The Financial Times has been using the array of essay entitled 'Capitalism in Crisis' this month. Due maybe to his prominence from the days of the Asian banking crisis, Mahathir was invited to pen an essay as part of this series. Or it might be which FT wanted to amuse the readers with an illustration of the kind of rabid, undeveloped louts which hold lean over less-developed nations. In the event, Mahathir did not fail to have the dope of himself. Unfortunately for Malaysians, he was described as the former Prime Minister of Malaysia, annoying us all.
Mahathir started off with his usual diatribe about how Malaysia was asked to lift seductiveness rates as well as let emasculate banks as well as companies go underneath in 1998; nonetheless the West did not follow their own recommendation during the 2008 crisis. In fact, Mahathir is wrong to review these two separate events in the fashion which he does.
Malaysia's banking came underneath conflict for during slightest the following reasons :
- Reserves which were as well low (USD28 billion), reduce even than the volume of mobile capital (USD50 billion) in the country
- Performance decrease of the financial sector
- A credit-funded stock as well as real-estate bubble
- Deterioration of the real exchange-rate
All of the above factors were caused by Mahathir's mismanagement of the manage to buy formed upon the recommendation of people who can only be described as his cronies. The Finance Minister's as well as BNM's warnings, roughly two years before the crisis, were ignored as well as dismissed by Mahathir.
The US subprime predica! ment was caused by an entirely opposite reason, which was financial innovation. Without innovation, no industry can progress as well as financial was no different. In this particular case it was the securitization of mortgages known as subprime mortgages since of their relatively higher risk. Few, together with the US Federal Reserve Bank, foresaw the risk which would be caused to the tellurian financial complement by these products.
Despite Mahathir's claims, the US did concede banks as well as companies to go under, together with Lehman, as well as Bear Sterns. If the US had not afterwards stepped in , it would have caused the distant worse tellurian predicament which would have have additionally impacted Malaysia.
Mahathir additionally claims which Malaysia, thanks to his banking controls, recovered faster than the neighbours. This is untrue as there was little difference in the timing of the recoveries. In terms of the peculiarity of recovery, you have been really worse off than the neighbours.
In an conflict upon the financial industry, Mahathir claims which it creates no jobs, businesses or trade. This is of course entirely untrue as the Finance Industry plays the critical role of funneling savings to the best possible use. If Mahathir thinks it creates no jobs, he should revisit the City of London. We will add which the export over-abundance in the Finance Industry contributes to roughly 3% of the UK's GDP. There will additionally be no commercial operation or traffic but Banks to yield loans to those who need it.
Nor should Mahathir be using down the formidable financial products which have been found in the marketplace today. They offer the purpose, to hedge, to protect investment value or to avoid large volatilities in investments. So in truth you need options as well as swaps as well as forwards as well as futures.
Mahathir afterwards suggests, incredibly, which Bretton Woods be regenerated as well as bullion reestablished as the basis for ba! nking se ll rates. Clearly, Mahathir has no seductiveness in learning from the lessons of history or he would not have so ridiculous the suggestion. During the Great Depression in the 1930's, it was the economies which hung upon the longest to the bullion standard (including Brittan as well as the US) which took the longest time to recover. It will additionally mean which countries will no longer have control over their financial policy. Money supply will grow quick or slow formed upon the gait of bullion discoveries. Effectively, this equates to which the but bullion discoveries, you would end up with deflation which would inevitably lead to the contraction of economies. It is stupidity as well as the lack of the clear suspicion routine which prompts Mahathir to come up with such ideas. We should be grateful, the single supposes, which Malaysia is now giveaway of his grandiose schemes or you will be saddled with nonetheless some-more failed enterprises similar to the Perwajas as well as the Protons. Unfortunately he still wields sufficient influence in the BN to get the peculiar lunatic idea approved.
Mahathir afterwards proposes which banking trading be banned. How afterwards would the single determine rates of exchange? Based upon Mahathir's less than informed opinion, perhaps?
Forex trades essentially safeguard which any given product, the packet of groundnuts shall you say, costs the same in Malaysia as it does in South Korea, assuming there have been no transportation costs. If Malaysian groundnuts price some-more than South Korean groundnuts afterwards demand for it would dissapear. The result would be the depreciation in the ringgit until the groundnuts price the same again in both countries. To attempt to manage these scenarios as well as distant some-more formidable situations but the forex marketplace would be foolhardy.
Mahathir as well as his similar to nonetheless control the Barisan Nasional as well as have been even now heading us into mess in 2012 by denying an! abyss w hich is already upon us. For us to engage in reasoned as well as rational economic dialogue, practice as well as policies, you will have to sale the BN by choosing by casting votes in the new Pakatan government. The pick is unthinkable. The pick is economic disaster.
Malaysia Chronicle
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Courtesy of Bonology.com Politically Incorrect Buzz & Buzz
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