For America, ‘Brexit’ May Be a Warning of Globalization’s Limits

New York

June 25, 2016

By Nelson D. Schwartz and Patricia Cohen

http://www.nytimes.com

A trader at the New York Stock Exchange sported a Union Jack on her bag. The Dow Jones industrial average finished down over 600 points after the vote results became known. Credit Joshua Bright for The New York Times

When the mills that birthed the industrial revolution in cities like Manchester and Birmingham still powered the British economy of the mid-20th century, Robert Stevenson was a frequent visitor to the Midlands.

Eastman Machine, the company his family helped start in upstate New York 128 years ago, had a big factory 100 miles north of London, and Britain accounted for roughly a fifth of the firm’s sales.

That was then. While Britain is still an important market for Eastman’s sophisticated cutting tools, its workshop there was shuttered in the 1970s, and British customers are now served by Eastman’s main factory in Buffalo and a smaller one in China.

So when the British electorate stunned the world on Friday with the results of the vote to leave the European Union, it was a shock for Mr. Stevenson, but not because it poses an immediate threat to Eastman’s bottom line or the job security of its heavily blue-collar, 120-strong work force in downtown Buffalo.

What most concerns Mr. Stevenson and owners of businesses big and small is what the so-called Brexit says about the shape of economic things to come.

“You never know if there will be a domino effect, and we worry about other countries securing their borders,” Mr. Stevenson said. “We were certainly surprised.”

For all the shock and awe on Wall Street and financial markets around the globe on Friday, the imminent danger to the underlying American economy is relatively small. What’s far more worrisome is whether Britain’s decision represents an end to the economic integration and opening markets that have helped propel sales at companies like Eastman over the last few decades.

Since the fall of Berlin Wall in 1989, politics and economics have mostly moved in one direction, with the elites on both sides of the Atlantic favoring policies like the North American Free Trade Agreement with Canada and Mexico, the introduction of the European currency and the entry of China into the World Trade Organization. Business has applauded these moves, but voters are not necessarily on board as they once were.

“I think a lot of the market reaction is less about the financial impact and more about populism and what it means for the liberal economic order,” said Glenn Hubbard, a top economic official to President George W. Bush who now serves as dean of the Columbia Business School.

The Brexit vote, he added, reflects a deep distrust of the benefits of the global economic system among a wide swath of voters in Europe and the United States, and a broadly held view that government institutions — whether in Washington or Brussels — are calcifying and don’t work well.

“Both of those forces have a lot of wind at their back,” he said.“In the near term, you’re seeing markets being roiled, and feedback effects for the Federal Reserve,” Mr. Hubbard said. But for now, at least in the United States, “I don’t think it’s going to raise recession probabilities.”

When it comes to commerce, Britain is not even among the United States’ top five trading partners — it’s currently the seventh largest, according to the United States Census Bureau, which tracks trade data. American exports to Britain last year totaled $56 billion, or just over 0.3 percentage point of gross domestic product.

Partly that’s a reflection of how the United States, despite leading the era of globalization, remains something of an economic island. Exports account for 13.4 percent of American economic output, according to the World Bank, compared with roughly 30 percent for Britain.

The 2015 slowdown in the United States’ biggest trading partner — China — may have blunted domestic growth in the last year, but even that hardly threw the American economy into a tailspin. Nor should Brexit, most experts say.

Jared Bernstein, a liberal economist who most recently served in the Obama administration and is now a senior fellow at the Center on Budget and Policy Priorities, sees minimal pain within American borders. “It won’t be helpful for our economy,” Mr. Bernstein said, but “we won’t take anything like the direct hit that I expect will befall the economy.”

Several economists estimated that the fallout from the vote would probably end up decreasing growth in the American economy by about a quarter of a percentage point or less, while postponing any push by the Federal Reserve to raise interest rates, possibly through the end of 2016.

“The flight to safety means lots of people are flocking to U.S. Treasury bonds, putting downward pressure on interest rates,” Mr. Bernstein said. “One possible outcome is that Fed’s path to higher interest rates may become flatter as these events play out.”

Brexit’s impact on the United States economy will mostly be felt through the falling value of the pound and the euro against the dollar, Mr. Bernstein said, which is “likely to slow down inflation and exacerbate our trade deficit.”

