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Sakmongkol ak 47

ariff.sabri@gmail.com

Sunday 26 October 2014

Leadership and the Malaysian eCONomy- Part 2 of 3



Second Najib is not a man of action. In fact he is more known as the man who does nothing. He has taken up Musa Hitam’s elegant silence to a ridiculous level.
If one particular strategy has failed or show indications of failure, he doesn’t act to change course.  Isn’t that the message contained in Blue Ocean Strategy which the PM is very fond of quoting?
A man of action changes course if after analysing the situation, the original course chosen is faulty. We all know where the money invested in 1MDB will end up, but he doesn’t stop the rot. The sovereign fund is around RM36billion in debt and when the figures for 2014 are revealed; most likely the debt has shot over RM40billon. 
The fund is bleeding Malaysia; one because of the handling charges. Two, because of the secrecy surrounding the application of the fund and the narrowness to which the fund is applied.  It has gone into the energy sector ( buying up used IPPs) and real property.
Already the coupon rates are higher than the market rates offered on dividends- we need to know whether this spread is taken up by some people. Why are we paying above market rates?
We know what is happening to FGV when even the current share price has never overshot the initial price offering, yet Najib doesn’t reverse course by making changes.
He knows enriching Malays through rent seeking isn’t the answer to address Malay economic issues; he does not act to correct it.
Our country is like a runaway freight train. There is no one to steer it. PM Najib has been a big disappointment. He is no leader. He has been long on slogans but short in substance. He has, as the title of a book written by Milton Friedman says-issued bright promises, but has produced dismal performance.
The system of government is out of control. The country’s finances are frightening. Public debt has definitely overshot the 55% of GDP debt ceiling if we also and must include all the contingent liabilities which the government gave out but hides from us. 
Once again, for example what is so secretive and sacrosanct about the debt accumulated by 1MDB in the offshore accounts? The people managing our money have extraordinary brain power than the rest of us that their identities must be shielded from us? That’s RM36billion of taxpayer’s money in 1MDB that can get incinerated if the secretive investments and applications go bust.
Public debt service is very high. Public debt is also tied to our ability to pay. It’s paid from revenues collected by the government. If this country’s earnings are reduced, how are we going to pay off his debt?
Najib can eloquently say in parliament we have a moral duty not to bequeath succeeding generations with debt, but his government has shown the most ravenous appetite for accumulating public debt.
This government has the knack to introduce supplementary budgets in the ensuing financial year making a mockery for the fine detailing on the principal budget presented on each Friday in the selected parliamentary session.
Household debt is about 80% of the GDP. We have young people unable to get decent paying jobs they dream of, and the dreams massaged by unconscionable promises by the government and for-profit learning institutions, finding themselves saddled with debts. They can be insolvent at the age of 25.
What about the social cohesiveness of this country? The weak PM allows hate groups and other bigots to challenge the harmony of this country. He allows people like Ibrahim Ali and those from Malay hate groups to destroy the social glue that has bound us- and the social glue needs reinforcing always, not weakened. He should have acted harshly on people like Ibrahim Ali throwing them into jail.
If a Chinese were to do the same like Ibrahim does, apply the same laws on him or her.
This shows how weak and intellectually porous our PM is. Nothing seems to stay in his mind. He can learn from all over the world, the best practices in managing a modern state, but he hasn’t done so.  Whatever problems this country faces, they must have been sorted out in some countries very efficiently. But he is too deep in his worthless blue ocean strategy as though reading and talking about it, is a panacea for all the ills in this country.  He is mentally lazy.
Lets amplify his flavor of the month playing around with the so called Islamic agenda. If I were him, I will ignore the way Islamic countries are managed (doing so does not mean he is not a Muslim). No country governed by Muslims in modern history has achieved anything of significance. Pakistan- they have nuclear bombs but they kill one another on the flimsiest of excuses. Saudi Arabia- they treat women like sex slaves but when they go to other countries they behave like heathens of Jahiliyah era.
Indeed most of the counties ruled by Muslims are economically backward, corrupt, decadent, dictatorial, repressive and oppressive. Why is it difficult for any sensible fellow to come to the conclusion, that the way Islamic countries are managed should be dismissed.

34 comments:

Anonymous,  26 October 2014 at 10:02  

Dato I was very much looking forward to reading the 2nd part of your article and you didn't disappoint. As you aptly put it, the country is like a runaway train with no driver.

Najib in spite of his overseas education is totally inept and worst, blind to all that is happening around him. He makes beautiful and impressive speeches when overseas but any idiot could do it with expensive speech writers. Does he think that Malaysians can live on his speeches and his alphabet soup alone? He doesn't walk his talk and never did. He is, in essence, a lot worse than Pak Lah. At least Pak Lah is not not so vicious which endear him to people.

Can't wait to read the final part of your article. And keep them coming Dato.

Anonymous,  26 October 2014 at 10:12  

Your comment on the Islamic countries being repressive, dictatorial and cruel is so very true. And of all the countries in the world, Malaysia wants to emulate them. If not for the wealth from oil, countries like Libya, Iran and Saudi Arabia would be like hell on earth.

Anonymous,  26 October 2014 at 12:37  

Dato', your article really hits the bulls eye with regard to Najib:

"the man who does nothing"

"long on slogans but short in substance"

"He is mentally lazy"

However, I really admire him for being so thick skin to say things (domestically & internationally) which can really make listeners' hair stand up e.g. best democracy in the world...moderation...moral duty not to bequeath succeeding generations with debt.

Saying one thing but doing the opposite seems to be his calling card!

It is such a waste as he has every opportunity to do a great job since he is the most powerful man in Malaysia.

What is the point of having such great power when he can't even want to make a simple statement to stop the "hate groups and other bigots" from destroying the harmony of this country?

