| As everyone knows, the tsunami in Southeast Asia was devastating both in the loss of life and economically to the region. However now that the clean up is underway in the region, deep sea creatures that live too deep to be studied are being found scattered throughout the wreckage. These creatures were washed up on shore when the waves hit. |
To watch the movie and to read my dated posting, I think I should have made the movie myself... lol.
I was watching the uncomfortable grilling by the US lawmakers on Ben Bernanke and Henry Paulson on the US rescue plan. Pity those two guys. They are trying to fix a problem which was inherited and they have to suffer the embarrassment of trying to persuade the lawmakers to approve the funds.
But who really are the culprits that brought about such a calamity? I shall try to ascribe blame to the relevant parties. But please note, it’s a highly subjective issue and everyone has a different opinion. Here’s my two cents worth (and rapidly diminishing two cents in value):
The blame game:
30% - Management of Investment Banks & Mortgage Lenders
They were greedy and overpaid. They had thrown risk management out the window. When the going is good, they pocket more than their fair share.
Paulson (left) and Bernanke could have tried to reverse the damage in their early days as they basically inherited a huge problem.– AP The worst punishment they got was to walk out the door with nary an apology. The vast amount of liquidity in the system and the thirst for mortgages prompted them to “invent” new fangled instruments to package these loans and resell them, with little regard to the leverage effect.
Lenders kept pushing adjustable-rate and subprime mortgages, while investment banks bundled millions of risky loans and resold them to investors.
It was when these investment banks started to buy these same instruments that they really decimated their capital.
15% - Alan Greenspan
He will continue to deny it was his doing, but since 2001, he advocated lowering interest rates and continued a strong money supply growth policy.
That prompted the public to buy properties and even speculate in them. Greenspan was well known for lowering rates aggressively to counter any crisis €“ the query was that by doing that markets were never allowed to adequately correct the imbalances.
This led to the credit explosion.
He must have noticed the deterioration in the credit market back in 2003 and 2004 or was just plain blind. But he hadn’t warned lenders of using the “non traditional mortgages” now seen as a precursor to the credit crisis which unravelled as early as December of 2005, shortly before Greenspan resigned.
The excessive liquidity in the system was not just owing to the Fed’s measures. Major central banks were guilty of pumping vast amount of money supply into the system. Back in 2004, Greenspan opposed tougher regulation of financial derivatives, and actually praised adjustable-rate mortgages and refinancing for homeowners.
35% - Ratings Agencies
They are the unwitting culprits. (I am being nice here). They rated loans and bonds based on these mortgages AAA status, which caused many buyers to believe in their assurance that they were buying solid AAA papers.
The ratings agencies again acted too late to downgrade these papers €“ long after the damage is done.
They had earlier accorded high ratings and analysis which fuelled interest in these instruments to be hawked to unsuspecting investors. It is also this that led the investment banks to boldly pile up these instruments.
What kind of value-added analysis are the issuers paying these rating agencies for? It’s obvious that the analysts knew that a bulk of the packaged loans consisted of subprime.
Were the fees too enticing? Were the ratings agencies trying to curry favour with the banks? If these agencies cannot do their jobs without fear or favour, then how can investors rely on these ratings?
Maybe the US should empower the government to rate bonds, especially if the government requires certain kinds of fund managers to own only officially-rated bonds.
15% - The Regulators
The financial markets and the various instruments have their respective regulatory units.
You may include the Fed, the CFTC (Commodity Futures Trading Commission), the SEC (Securities and Exchange Commission), FDIC (Federal Deposit Insurance Corp), even the FASB (Financial Accounting Standards Board) into the fold.
They are supposed to regulate and oversee the markets and the financial instruments.
But where was the voice of reason? The last six years’ housing and subprime mortgage bubble and bust had little to do with excessive government intervention.
Instead, they had all to do with the lack of any basic sensible government regulation of the mortgage market.
They should have instituted new guidelines and rules to govern these CDOs (collateralised debt obligation), credit default swaps, and the leverage aspect of financial firms and their capital at risk.
Even now, they are mainly silent.
5% - US Treasury chief Henry Paulson & Federal Reserve chief Ben Bernanke
They could have tried to reverse the damage in their early days as they basically inherited a huge problem.