A surging dollar would hurt American exporters facing weaker demand from customers in Europe and Asia. In fact, Mr. Stevenson’s main worry on Friday was whether his British competitors might actually benefit in the short term.

“With the pound dropping 10 or 15 percent, it may strengthen a couple of our competitors in the U.K.,” he said. “I think they could be quite happy about it and gain market share.”

As befits the owner of a company that survived World Wars I and II, outlasted the Great Depression and the Great Recession, and survived the collapse of the American textile industry — all without abandoning Buffalo — Mr. Stevenson has learned to adapt to potential shocks like Brexit.

Increasingly, that’s meant focusing on making high-tech, software-driven equipment to cut composites and carbon-based fabrics for the aerospace industry and automakers, rather than the woolens and cotton Eastman’s equipment was once designed to slice.

Many of Mr. Stevenson’s current customers in Britain are in these sectors, he noted. The dressmakers and hosiers and other clothiers that once populated England’s redbrick towns have long departed.

“Our focus has been to understand where the market is going,” said Mr. Stevenson. Twenty years ago, 70 percent of Eastman’s products were of traditional fabrics; the rest were space-age materials. Now, it is the reverse, which is among the reasons a fifth generation of Stevensons will have a company to take over.

“Our goal has been to maintain the company in Buffalo and as a family business,” Mr. Stevenson said. “My son is 40, and I’m 65, and he is focused on these new materials. This saved our butt.”

For those exporters that have managed to hang on in the industrial heartland of Britain, the Brexit could actually be good news, simply because the pound’s plunge against currencies like the euro and the dollar makes their goods more competitive.

British exports like Rolls-Royce jet engines, high-end Jaguar automobiles and certain food products could get a lift. Last month, for example, Britain exported the largest cargo of wheat to the United States in more than two decades.

So would British hotels and restaurants, eager to host American visitors looking for what could amount to a 10 to 20 percent-off sale.

“If you wanted to buy a nice little house in Scotland, today’s the day,” said Kevin A. Hassett, an economist at the conservative American Enterprise Institute.

Chief executives of major American companies are paid well to see around corners, and must adapt their businesses even to trends they oppose, or face the consequences in the form of falling stock prices and angry shareholders.

That’s among the reasons General Electric, which relies on foreign markets for more than half its revenue, has been preparing for the kind of political retreat from open markets that the British vote to leave the European Union represents.

“Companies must navigate the world on their own,” G.E.’s chief executive, Jeffrey R. Immelt, said in the commencement speech last month at the N.Y.U. Stern School of Business.

For G.E., he said that meant seeking to achieve “a local capability inside a global footprint.” Today, its 420 factories spread across the world give G.E. “tremendous flexibility,” Mr. Immelt said, with jet engines, power generators and rail locomotives increasingly manufactured at several sites to ensure market access.

“A localization strategy,” Mr. Immelt said, “can’t be shut down by protectionist politics.”

G.E. had prepared for the risk that Britain might vote to leave the E.U. by hedging in foreign currency markets. But beyond that immediate step, a G.E. spokeswoman said on Friday it was too early to discuss longer-term moves the company might make.

Mr. Immelt, in a statement, said that G.E., America’s largest manufacturer, which employs 22,000 people in Britain and 100,000 in Europe over all, remains “firmly committed” to both Britain and Europe.

While Brexit’s impact on Britain’s overall economy may be mixed, its London-based financial sector is likely to feel the full force of the coming storm. The City, as London’s equivalent of Wall Street is known, has boomed in the last 20 years as a global financial capital, especially for Continental banks seeking a more market-friendly home than Frankfurt or Paris.

With a recession in Britain now a distinct possibility, some experts worry that a government desperate to create and maintain jobs could seek to save the financial sector by making the City more attractive as an offshore haven.

“This could lead to London becoming even more like the Cayman Islands and other British territories, skirting around regulations, in a race to the bottom for the financial sector,” said Adam S. Posen, a former member of the rate-setting committee at the Bank of England and now president of the Peterson Institute for International Economics in Washington. “This potentially could leave pretty big holes in the financial safety net.”