If things go on as it is, our Najib may get to succeed in being the PM who bankrupted Malaysia and the first time UMNO loses political power...R.A.H.M.A.N

A blessing in disguise for Malaysia indeed.

Anonymous,  26 October 2014 at 14:29  

Dato' perlu berhati-hati dengan kenyataan Dato' kerana kelak ia akan menimbulkan konflik dengan Majlis Syura Ulama dan Presiden PAS

Anonymous,  26 October 2014 at 15:00  

What a masterpiece Dato. No other words can better describe this PM.

Anonymous,  26 October 2014 at 15:44  

Don't belittle his intelligence by comparing his lineage and up bringing. His parents cannot be faulted.
While Joko sincerely work for his country, Najib works for himself or his well being and Rossi. He is mindful of the demands of the warlords in UMNO and reluctant to take the right steps if it in any way restrict the money flow to their coffers.
But his education was not wasted, he can craft good sounding speeches.

Greenbug 26 October 2014 at 19:42  


Dato, the problem we have in this country is that the learned and educated Malays are not doing enough to correct all the wrongs and injustices... maybe by being passive the government of Najib is encouraged to continue with all its abusive rule... I realize there are many Malays who talk and when they do, it gave me hope. Sadly, its all just talk and they don't walk... perhaps too comfortable with what they have to risk it all...

Anonymous,  26 October 2014 at 20:50  

Well said Dato'. Another 5 years of sufferings and lost time under our talk-only PM. What a waste...

Anonymous,  26 October 2014 at 22:38  

I do not see or think that despite their oil wealth, these oil rich arab countries invest in Muslim countries. They have invested a little in Malaysia & Indonesia but in Egypt or Algeria etc. almost zero.
Look at the amount of investment in White Christian countries. Banks, apartments etc. the oil rich arabs have almost all their receipts from their oil sales.
Once when the world do not need arab oil anymore, the young princelings will have not much allowance to live on.The young princelings numbering thousands of them will not be welcome any any White Christian countries.

bruno 27 October 2014 at 02:30  

With J Low throwing a couple hundred thousands Usd on champagne on a stupid drunkard actress and a couple millions Usd on the xxx film actress Hilton,and a few millions here and there what else is there to say.

And there is not only one J Low.Dozens of leeches are also feeding on 1MDB.If it's not broke do not fix it.Even if it's broke,still do not fix it.

The only problem is there is no other better alternatives than the corrupted,arrogant Umno/BN.So we are stuck and fu*ked with the corrupted and arrogant Umno/BN.Go figure.

Anonymous,  27 October 2014 at 12:16  

MUSLIMS ARE NOT HAPPY

They´re not happy in Gaza .
They're not happy in Egypt .
They're not happy in Libya .
They're not happy in Morocco .
They're not happy in Iran .
They're not happy in Iraq .
They're not happy in Yemen .
They're not happy in Afghanistan .
They're not happy in Pakistan .
They're not happy in Syria .
They're not happy in Lebanon .

So, where are they happy?

They're happy in Australia .
They're happy in England .
They're happy in France .
They're happy in Italy .
They're happy in Germany .
They're happy in Sweden .
They're happy in the USA .
They're happy in Norway .

They're happy in almost every country that is not Islamic!
And whom do they blame?
Not Islam...
Not their leadership...
Not themselves...

THEY BLAME THE COUNTRIES THEY ARE HAPPY IN!
And they want to change the countries they're happy in, to be like the countries they came from, where they were unhappy.

Try to find logic in that !




Anonymous,  27 October 2014 at 17:39  

Dear Datuk Sak

I really fear for the future of the Malaysian economy under this
incompetent and fiscally irresponsible "Finance Minister".

It took Marcos only 20 years to destroy the Philippine economy
(1965 to 1986).

Phua Kai Lit

Anonymous,  27 October 2014 at 18:58  

Sak!
Is the PM really well in body and spirit? Is he sick? Only sick peoople behaves like that as they are neither here or there!
This could be one of the reasons and remember his father did'nt last a term in office...

bruno 27 October 2014 at 22:19  

Dato,more or less three years from today and it will be GE 14.We all know about the corrupted patterns and two sets of laws,practiced by Umno/BN.

There are many supporters of BN looking for change.But unless there are better alternatives presented by the opposition PR,these BN supporters will stay put and keep supporting BN.

Until today,there is nothing to convince us that the PR can be a better alternative to BN.We have always screamed that the PR cannot do no worse than the corrupted Umno/BN.But the PR leadership have repeatedly kept shooting themselves in the foot.They try to outdo Umno/BN in the things they accursed them of wrong doing.

If the PR leadership do not wake up and change their attitudes,come the night of GE14,they will face a repeat of the same nightmare,an unforgotten nightmare when Badawi led BN and whipped the opposition to kingdom come.

nahraf,  28 October 2014 at 18:46  

Dato,

http://www.themalaysianinsider.com/malaysia/article/dap-wants-felda-global-reviewed-after-plunge-in-share-price

can you write about this, i'm really interested about your thoughts about this plunge of fgv shares.

Greenbug 29 October 2014 at 02:20  

Latest news from parliament - a written reply from the Finance Ministry to YB Teresa Kok:

The National Debt Ratio to GDP has dropped for the first time ever during PM Najib's tenure as Prime Minister. National debt for 2013 stood at RM586.9 billion against RM547.6 billion the year before. The National Debt to GDP ratio dropped from 54.7% to 52.8%!

Dato Sak, the amount of debt went up from RM547.6 to RM586.9% but the ratio dropped?

Gua tak percaya lah semua ni karut!

Anonymous,  29 October 2014 at 07:46  

Hello Greenbug

"Creative accounting" lah !

Malaysia masih boleh !

P.S. UMNO Baru-BN regime and its propagandists think that Malaysians are fools.