But only now, they are talking about having proper mechanisms to regulate derivatives and new instruments. Sigh.
There were institutions and people appointed to do these jobs; it’s just that they did not do their jobs properly. I am still waiting for some of the culprits to be prosecuted for what they did or didn’t do.
At the end of the day, it appears that what some of them didn’t do would be more punishable.
“But what about the American borrowers/homeowners,” you ask? Shouldn’t they too shoulder some of the blame? I left them out of the above equation for various reasons listed below:
a) I do think there should be an element of “personal responsibility” but it seems to me that they are already paying the cost of their foibles. Many have had their homes foreclosed, they have lost their deposits and payments made on these loans.
It seems to me, they are THE ONLY group that has actually “really lost” materially and has been punished.
b) The bailouts do not really bailout the end borrowers. They simply extend the life of the companies.
Maybe the bailouts will allow the companies more time to foreclose these properties in an orderly manner. Very few of those will be able to renegotiate their existing loans on decent terms to allow them to continue to fund their mortgages.
Most of the loans were priced at a time when property values were at least 30%-40% higher than now. Perhaps, it’d be better to declare bankruptcy than to continue to reconfigure the loan?
c) The public are not equipped to regulate themselves. That is why there are agencies created with “capable people” to regulate and monitor the markets.
You cannot expect the majority of borrowers to understand in detail CDOs, credit default swaps, or whether the brokers are leveraging themselves to the hilt.
You instead get assurance from top ratings agencies that brand certain papers as top notch grade. Who will really pore over hundreds of pages in a report, examine if these debt papers/bonds consist of thousands of small mortgages spread out over the country or how to value the price trends and affordability ratios of borrowers?
d) The public often acts in herd-like mentality and like most people, they are driven by the pursuit of wealth.
They see people making 50% in two years from speculating in properties and they, too, want to be part of it. Then they apply for loans, and were probably even more shocked that mortgage lenders were more than willing to lend to them.
The markets are often characterised by bouts of insanity; if you stir them up with enough incentives and carrots, people will act irresponsibly.
The regulating agencies are there to ensure an orderly market and to quell excesses. The people cannot do it themselves.
The ones who got out early will think they are very smart. The ones who got hit will think they were unfortunate victims. Both are wrong in their perception of their actions, financial decision making and brain power.
Both groups are closer to each other in every aspect than they would care to admit. It’s like a game of financial musical chairs “ the winners and losers are those who act the fastest/slowest when the music stops“ not how smart you are.
PS: In case you haven’t figured the headline out: The bald, the beard & the ugly are Paulson, Bernanke & Greenspan.
p/s photos: Ema Fujisawa (my date in Tokyo)
1) You mean, simply by labeling everybody Bumiputera, Malaysians earning RM2.5k/month will suddenly feel migrating to Singapore for the same job paying SGD6k is not attractive anymore? I think that's BS.
Syakir, you are right, all things being equal, many will go for greener pastures. What may be of concern is that people who emigrate, USUALLY do not do it solely for CAREER/WORK/PAY. It is never easy to uproot your family, leaving behind relatives, friends and your roots. The bumpitra status is a sense of belonging, when you are sometimes made to feel unwelcomed, all these things add up.
2) Political patronage, monopoly, over reliance on foreign workers, industries not moving up the value chain and wastage & leakage. These are the real problems that lead to brain drain. And, don't even argue that Bumi policies caused these problems. For instance, Ananda Krishnan holding a monopoly on subscription TV and government building a RM500 million airport for Vincent Tan in Tioman have nothing to do with Bumi policies. Yet these are the real problems with this country.
I would agree with Syakir that Bumi preferential policies will extend to all races if/when you are rich enough.
3) Argue against Bumiputera on the basis that it divides Malaysians. Yes. Argue that it cause some level of hardship to non Bumis. Yes. Argue that Bumi policies should be amended to give more assistance to poor non Bumis and restrict benefits for rich Bumis. Nice. However to argue that it is the root cause of all the woes of this country that leads to brain drain is just BS.