He pointed to the 2008 crisis involving the insurance giant American International Group, where a hedge-fund-like subsidiary operating in London and under less stringent rules nearly brought down the company and contributed to the financial crash.

“They could get away with things in London that they couldn’t get away with in New York,” Mr. Posen said, “So imagine repeating that on a larger scale or a more frequent scale.”

Of course, dangers like those are the hardest to anticipate. “Right now we’re in one of those points in history,” Mr. Hassett of the American Enterprise Institute said, “where there are lot of ‘unknown unknowns,’” referring to the infamous comment by former Defense Secretary Donald Rumsfeld on the Iraq war.

Consider two very different types of uncertainty, Mr. Hassett explained, citing a well-known economic metaphor. If you bet on a roulette wheel, you know all the possible outcomes and the attendant risks. But now imagine a game where you don’t know all the places the roulette ball might land, or the chances of it falling into different slots or even the prizes if you are fortunate enough to bet correctly.

“In those types of situations,” he said, “anything can happen. And if you don’t know what will happen, the optimal strategy might be to assume the worst.”

Steve Lohr contributed reporting.

A version of this article appears in print on June 26, 2016, on page BU1 of the New York edition with the headline: ‘Brexit’ in America. Order Reprints| Today’s Paper

Malaysian Prime Minister reacts to BREXIT Decision

New York

June 24, 2016

by Najib Razak

http://www.freemalaysiatoday.com

UK voters have spoken. As democrats, we must respect the result. We wish our British friends well in the new future they have chosen.

The step the UK has taken is historic and unprecedented. The future cannot be predicted, although a period of volatility in financial markets is to be expected as the ramifications of the result are understood and as the UK’s exit is negotiated.

We will monitor developments closely and remain vigilant to any emerging economic risks. However, we do not expect a major impact on the Malaysian economy.

With our sound fundamentals, diversified economic structure and ample liquidity in our financial markets, Malaysia is well positioned to face any volatility. I am confident that we will be able to weather this period of uncertainty. The government will also continue to strengthen the economy and further our fiscal reforms.–Prime Minister Najib Razak

With our sound fundamentals, diversified economic structure and ample liquidity in our financial markets, Malaysia is well positioned to face any volatility. I am confident that we will be able to weather this period of uncertainty. The government will also continue to strengthen the economy and further our fiscal reforms.

 We regard the UK as an important partner in all areas, including trade, investment, defence, education and tourism.For example, trade between us has been growing, with British companies such as Rolls Royce, Dyson and BAE Systems increasing their footprint in Malaysia, and Malaysian companies driving the redevelopment of one of London’s greatest landmarks, Battersea Power Station.

But our economic exposure to the UK is limited, as it is not among Malaysia’s top 10 trading partners and only accounts for about 1% of our total trade. We should increase this, and there may be an opportunity to do so now if the UK reaches out to strategically important nations beyond the EU.

Whatever comes to pass, I am confident that the Malaysia-UK relationship will be maintained and strengthened.We are both outward-facing nations, with a diversity of faiths and cultures and strong traditions of moderation and cooperation.

Bound by deep ties of shared history, friendship and trade, our peoples fought alongside each other in the Second World War and during the insurgency in what was then Malaya.We are firm allies in the fight against violent extremism, a scourge which affects us all. We must remain united in that long-term effort.

On a personal note, I have had an excellent working relationship with David Cameron. I am sad to see him depart as Prime Minister, although I respect his principled reasons for resigning. I look forward to working with his successor.

There will be testing times ahead for the UK. But the British people should know that one old friend will always be with them as they open a new chapter in their long history.

 

Psychology matters a great deal

May 1, 2016

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

by Robert J. Shiller

http://www.nytimes.com

“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

(see http://www.abc.net.au/news/2016-03-29/najib-razak-bank-accounts-triggered-money-laundering-alert/7280244).

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:

http://www.bloomberg.com/news/articles/2016-04-22/from-1mdb-probe-singapore-charges-former-banker-with-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.

ENDS

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.

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’?

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Click 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,

rihaku

rihaku

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.

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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

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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

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.” (https://www.project-syndicate.org/commentary/market-volatility-in-global-economy-by-nouriel-roubini-2016-02)

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.