Phua Kai Lit

Sumpitan Emas,  29 October 2014 at 16:47  

1/3
Datuk Sak: “The fund is bleeding Malaysia; one because of the handling charges.”

“Finally, a little after midnight, early on Sunday morning (11 Mar 2012), I logged out of my computer, took my backpack and a small box that contained a decade’s worth of memories, and left. Goldman (Sachs) would later tell me they had surveillance video of me walking out of the front lobby with my box and backpack. They thought I had LARCENY in my heart, when all I had was FREEDOM.” (p244)

“Over that weekend of September 13 and 14, MERRILL LYNCH and LEHMAN BROTHERS — both of which turned out to have been as badly exposed in the sub-prime mortgage market as BEAR STEARNS — toppled. On Sunday, Merrill Lynch was acquired by BANK OF AMERICA, and in the early hours of Monday morning, Lehman Brothers filed for Chapter 11 bankruptcy. It was then (and still is) the largest bankruptcy in U.S. history. With two investment banks down, it was only a matter of time before the rest of us were in the crosshairs.” (p134)

“AIG was an insurance institution that affected MILLIONS of lives in almost EVERY country in the world, and because of some RECKLESS GAMBLING in credit-default swaps, it was on the BRINK of COLLAPSE. The Federal Reserve stepped in and gave AIG an initial $85 BILLION bailout. This would grow. After people saw what was going on with AIG, the reaction was: Holy shit! Wall Street likes predictability, and the way the government was flip-flopping between bailing out companies and letting them fail was NOT helping the markets.” (p135)

“It was the strangest thing to happen at 9:15 P.M. on a Sunday, when only a few people had been on the trading floor. The doors closed. GARY (COHN) looked very tired and scruffy … ‘Crazy world we live in,’ I said in the blandest, most neutral tone I could find. It was a touchy time, and I was just trying to be friendly. ¶ ‘Tell me about it. I’ve been here the whole weekend, and I haven’t gone home much,’ Gary said. He looked as if he could have slept on his office couch the previous night. ¶ …even if there wasn’t a specific reason for Gary to be there, he’d probably just been strategizing. WE WOULD VERY SOON LEARN THE TRUTH. ¶ As I got into a cab…checked my Blackberry. A fresh e-mail caught my eye. ‘The FEDERAL RESERVE BOARD approved the applications of GOLDMAN SACHS and MORGAN STANLEY to become bank holding companies.’ Holy shit! So that was WHY Gary Cohn had been working AROUND THE CLOCK in the office ALL weekend.” (p136)

“In a single weekend, the institution of the investment bank, as it had ONCE been CONSTRUCTED, had VANISHED forever. The Goldman Sachs of SIDNEY WEINBERG, GUS LEVY, and JOHN WHITEHEAD had VAPORIZED — cleverly converted, through the eleventh-hour labors of desperate men (LLOYD BLANKFEIN, GARY COHN, and Morgan Stanley’s then-CEO, JOHN MACK, among them), into an institution that could BORROW money from the government at ZERO INTEREST and THEN INVEST it at government BOND RATES, in essence making FREE MONEY. Goldman Sachs and Morgan Stanley were now effectively GETTING paid BY the government JUST TO STAY IN BUSINESS.” (P 137)

“Instead of the S&P 500 Index having average daily percentage swing of 1 percent, for a sustained period the market was swinging back and forth more than 5 percent per day — five times what was normal. NO computer model could have predicted this.” (p 154)

Sumpitan Emas,  29 October 2014 at 16:48  

2/3
“…so, too, it was on Wall Street that there are Four Types of Clients: the Wise Client, the Wicked Client, the Simple Client, and the Client Who Doesn’t Know How to Ask Questions... ¶ As Goldman started looking MORE and MORE like a HEDGE FUND, the Wise clients were important allies. They’d get looped in early about the various trades Goldman Sachs liked, so they could invest alongside the firm and USE their muscle to PROPEL the firm’s investing ideas into SELF-FULFILLING prophesies. Goldman would NEVER try to push some high-margin financial product on our Wise Clients. The people who work at these firms are TOO smart. They ALSO have the tools to SPOT when a trader is trying to PLAY GAMES. In the newly constituted Goldman Sachs, these multi-billion dollar hedge funds and institutions would be handled with KID GLOVES… ¶ Which brings us to the Wicked Client. This is often a very smart client who PUSHES the envelope. Some funds ENGAGE in RUMOR MONGERING to drive DOWN the prices of companies they are SHORTING. Some funds ‘spray their flow all over the street’ — they try to game Wall Street banks against ONE ANOTHER to get the best price for themselves. While this is not illegal, Wall Street firms DON’T like to get played — they like to be the ones doing the playing. At worst, some clients — like RAJ RAJARATNAM, founder of the $7 billion Galleon fund and always highly charitable with his personal wealth — show bad judgment and trade on INSIDE information. In October 2011, he was sentenced to eleven years in prison.” (p 161)

“Derivatives desks make the MOST money when the markets are volatile, and in 2008 and early 2009, Goldman’s Derivatives desks across the firm MADE a killing. And this WINDFALL didn’t come from taking bullets from clients; rather, a large part of it CAME from LARGE FEES for UNWINDING panicked clients’ FAILED trades. ¶ Once it seemed as though the last of panicked trades had been unwound, Wall Street did what it does BEST: it saw a huge dislocation in the market and started figuring out how to act on it. BARON DE ROTHSCHILD, the famous eighteenth-century British financier, captured what Goldman Sachs and other banks on Wall Street would START doing: THE TIME TO BUY IS WHEN THERE IS BLOOD IN THE STREETS.” (P 164)

