FMM) also said at the Malaysian Economic Association (MEA) forum recently that many of its members are looking at external markets for growth as Malaysia is too small a market for expanding further. Sixty percent of its members are SMEs. They too are looking abroad for new opportunities.

It is therefore not surprising to see from the Malaysian government statistics that we are already a capital exporting country, with the outflows of investments outpacing the inflows of foreign direct investments.

This trend is clearly happening with the major GLICs – Petronas, EPF, Sime Darby and several private sector corporations. Basically, they have no choice but to go abroad. The government itself is encouraging Malaysian corporations to become global champions. When they go abroad, they will choose the countries which are safe for their investments – countries which practise high standards of governance.

One smart decision that the government can take to lift up business spirits and give a helping hand to the Malaysian corporations venturing abroad is by joining the Trans-Pacific Partnership Agreement, or TPPA, because this will open up their opportunities to have access to the biggest trading block in the world.

Investor sentiments will be encouraged that as a TPPA country, Malaysia is showing a commitment to the high standards of governance that are becoming the common expectation in international trade.

Our corporations should not have a problem meeting the high TPPA standards of doing business wherever they go because for the last 10 years, our regulatory authorities like the Securities Commission, the Bursa and Bank Negara Malaysia have been introducing guidelines on the codes of conduct and ethics, integrity and transparency to raise the standards of governance in the corporate sector.

Indeed, our standards are as high as those found in the most advanced countries. In Malaysia, it is mandatory for company directors and top executives to attend training on good corporate practices so that we can be prepared for the competition on the world stage and for attracting world class corporations to establish themselves in our country.

The TPPA is the most comprehensive, high standard trade agreement to date as its provisions on governance make it binding on member countries, unlike the ASEAN Economic Community agreement which is so loose on the obligations of member countries that business leaders are left wondering whether the AEC is serious about creating a regional free trade area.

Although Malaysia should not ignore ASEAN, this regional economic community is not a substitute for the stronger TPPA framework of trade in goods and services, which is governed by clear rules on transparency and integrity on the part of corporations and governments, so as to make the playing field level for all players.

No doubt the TPPA provisions on intellectual property rights, settlement of investor disputes (ISDS) state owned enterprises, government procurement, minority rights, labour standards, human rights etc go beyond trade issues but in modern day trade negotiations with developed countries, these are often the stumbling blocks for the West to open up their markets to developing countries that are in violation of these universal principles of justice and fair play.

Now that the TPPA has laid down the rules, it will facilitate the flow of trade as well as foreign investments to and from the developed countries. How much benefit this will bring to our GDP is a matter for discussion. Some estimates say the benefit will be minimal, only about 1% to 2% additional growth, while other estimates say 8%.

Malaysian manufacturers and exporters are saying that whatever the econometric models say about the benefits from TPPA, the fundamental point is that when free trade opens the doors wider for business, our corporate leaders, including the SMEs, will know how to grab the opportunities that come their way, either locally or in foreign countries.

Critics of TPPA argue that since the governance standards require that member countries must allow a separate legal authority to be set up, called ISDS, to settle investor disputes with the host country, Malaysia will be sacrificing its sovereignty if we join the international trade treaty, especially as it is driven by the US for its own strategic reasons.

US and European multinationals have also been prolific in suing foreign governments, including Australia. Critics argue that our legal system is already good and should be allowed to sit in judgment when a foreign investor sues the government for breach of promise.

They also recognise that there are flaws in our legal institutions and lack of trust in our courts, which explains why, even now, most commercial agreements with foreign partners stipulate that the arbitration on commercial disputes be done outside Malaysia, preferably Singapore.

These flaws, they argue, can be rectified by us internally without being forced to do so by outside parties. The truth is that without outside pressure, it’s unlikely third world countries will introduce the reforms to make their justice system independent and trustworthy and since its going to be difficult to make all countries raise their standards to the same high level of governance, the best solution is to have a separate system to deal with investment disputes involving foreign corporations.

I think this is an acceptable arrangement, given the reality that most large corporations prefer to operate abroad in safe countries. Indeed, as our own corporations have said, they too would feel safer to be in TPPA countries because of the ISDS provision, which is a much more binding requirement than in the other existing free trade agreements.

It is these high standards of protection against abuse of power by host country governments that make the TPPA superior to the free trade agreements that we have signed before with several countries.

