THE FINANCIAL TURMOIL AND MALAYSIA
4. Now the
common practise is for importers to open Letters of Credit (LCs)
with banks to ensure that when they receive the goods the
corresponding banks will release the money. However, if the
importers' banks go bankrupt they would not be able to transmit the
payment.
5. They may be bailed out by the US Government. But they may not
consider paying Malaysian exporters as a priority. In which case we
will not be paid. Worse still we can no longer entertain orders
coming from this market. Our trade must shrink.
6. We are not talking about one company. We are talking about
hundreds of companies trading with America and Europe and other
countries not getting paid for their exports. We are talking about
tens of millions, even hundreds of millions of Ringgit worth of
goods not being paid for.
7. These companies all borrow from banks to finance their
operations. They hope to pay the banks from the proceeds of their
export. When they cannot pay the banks, the banks in turn would
have a lot of non-performing loans.
8. The banks would be wary of lending money to not only the
exporting companies but to others as well. There will be a credit
squeeze which would hurt other businesses. There will be margin
calls. When the borrowers cannot meet this there may be
foreclosures.
9. We see a lot of construction in Kuala Lumpur, all dependent on
borrowed money. If these buildings are not sold or rented, payment
by the developer to the banks would not be forthcoming. Again there
will be a lot of non-performing loans.
10. When the Government withdrew the subsidy for oil the pump price
increased by 40 per cent. The immediate result was to increase the
prices of a wide range of food, goods and services commonly needed
by the people. In other words the purchasing power of the people
had been reduced.
11. Since then the price of oil had been reduced three times. But
the prices of food, goods and services have stayed up.
12. Some cranks estimated that every citizen had lost purchasing
power by RM300 a year. Since we have a population of 27million, the
country's loss of purchasing power amounts to RM8.1 billion. That
is a lot money which is lost by food suppliers, cooked and
uncooked, goods and service providers at various levels. A lot of
small businesses would just fold up.
13. The Government has given back some money but not enough to
reduce the losses sustained by the economy.
14. Now the corridors cannot be fully implemented. But this is fine
because nothing had been implemented anyway. Unfortunately the
anticipated earnings by contractors, sub-contractors, suppliers,
workers, teh tarik and nasi lemak sellers would not
materialise.
15. Maybe we will not need several hundred billions to bail out our
banks. But the banks will also face the problem of unpaid loans
incurred by their credit card users. They have been rather lax in
providing credit card facilities to their customers, many of whom
have no accounts with them. It is believed that unpaid credit card
loans is in excess of RM20 billion.
16. Will the Government guarantee depositors will not lose their
deposits when the banks which had in the past made huge profits now
go bankrupt because of their mismanagement?
17. This is what the peoples of America and Europe are asking.
Their money is used to bail out the banks whose profits had
enriched their Chief Executive Officers and their share holders so
much in the past. The people did not get a share of the profit, but
they must pay for the losses.
18. We are told that six billion Ringgit in Foreign Direct
Investment would flow into the country. But what about the RM30
billion outflow as foreign investors pulled out of the stock
market?
19. I pray that I am wrong. I pray that the Government is right in
declaring that the whole world may collapse but we would be the
only country which won't. We will sail calmly through the seas of
shattered economies.
20. What is happening in the world today is the total collapse of
the international financial system. This has been brought about by
greedy people abusing the system. Instead of doing business in
goods and services they now do business in money, in fictitious
money.
21. We had experienced the effects of the trade in our currency in
1997-98. For no very good reason, our Ringgit was devalued so that
its purchasing power was halved. And we became poor.
22. Fortunately for us we succeeded in stopping the trade in
Ringgit and restoring its value. But the system is still in place.
And now it is the US Dollar which is devalued.
23. But trading in currencies is only one of the abuses. The banks
are lending more money than they have. They actually go to the
people to persuade them to borrow.
24. Their clients can borrow 100 per cent of the money to buy a
house for example.
25. They need not worry about paying or servicing the loan. The
price of the house would appreciate. You may even have a second
mortgage. You may even sell at a profit.
26. In the meantime the bank would register the loan and add the
projected earnings from interest maybe over 20 years. That done the
bank can put all the loans together and sell it to the hedge funds
at a discount after adding potential interest.
27. The more risky the loan the higher would be the interest and
the higher would be the profit. The hedge funds which buy the loans
can basically sell the mortgages to investors in the fund or to the
huge Government financed Federal National Mortgage Association,
nicknamed Fannie Mae, and the Federal Home Mortgage Corporation,
nicknamed Freddie Mac.
28. Now the hedge funds and the banks would feel safe and enjoy the
huge profits that they have made.
29. But when hundreds of thousands of house buyers find themselves
unable to pay simply because they have no money, and could not sell
the houses and could not borrow from banks, Freddie Mac and Fannie
Mae would not be able to pay the hedge funds. Then the hedge funds
would collapse and drag down the banks with them.
30. This simply is what happened. The same applies to credit cards.
People with little or no money would be given credit cards. They
would spend more than they can afford and the banks would be faced
with huge amounts of non-performing loans. The banks cannot pay the
bills submitted by the sellers of goods or suppliers of services.
The banks would collapse and there would be a run on the banks and
on other banks which had lent the money to the affected banks. And
so we see one after another of the giant banks of America and
Europe going bankrupt.
31. The Government may try to bail them out. But the confidence
does not last long. Soon the bailout would be seen to fail.
32. Actually I am giving a very simplified version of what is
happening. All these shuffling of papers and figures cannot but
encourage cheating. The bigger the amount of money involved the
bigger would be the returns. The tendency is therefore to play with
very large sums of money.
33. But where does the money come from? From nowhere. The
Government and the banks, including the Federal Reserve Bank
conjured up the money from nothing. If you ask yourself where do
the US700 billion Dollars come from when you know the United
States' Government has to borrow US1.5 billion every day, you will
find no answer. Is the US Government holding US700 billion Dollars
in its treasury just in case it has to bail out the banks? Not
likely when it cannot even make ends meet, when it has twin
deficits.
34. So money can be conjured up out of thin air. And this must be
the money the banks lent, the money the hedge funds and currency
traders play with, the payments for expensive wars etc.
35. Basically the international financial system and the market
economy has failed. Unless and until a new system is introduced and
Governments regulate with the running and operation of national and
international finance and the so-called free market we are going to
see the financial turmoil and collapse repeated over and over
again.
http://test.chedet.com/che_det/2008/10/the