Sumpitan Emas,  29 October 2014 at 16:49  

3/3
“In July, Goldman Sachs agreed to a settlement of $550 million in the SEC suit: $300 million to go to the government and $250 million to investors…As to the SEC’s charges, Goldman NEITHER admitted NOR denied any wrongdoing. Many people found this very strange. What was a settlement of $550 million if not an implicit admission of wrongdoing? The spin doctors at the SEC crowed that it was a HUGE victory, the biggest settlement of ALL time. Skeptics on Wall Street said, ‘This is a HUGE victory FOR Goldman Sachs; they got away UNSCATHED.’ For anyone in America, $550 million was a MINDBOGGLING amount of money. But for a corporation whose Securities division was BRINGING in $5 billion a quarter, $550 million was a PARKING TICKET.” (p 189)

“On Wall Street, the gambling can be moved to a darkened room where NOTHING is recorded, observed, or tracked. With opaque over-the-counter derivatives, there are no cameras. In this darkened, smoke-filled room, there is MAXIMUM temptation to try to exploit clients and conflicts of interest. AND THIS TEMPTATION AND LACK OF TRANSPARENCY ARE WHAT LED TO THE GLOBAL FINANCIAL CRISIS IN 2008.” (p248)

“… a woman in the audience stood up and asked, ‘What is the firm doing to address the fact that the culture is DYING and our reputation is DETERIORATING?’ Absolute silence followed as the speakers contemplated the question (p235)

IT WAS TIME FOR ME TO LEAVE.” (p236)

The above is extracted from WHY I LEFT GOLDMAN SACHS – A Wall Street Story by GREG SMITH published by Grand Central Publishing – 2002 : ISBN 978 – 1– 4555 – 2825 –7 : obtainable at Popular Books @ Rm59.90

N.B: UPPER CASE emphases are mine.

Sumpitan Emas,  29 October 2014 at 16:50  

3/3
“In July, Goldman Sachs agreed to a settlement of $550 million in the SEC suit: $300 million to go to the government and $250 million to investors…As to the SEC’s charges, Goldman NEITHER admitted NOR denied any wrongdoing. Many people found this very strange. What was a settlement of $550 million if not an implicit admission of wrongdoing? The spin doctors at the SEC crowed that it was a HUGE victory, the biggest settlement of ALL time. Skeptics on Wall Street said, ‘This is a HUGE victory FOR Goldman Sachs; they got away UNSCATHED.’ For anyone in America, $550 million was a MINDBOGGLING amount of money. But for a corporation whose Securities division was BRINGING in $5 billion a quarter, $550 million was a PARKING TICKET.” (p 189)

“On Wall Street, the gambling can be moved to a darkened room where NOTHING is recorded, observed, or tracked. With opaque over-the-counter derivatives, there are no cameras. In this darkened, smoke-filled room, there is MAXIMUM temptation to try to exploit clients and conflicts of interest. AND THIS TEMPTATION AND LACK OF TRANSPARENCY ARE WHAT LED TO THE GLOBAL FINANCIAL CRISIS IN 2008.” (p248)

“… a woman in the audience stood up and asked, ‘What is the firm doing to address the fact that the culture is DYING and our reputation is DETERIORATING?’ Absolute silence followed as the speakers contemplated the question (p235)

IT WAS TIME FOR ME TO LEAVE.” (p236)

The above is extracted from WHY I LEFT GOLDMAN SACHS – A Wall Street Story by GREG SMITH published by Grand Central Publishing – 2002 : ISBN 978 – 1– 4555 – 2825 –7 : obtainable at Popular Books @ Rm59.90

N.B: UPPER CASE emphases are mine.

Sumpitan Emas,  30 October 2014 at 20:58  

1/2
ADDENDUM:
“One client that did an elephant* trade was the government of LIBYA, which gave Goldman $1.3 billion to invest in a product that bundled a bet on currencies with call options on big liquid stocks such as Citi-group, Uni-Credit, Santander, and Allianz. Placed just BEFORE the financial crisis, this bet was one Libya would come to REGRET. It’s $1.3 billion was vaporized in short order — GONE.” I had to wonder why Goldman Sachs would want to get in bed with MUAMMAR GADAAFI and his exchequer… ¶ But no matter who the firm was dealing with, Goldman and Wall Street were getting really smart at playing on clients’ FEAR and GREED. The sales pitch went something like this: ‘The world is falling apart. You need a MAGIC fix to PROTECT yourself and help you OUTPERFORM your peers. You should trade this structured derivatives product that we have SPECIALLY tailored for YOU.’” [ *elephant trades are those ‘where Goldman made $1 million or more in discretionary profit’] (p 126)

“When you were on the New York trading floor, in the headquarters, right alongside upper management, you had to keep a POKER FACE and act as though EVERYTHING was on the UP-and-UP. In fact, it WASN’T. In New York as in London, the SIMPLE CLIENT and the CLIENT WHO DOESN’T KNOW HOW TO ASK QUESTIONS were being PERSUADED to trade structured products that were HIGHLY lucrative FOR the firm, WITHOUT fully understanding what it was COSTING them.” (P226)

“The axe du jour when I arrived in London in 2011 was getting clients to buy or sell options (puts or calls) on the largest European banks, such as SocGen, BNP Parisbas, UniCredit, Intesa. We must have changed our view on each of these institutions from positive to NEGATIVE back to positive TEN times. I remember thinking, How can we be doing this with a straight face? No THINKING client could believe that conditions on the ground could CHANGE that frequently. It was so obviously MISLEADING and DISINGENUOUS.” (p 231)

“Aside from the obvious DISHONESTY of continually SWITCHING our recommendations to clients based on what our traders wanted to do, I was bothered by the European bank-options axe also because of the IMPACT it was having on markets. (Some of these European banking stock could move MORE than 5 percent in a day.) …¶ We had ADVISED Greece all those years how to COVER UP its debt by trading a derivative. Now that the chickens had come home to roost, we were SHOWING hedge funds HOW to profit from Greece’s chaos; and on the OTHER side of the Chinese wall, our investment bankers were trying to WIN contracts from the European governments to ADVISE them on how to FIX the mess.” (p 232)