MITI has explained that the ISDS under the TPPA has incorporated several safeguards against frivolous and unfair claims against the governments of host countries and that it will be more transparent to the public. These safeguards have been introduced at the insistence of the smaller countries in the final stages of the negotiations.

I believe that members of Parliament should support Malaysia signing up to the TPPA because the broad political consensus will have a positive impact on public sentiments, which in turn will help to create the feel good factor in the economy.

With Malaysia committing itself to the high standards of governance under the TPPA, this will give support to our sovereign ratings and help the ringgit to strengthen to a level closer to its fair value.

A more cheerful market sentiment is what we need in these trying times, especially for the working public. Many are now worried about their job security. When the mood in the market is more cheerful, workers will be less worried about retrenchment. Their families will be confident to spend more and with stronger consumer demand, this will help the country’s GDP to grow, despite the external uncertainties.

Parliament can help to boost up public and market sentiments by voting for the TPPA.


The Economic Outlook for Asia 2016

January 6, 2016

The Economic Outlook for Asia 2016

Economic forecasting is a mug’s game. But here are a few generalizations about issues likely to impact Asia in the coming year.


The year 2016 begins not with a bang but with a whimper, to misquote the poet Eliot. It marks the end of two trends without signalling the beginning of a new one. For Asia as a whole this promises to be another dull but not disastrous year. It is one which also sees the formal beginning of the ASEAN Economic Community, a nice idea which faces challenges both from economic nationalism in the larger member countries and competition between China and the US overshadowing the multilateralism of the World Trade Organization.

Of the medium-term factors, first there is the ending – slowly – of the era of minimal interest rates, years when major central banks have attempted with modest success to use monetary easing rather than fiscal stimulus to spur economic growth in the wake of the 2008 financial crisis. Second is the ending of the steep decline in commodity prices seen over the past two years.

The two have conspired to bring about the decline of almost all Asian currencies against the dollar –including those such as China and South Korea that are net beneficiaries of commodity price declines. Indeed for Korea and Taiwan, terms-of-trade gains are being more than offset by weak demand for manufactures from the west, softer markets in China and now difficulties in commodity-dependent developing countries whose currencies have declined by large amounts.

The prospect of higher interest rates should scarcely be frightening given that in real terms they will remain at historically low levels. The dangers lurk however in certain markets such as Hong Kong property where rates have encouraged a bubble which now faces the added challenge of a currency pegged to a rising US dollar.

Debt in Thailand

There is also plenty of corporate debt around the region, not least in Thailand, which was driven by empire-building acquisitions at a time when interest rates were not only low but currency stability against the US dollar had become assumed. There are echoes of 1997/98 – but mostly only faint ones as net foreign debt for most countries is minimal compared with then. The problem is at individual corporate level, not systemic.


The dramatic decline in energy and most mineral prices is probably close to an end but recovery is still distant. Declines in oil, coal and iron ore in particular have been caused mainly by increases in supply, not the fall-off in China’s growth. That new supply will not go away anytime soon. Similarly with the likes of gold and copper, cheap money and the 2013/14 price bubble saw new mining investment.

The issue for all these commodities now is how far the low-cost producers will go to sustain production in the hope that low prices will drive out the higher cost producer as the Saudis are trying with oil. It is a game of chicken which doesn’t augur well for exporters of iron ore, coal and gas, the most important of which in this region are Australia, Indonesia and Malaysia – all three in the case of Australia.

Agriculture looking good

Agricultural commodities on the other hand have better prospects. The El Niño phenomenon producing droughts in parts of Asia and excessive rain in South America has already caused a 20 percent recovery in palm oil prices. Its impact on rice and other cereal prices, sugar, etc., has so far been limited despite the likelihood of stronger import demand in Indonesia and the Philippines while weak prices as well as the weather could curtail Thai and Vietnamese output. The impact has yet to be fully felt. Any serious 2016 setback in India, currently a significant net agricultural exporter, could have a major impact especially on rice and cotton, and add to its palm oil imports.

Rubber prices can get a little lift from El Niño but cannot recover significantly while oil is still low while other tree crop exports will remain more impacted by weather and other issues in the main global producers.

It is difficult to see any significant improvement in manufactured exports over the year as the recoveries in the west will, even if they continue, remain sluggish. Asian currency falls have been roughly matched by those in Europe.