“Even when Wall Street CEOs are hauled up in front of Congress — as LLOYD BLANKFEIN was amid the SEC fraud charges against Goldman Sachs, and as JAMIE DIMON was after JPMORGAN CHASE lost $6 billion on bad trades — they try to make this argument. ‘We are all BIG boys.’ ‘We are all SOPHISTICATED institutional investors who know exactly what we are doing.’ But stop to think about it this FOR a SECOND. WHOSE money is being PLAYED WITH anyway? … ¶ Look at just the recent scandals: WHO gets affected when a county in Alabama trades a structured derivative with JP MORGAN that goes sour, and brings the county closer to bankruptcy? WHO gets impacted when a government such as GREECE or ITALY trades derivatives with Goldman Sachs or JPMorgan to COVER UP its debt and KICK its PROBLEMS DOWN the road? WHO ultimately LOSES when Morgan Stanley MISPRICES the Facebook IPO and mutual funds LOSE billions of dollars of retirement and 401(k) savings? Mom and Pop, that’s who.” (p 247)

Sumpitan Emas,  30 October 2014 at 20:59  

2/2
“WHOSE lives are affected when a sovereign entity such as LIBYA loses a billion dollars of its own people’s money betting on derivatives? WHO loses when BARCLAYS and other MAJOR banks RIG the London Interbank Offered Rate (LIBOR), the interest rate that underpins TRILLIONS of dollars in student loans and mortgages? WHOSE savings evaporate when JPMorgan brokers SELL underperforming mutual funds to their clients to generate MORE fees?”
(p 247)

“Two words: asymmetric information. The playing field is NOT even. The bank can SEE what every client in the market is doing and therefore KNOWS more than everyone else. If the casino could ALWAYS see your cards, and sometimes even decided WHAT cards to give you, would you expect it EVER to lose?” ¶ Here’s how it happens: Because Wall Street is facilitating business for the SMARTEST hedge funds, mutual funds, sovereign wealth funds, and corporations in the world, it KNOWS who is on EVERY side of a trade. It CAN EFFECTIVELY SEE everyone’s cards. Therefore, it CAN bet smarter with its own money.” (P 248)

“The reforms Wall Street is pushing back the hardest against are in the areas it knows are the most PROFITABLE: opaque derivatives and proprietary trading. But these also HAPPEN to be the areas that most DANGEROUS to the STABILITY of the financial system. The Wall Street lobby has already SPENT more than $300 million trying to KILL measures to REGULATE derivatives (so that they are brought into the light of day and become TRANSPARENT on exchanges), and to ELIMINATE proprietary trading so banks can NO longer bet AGAINST their customers USING their information advantage as prescribed by the VOLCKER RULE. Wall Street HATES transparency and WILL fight as hard as possible to PREVENT it from coming. ¶ I am a capitalist. I am ALL for people getting rich and for businesses making as much money as possible. It is the FUEL that keeps our economy growing and wealth should be an aspiration to MOTIVATE entrepreneurs everywhere. But I want it to be done FAIRLY. I just DON’T believe that CAPITALISM is embedded with some kind of assumption that ETHICAL BOUNDARIES should be PUSHED as far as possible, and that DECEIVING your clients is necessary to generate maximum returns. ¶ I believe in a business model that is long-term-oriented, where there is an INTRINSIC FIDUCIARY RESPONSIBILITY to do right by your clients so they will keep COMING BACK to you. Not only is it the right thing to do, but it is also better for business. You will make just as MUCH money — but you will make it MORE slowly and steadily and transparently. This should be good for shareholders, too, who like a predictable revenue stream and a steadier book of business. Today’s take-the-money-and-run model is just NOT responsible, or sustainable.” (p 249-250)”

“How can it be that four years AFTER the crisis NOTHING has been done to fix any of this? DON’T WE LIVE IN THE GREATEST DEMOCRACY IN THE WORLD? People should be outraged that there is no political will to FIX a problem that HURTS everyone, enriches a SUPER minority that has learned to RIG THE GAME, and could THREATEN the world with another CALAMITY in a few years’ time.” (p 250)

This book should be read cover to cover; the account on the Black Widow in Goldman Sachs London outfit is worth half the price of this book.

45Magnum,  31 October 2014 at 10:48  

Saudara AK47,

Would it be possible, no matter how remotely, that Najib is trying to get some petrol Dollars from GCC to mend the hole made by 1MDB?

There are no other sources to tap within the country so...

Sekian.
45Magnum

Sumpitan Emas,  1 November 2014 at 21:42  

1/3
ADDENDUM II:
“…where there is an INTRINSIC FIDUCIARY RESPONSIBILITY to do right by your clients so they will keep COMING BACK…”

On fiduciary responsibility, rather the lack of it, I append below an article written by U.S. lawyer Benjamin J Stein on taking business private. This article anticipated what Greg Smith has raised by a good 27 years. It first appeared in an abridged version in this blog in Nov 2012. Upper case, bold fonts and italics are used for highlighting purposes:

OTHER VOICES FORTUNE – 11 NOVEMBER 1985
By Benjamin J Stein
GOING PRIVATE IS UNETHICAL

Managers buying up their own companies are violating fiduciary duties and trading on inside information

The great genius of the system of public corporation is the ability to raise vast sums for economic development. Its great curse, from bubble to watered stock to Ponzi schemes, has been the temptation it offers managers and other insiders to ABUSE the trust of stockholders and STEAL from them in a seemingly ENDLESS VARIETY of ways.

A particularly troublesome form of insider abuse has developed in the past decade without anything approaching full public discussion of its ETHICS or LEGALITY. Known as INSIDER LEVERAGE BUYOUT, MANAGEMENT BUYOUTS, and GOING PRIVATE, deals of this type have totaled BILLIONS of dollars and involved major INVESTMENT BANKS and LAW FIRMS. On their face, INDEPENDENT of the specifics of each deal, they seem to me to raise the most basic questions of whether stockholders are getting the legal and ethical protection they NEED and by law SHOULD have.

I have been on the short end of several of these deals as a very small stockholder. Seen up close, as I have seen one lately, they work like this: a group of insiders — officers and directors — works with an investment banker and a law firm to carefully analyze the assets of the company. If the insiders perceive a large difference between the going stock price and what they can get by BREAKING UP the company, LIQUIDATING it, or REDEPLOYING the assets, they cook up an offer to buy back the company from the stockholders and “take it private.” Their offer is MORE than the stock market price. But it is — by definition — SUBSTANTIALLY BELOW what the insiders believe the value of the company will be once they have it as a PRIVATE FIEF.

The insiders send out a prospectus offering cash or a combination of cash and notes for the outstanding shares. The prospectus usually cites the BURDEN of regulations on a public company and the market’s LACK OF APPRECIATION for the company and includes a pious ASSERTION by an INVESTMENT BANK (hired by the insiders) to the effect that the price offered the shareholders IS fair and adequate.

As far as I have been able to tell, NO insiders have EVER put these words, or words to this effect, in a prospectus: “Notice: we the management and our pals in the investment community believe we can put up a SMALL amount of our own money, take all the cash out of your company, borrow the rest, and RAPIDLY MAKE MANY times the amount we put in. It is altogether likely that our RETURN ON INVESTMENT will be EXPONENTIALLY GREATER than yours. That dear stockholders, is the ONLY reason we WOULD DO such a deal.”

Sumpitan Emas,  1 November 2014 at 21:43  

2/3
Though these words NEVER appear in a going-private prospectus, they (or their equivalent in legalese) SHOULD. By any business or economic definition, an insider buyout can MAKE sense IF, and ONLY IF, the insiders are confident they can rearrange the assets of the company for their OWN LARGE BENEFIT and make those assets worth more than they paid for them. Therein lie at least three, and possibly more, very large rubs:

Managers and directors are, by law and custom, fiduciaries for the stockholder. Fiduciary CARE, as a matter of unvarying law from the Middle Ages to the present, requires that the fiduciary place the interests of the stockholders AHEAD OF, PRIOR TO, and SUPERIOR TO HIS OWN interests at ALL TIMES and in ALL CASES.

Query (as we used to say in law school): How can an insider conceivably be exercising his fiduciary care to a stockholder if he plans to BUY that stockholder OUT at a LOW PRICE and then RESELL or hold the stockholder’s former assets at a HIGH price? If the insider knows a way to realign corporate assets to realize more value, is he NOT legally and ethically bound to do that for the benefit of his cestuis, his wards, the stockholders? How can he justify buying from the stockholders something CHEAP he knows is worth MORE, often far more, than he paid for it? RETURNS to insiders in some leveraged buyout have been 40 to 1 and better, while stockholders got a FEW percent on their money. How can fiduciaries do that?

Under the Securities and Exchange Commission’s Rule 10b-5, as elaborated in the 1968 case against Texas Gulf Sulphur, it is a violation of federal securities law for insiders to make money on a transaction motivated even IN PART by inside information not known to shareholders generally. This was the recent downfall of former Deputy Defense Secretary Paul Thayer and several of his close friends.

Query: When insiders do a leverage buyout, are they not INEVITABLY acting on inside information? Won’t they always, in EVERY case, know the TRUE value of this REAL ESTATE or that INVENTION or this PENDING CONTRACT or that COMPETITOR’S PROBLEMS far BETTER than the stockholder to whom they make their leveraged-buyout offer? If that is so, as it INEVITABLY is, are not the insiders just as INEVITABLY acting for profit ON inside information? Why is this ALLOWED?

Under the SEC’s Rule 14a-9, as well as many state laws, any proxy solicitation material must involve full disclosure of every material fact by the moving parties — in this case the insiders and their buddies. Under the most recent Supreme Court on this rule, there must be full disclosure of ANY fact “if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding HOW to vote.”

But insiders NEVER disclose the crucial fact that they plan to make VASTLY MORE from the corporate assets than they pay the stockholders for them. I am a stockholder in a few companies in a small way, and I hope I am reasonable. I consider it extremely interesting if management plans to make $50 from something it paid me $1 for, and it would assuredly make a difference in how I voted.

Query: Why are insiders NOT required to disclose — under Rule14a-9 or under Rule 13e-3, the going-private rule, which also requires FULL disclosure — the very basic fact that they plan to make far more out of the corporation’s assets than they are paying stockholder for them?

To lump all of this into one mound of legal and ethical sorrow: How, under FIDUCIARY standards, insider trading restrictions, and full-disclosure requirements, can insiders get away with transactions that unavoidably call for the insiders to TREAT themselves vastly BETTER than their ward-stockholders, ON inside information, WITHOUT full disclosure?

Sumpitan Emas,  1 November 2014 at 21:44  

2/3
Though these words NEVER appear in a going-private prospectus, they (or their equivalent in legalese) SHOULD. By any business or economic definition, an insider buyout can MAKE sense IF, and ONLY IF, the insiders are confident they can rearrange the assets of the company for their OWN LARGE BENEFIT and make those assets worth more than they paid for them. Therein lie at least three, and possibly more, very large rubs:

Managers and directors are, by law and custom, fiduciaries for the stockholder. Fiduciary CARE, as a matter of unvarying law from the Middle Ages to the present, requires that the fiduciary place the interests of the stockholders AHEAD OF, PRIOR TO, and SUPERIOR TO HIS OWN interests at ALL TIMES and in ALL CASES.