The Chinese economy is neither headed for disaster nor a return to fast growth. Some shakeout of money-losing excess capacity will happen in 2016 which will be of long run benefit but the transition to a more service-oriented economy will remain gradual. Excess capacity is having a depressive impact on global prices particularly of basic materials such as steel.

So a shakeout would be good for the world as well as for China. But don’t expect economic logic to take precedence over interest in staying in power of the Communist Party and state enterprise bosses.

Some boost from infrastructure spending

The scope for wise additional state stimulus for infrastructure is limited but more social spending and improvement in social protection for migrant worker families should benefit the housing sector and consumption. The expected further decline of the yuan against the dollar may not happen and anyway will be insufficient to boost exports – unnecessary anyway given the continuing large trade surplus.

More significant is whether China’s move to higher-value-added exports can continue. Numbers mean little so one can assume that the actual GDP growth is 1-2 percentage points below the official figure. Southeast Asia is supposed to benefit from higher costs in China for other goods but so far at least Vietnam is the only obvious beneficiary and judging by the inflow of foreign investment should continue to support expansion there of 6 percent or so despite weak commodity prices.

Indonesian infrastructure spending problematical

Indonesia’s steep currency fall should in theory attract more manufacturing investment too. In practice the decline has helped the current account respond rapidly to low commodity prices so it is not a matter of concern. However, the upward pressure on import prices is suppressing consumer demand for items such as motorbikes. There is plenty of fiscal and private borrowing space for infrastructure spending to boost investment spending but realization will lag potential.

Malaysia–Fiscal Space in shorter supply

Fiscal space is in shorter supply in Malaysia. The currency may have fallen further than the external situation merits but politicians have yet to learn the lesson that the economy cannot for very much longer be propelled by governments deficits at the same time as private capital leaves the country. There is scant sign of new export industries and the hitherto fast growing tourism and Islamic finance sector will be impacted by the oil-induced problem of their Middle East patrons.


Oil may also finally prove a problem for Philippine remittances. To the surprise of many they were barely affected by the 2008 crisis but Middle East countries relying on US$100 a barrel oil will see declines in many sectors and hence their ability to sustain current lifestyles made easier by foreign labor, a major lifeline for many Filipino families in the form of remittances from their overseas members.

This may not be quite sufficient to offset the benefits of lower oil prices for Philippine consumers and continuing demand in developed countries for flexible foreign workers. The candidates for the presidential election cycle in July do not inspire a belief that the nation can make a major move forward but expectations for clean and decisive government are not high so the potential for disappointment is low.

Young demographic important

Like India, the Philippines will continue to fall well below potential but is sufficiently underpinned by labor force growth, lack of commodity dependence and the benefits of low oil prices to grow at 5-6 percent almost regardless. India itself may do better and with its young demographic profile growing faster than China will become the norm – as it should.

The Philippine problem with its labor surplus, which will persist for at least a generation, does however provide a contrast with the opposite fundamental problem of all of East Asia, and now also Thailand and Singapore. The lack of natural increase in the labor force and peaking of the workforce participation rate makes past rates of GDP growth a mirage.

Adding the influx of low-paid, unskilled labor imports – mostly illegal ones from Myanmar and Cambodia in Thailand and with zero rights to permanence in Singapore – to some extent hides the problem but also makes it worse by holding back investment in labor productivity.

It has rightly been noted that proof of a high level of development in big cities is when the rich use public transport and the ratio of domestic servants to population is minuscule. Near-stagnant productivity is already a problem for both. Japan struggles to grow but still manages some productivity growth as its population shrinks by about 300,000 a year and the median age rises inexorably.

Taiwan Stable

Fears that the likely election victory of the DPP in Taiwan will upset trade with China are unlikely to materialize. The weakness of China demand is a problem for Taiwan but just part of the issue of its narrow but advanced export base sustaining competitiveness in a fast-changing electronics environment. Few countries can beat Taiwan for stable economic and monetary management and that will continue, though it may continue to make the stock market one of the least volatile and least expensive in the region.


Korea’s export base is much broader but some such as shipbuilding have a hard time continuing with over-capacity and Chinese competition. But a bigger problem for the economy as a whole, which enjoys a large current account surplus, is domestic demand given the high level of household debt and low pace of new household formation.

None of the above augurs well for stock markets which are nowhere conspicuously cheap – though cheaper than the US so still potentially attractive to foreign money and now offering yields which can withstand modest rises in interest rates. China’s is so unpredictable that rational analysis is a waste of effort so foreign money may return to other markets.