Query (as we used to say in law school): How can an insider conceivably be exercising his fiduciary care to a stockholder if he plans to BUY that stockholder OUT at a LOW PRICE and then RESELL or hold the stockholder’s former assets at a HIGH price? If the insider knows a way to realign corporate assets to realize more value, is he NOT legally and ethically bound to do that for the benefit of his cestuis, his wards, the stockholders? How can he justify buying from the stockholders something CHEAP he knows is worth MORE, often far more, than he paid for it? RETURNS to insiders in some leveraged buyout have been 40 to 1 and better, while stockholders got a FEW percent on their money. How can fiduciaries do that?

Under the Securities and Exchange Commission’s Rule 10b-5, as elaborated in the 1968 case against Texas Gulf Sulphur, it is a violation of federal securities law for insiders to make money on a transaction motivated even IN PART by inside information not known to shareholders generally. This was the recent downfall of former Deputy Defense Secretary Paul Thayer and several of his close friends.

Query: When insiders do a leverage buyout, are they not INEVITABLY acting on inside information? Won’t they always, in EVERY case, know the TRUE value of this REAL ESTATE or that INVENTION or this PENDING CONTRACT or that COMPETITOR’S PROBLEMS far BETTER than the stockholder to whom they make their leveraged-buyout offer? If that is so, as it INEVITABLY is, are not the insiders just as INEVITABLY acting for profit ON inside information? Why is this ALLOWED?

Under the SEC’s Rule 14a-9, as well as many state laws, any proxy solicitation material must involve full disclosure of every material fact by the moving parties — in this case the insiders and their buddies. Under the most recent Supreme Court on this rule, there must be full disclosure of ANY fact “if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding HOW to vote.”

But insiders NEVER disclose the crucial fact that they plan to make VASTLY MORE from the corporate assets than they pay the stockholders for them. I am a stockholder in a few companies in a small way, and I hope I am reasonable. I consider it extremely interesting if management plans to make $50 from something it paid me $1 for, and it would assuredly make a difference in how I voted.

Query: Why are insiders NOT required to disclose — under Rule14a-9 or under Rule 13e-3, the going-private rule, which also requires FULL disclosure — the very basic fact that they plan to make far more out of the corporation’s assets than they are paying stockholder for them?

To lump all of this into one mound of legal and ethical sorrow: How, under FIDUCIARY standards, insider trading restrictions, and full-disclosure requirements, can insiders get away with transactions that unavoidably call for the insiders to TREAT themselves vastly BETTER than their ward-stockholders, ON inside information, WITHOUT full disclosure?

Sumpitan Emas,  2 November 2014 at 20:28  

P.S. to ADDENDUM II aka A Wall Street Whistleblower’s Lamentations:

“…I showed another manager’s marketing explanation to LEON GROSS, at that time the head of equity derivatives research at Citigroup…Leon is way up there on the smart chart, and 30 seconds after looking at the material he said, ‘NO way. This is a LOSER. If this is what this guy is really doing, he CAN’T beat zero. The way this is designed it’s IMPOSSIBLE to make money.’ He shook his head in dismay. ‘I CAN’T believe people are actually investing in this SHIT. THIS GUY SHOULD BE IN JAIL.’” ( p 36)

“(MIKE) OCRANT reported this company to the COMMODITIES FUTURES TRADING COMMISSION, the regulator for the futures market, which almost immediately began an investigation and SHUT DOWN the company. This company had CHEATED investors out of several HUNDRED million dollars, making it ONE of the LARGEST FRAUDS in New Jersey history.” ¶ After this scheme had collapsed, several of the victims had contacted Ocrant to tell him their stories. An older woman who had been using the returns to CARE for her RETARDED brother had LOST EVERYTHING; she didn’t know where the two of them would live.” (p 72)

“Madoff’s operation was TOO big to be believed. Once I stated how many BILLIONS he purportedly was managing, people STOPPED listening. In a world in which a $2 BILLION hedge fund was considered HUGE, the fact that I was claiming Madoff was running between $12 and $20 BILLION made me about as believable as those people claiming NASA had staged the moon landing in a warehouse. Journalists, SEC staff, and others just DIDN’T have enough professional scepticism to at least CONDUCT an initial investigation to see if ANY of my claims just might be valid.” (p 79)

“Over an extended period I was able to identify 20 cases of market timing in which investors had been DEFRAUDED out of at least $20 billion. The companies participating in this included some very large mutual funds and foundations. Twenty billion dollars. Finding them was not especially difficult, although obviously you NEVER see a CEO admit in his annual report to investors, ‘Fraud was UP 25 percent this year. We had a GREAT year in fraud; it’s our HIGHEST-MARGIN product. My expectation for fraud is that we intend to GROW it 25 percent a year to INFINITY. I have a really GOOD FRAUD team; we believe we have the BEST crooks in the business.’” (p 120)

APPENDIX B entitled, ‘THE WORLD’S LARGEST HEDGE FUND IS A FRAUD’, author Harry Markopolos and his team consisting of FRANK CASEY, NEIL CHELO, GAYTRI KACHRO, and MICHAEL OCRANT, present his submission to the SEC in December 2005. Included in the submission are the 30 RED FLAGS that he raised.


Buy the book, and have fun with a real thriller even if your b.p. might go up a point or two.

Sumpitan Emas,  4 November 2014 at 11:39  

Datuk, hope everything is OK at your end. Warmest regards.

Sumpitan Emas,  10 November 2014 at 22:12  

My apology. Pt 2/3 on 1 Nov appeared twice; here's Pt 3/3:
3/3
I HAVE ASKED this question of the SEC, and lawyers there say the point has not been fully addressed. I have asked it of lawyers for well-known companies doing insider leverage buyouts, and they hem and haw and say the issue has not been decided in court. I even asked a federal court of appeals judge, and he agreed that it is a question that HAS to be answered SOON.

We might ask the INVESTMENT BANKERS a few questions as well. Investment bankers are required to CERTIFY in ALL going-private deals that the purchase price is FAIR. But the same investment banker or a closely connected firm may ALREADY be at work RESELLING the corporate assets and may know that the stockholder is receiving far LESS (than) the insiders will get. How then can the “outsiders’ price” possibly be fair? How, for that matter, can the investment bankers possibly REPRESENT the stockholders as a large, anonymous mob while their VERY LARGE FEES are paid BY THE INSIDERS, whose interest by definition are substantially DIVERGENT from the stockholders’? AREN’T they ALSO FIDUCIARIES?

Something is wrong on Wall Street. The faceless stockholder pays FULL price for admission to the show and then gets kicked out after the FIRST act with ONLY his stub as a memento. A whole new class of deals, whose attraction is the opportunity for insiders to loot the assets of the outsiders, is taking place virtually WITHOUT challenge. This is NOT the way to have a healthy public securities market. It is NOT the way for equal protection to be afforded to all classes of corporate citizens. Insider leverage buyouts are the NEWEST in the endless efforts of PROMOTERS and ENTREPRENEURS to MISUSE THE SYSTEM OF PUBLIC CORPORATIONS. It is time for them to be ironed out.

Finally, from a totally different source:

“In 1999 Madoff had easily been the LARGEST hedge fund in the WORLD ...we guessed $35 billion to $40 billion… After he collapsed, investigators found evidence that he was taking money from well OVER 339 FUNDS OF FUNDS in over 40 countries… investors thought they HAD invested with Madoff … as of their November 2008 monthly statements were as high as $65 BILLION.” (p 178)

“For example, the over-the-counter (OTC) market is UNREGULATED space. It’s where the financial industry’s COCKROACHES congregate, because it is a place where this (there is)NO LIGHT, only darkness. And perhaps NOT coincidentally, this is ALSO where the industry’s HIGHEST MARGINS exist, so people will FIGHT like Mike Tyson to protect their profit margins.” (p 285)

(from NO ONE WOULD LISTEN — A True Financial Thriller by HARRY MARKOPOLOS: Published by John Wiley & Sons (2010) — ISBN 978 0 470 55373 2 obtainable at Popular @ Rm87.80; 354 pg.

Have I been reading the right books? I think so because I now know Wall Street has lots of shit and cockroaches.

Sumpitan Emas,  10 November 2014 at 23:01  

The following, still from Harry Markopolos, is too good to be excluded as we attempt to understand what money and fund managers do when they steal money big time, quietly and surreptitiously. And later a link to show how the US SEC (at last!) make a bank pay an elephant of a fine.

“We also knew that the SEC would be roasted for not doing its job, although again at that time we still hadn’t realised how NON-FUNCTIONAL it was… While there was nothing we could have done to SAVE investors beyond alerting this agency and trying to go public, the SEC could have SHUT (Bernie) Madoff down as far BACK as 1992, when it first investigated him and let him OFF the hook. This was certainly one of the MOST EXPENSIVE mistakes in history. Had the SEC stopped him then, depending on the way you choose to calculate the total losses, it could have SAVED investors MORE than $60 billion” (p 114-115). ¶ Essentially , the SEC turned down all my cases the same day I submitted them. I was appalled. I had handed over evidence PROVING that companies had STOLEN billions of dollars from investors, and the SEC had responded that it was okay — the companies were NOT going to do it again…one of the nation’s five largest mutual fund companies had monthly turnover percentages in its international equity funds in the 1,100 and 1,300 percent range PER month! Now, there’s absolutely NO way on earth that those were legitimate trades buy-and-hold long-term investors. ¶ Even worse, one of my cases involved a midlevel whistleblower at a bank-owned mutual fund subsidiary that was ALLOWING a few hedge funds to trade its mutual funds AFTER hours, a FELONY known as LATE TRADING. (p 126) ¶ Without the support of the SEC it was simply TOO DANGEROUS for my whistleblowers to blow any whistles. They might very well have LOST their jobs and being placed on the industry’s blacklist. It just WASN’T fair to these brave men and women or their families that they would have to suffer SEVERE financial hardship just because the government agency charged with being the industry’s watchdog was DEAF, BLIND, and MUTE. ¶ The people charged with REGULATING the industry were primarily concerned with their OWN paychecks. THEY DIDN’T CARE A RAT’S ASS ABOUT PROTECTING INVESTORS. It was thenthat I realised I had TWO opponents, Bernie Madoff and this NON-FUNCTIONING agency that seemed to me to be doing everything possible to INSULATE him.” ( P127)

Link on The woman who cost JP Morgan $ 9 BILLION: http://www.malaysia-chronicle.com/index.php?option=com_k2&view=item&id=395141:the-woman-who-cost-jp-morgan-$-9-billion&Itemid=3#axzz3IU1XOsRn

Minor correction to 1 Nov Pt 3/3:
… stockholder is receiving far LESS than the insiders will get…
COCKROACHES congregate, because it is a place where there is NO LIGHT, only darkness...

timor 11 November 2014 at 13:06  

As Salam Dato'.
Hope everything is ok with!
Silence is Goden.

Anonymous,  12 November 2014 at 10:16  

Dear Dato,

your blog seems to have gone silent for a while, hope you are well and in good health, and everything is going as you desired.

God bless you always.


Warmest regards

Steven

Anonymous,  15 November 2014 at 07:37  

I wouldn't say a muslim leaders cannot bring prosperity and peace to a country. I mean look at the "golden age" of islam in medieval age in the middle east. The enlightenment, the invention of medicine and mathematics. You can even say that Malaysia in the pre-Mahatir era were also the good days, where muslim leaders governed functionally and intelligently and not as a religious theocratic state.

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