Written by Koon Yew Yin
Monday, 09 May 2011 14:07
Dr. Mahathir has derided the World Bank brain drain report as “useless and politically motivated”. The country should ignore his criticism as the ranting of a seriously flawed leader whose shelf life has expired and who has long lost his credibility to comment sensibly on any public policy subject. Prime Minister Najib Razak’s response has been equally disappointing. He must surely know – as any sane and reasonable person would – that the emigration of Malaysia’s highly educated and skilled has been disastrous and is an exodus the country can ill afford.***************************
Malaysia’s Brain Drain: Government in Perpetual Denial
For some years now, various analysts have written about the brain drain from Malaysia arising from the country’s racist policies. Now the World Bank has finally come out with a definitive report detailing that the number of skilled Malaysians living abroad has tripled in the last two decades with two out of every 10 Malaysians with tertiary education opting to leave for either OECD (Organisation for Economic Cooperation and Development) countries or Singapore.
The report also studied the factors that would entice Malaysian currently staying overseas to return. The top picks were a change in the country’s race-based policies and fundamental reforms in the public sector with “Paradigm shift away from race-based towards needs-based affirmative action” and “Evidence of fundamental and positive change in the government/public sector” receiving 87 and 82 per cent positive responses respectively.
The brain drain report mainly focused on the human capital outflow of migrants with tertiary level qualifications. If it had taken into account the out-migration of those with upper secondary and other desirable vocational and other skills, the human capital haemorrhage from the country arising from the New Economic Policy and other racially skewed policies would be far worse than the report’s findings show.
The Past and Present Prime Minister’s Responses
What has been the response to the report? Not surprisingly, the chief critic has been Dr. Mahathir who has derided the report as useless and politically motivated. As Dr. Mahathir has been the main architect of the socio-economic policies that have been responsible for the brain drain, his reaction is predictable. The country’s leadership and citizenry should ignore his criticism as the ranting of a seriously flawed leader whose shelf life has expired and who has long lost his credibility to comment sensibly on any public policy subject – whether this relates to the New Economic Model or human capital development - and especially if it concerns governance issues of which the former Prime Minister has been fundamentally compromised and incorrigibly irresponsible.
The present Prime Minister’s response has been guarded but no less disappointing. Dato Seri Najib Razak, whilst acknowledging that the brain drain is “one of the problems that must be resolved”, has pointed to the recent pickup in foreign direct investment to argue that the Bank report was not “quite correct”. The Prime Minister is grasping at straws to deny the undeniable. He must surely know – as any sane and reasonable person in the country would – that the emigration of Malaysian talents has been disastrous to the economy and is an exodus the country can ill afford.
He must also be aware that the outflow of another generation of young Malaysians (this time, including many Malays) is presently taking place and will continue unabated so long as racial (and religious) discrimination, and the self enrichment and political bankruptcy of the UMNO elite and its cronies, remain unchecked.
Incentives such as lowered income tax and other material or monetary sweeteners promised by the Talent Corporation are not the solution. They do not address the sense of not belonging, social injustice and lack of belief in the country’s future that are at the heart of why Malaysians have chosen to abandon the country of their birth, and to seek what - for most migrants - are less materially privileged but more psychologically fulfilling alien lands, despite being cut off from families and friends.
The Reverse Brain Gain
There is a key related topic which the World Bank report failed to deal with – the lower quality human capital inflow that has replaced the outflow of highly educated, skilled and talented Malaysians. During the past 30 odd years, there has been a massive officially sanctioned influx of migrants, especially from Indonesia and the Southern Philippines aimed at ensuring ethnic and religious dominance of the Malays. Millions of poor, uneducated, unskilled or semi skilled migrants have been permitted – rather, encouraged – to work and stay in Malaysia, thus offsetting the skilled brain drain with a cheap labour influx. According to the 2000 Census, 1.3 million or about 5.9 percent of Malaysia’s population of 21.9 million was comprised of foreigners. This estimate does not include other categories of non-citizens, such as permanent residents, spouses on a social visit pass, and stateless persons born in Malaysia. The latter number, of which there are no officially available figures, could bring the total number of non-citizens living in the country to close to 4 million or more.
Should the higher figure be used as the basis of calculation of the foreign component of the population, and even if the high birth rate of the Malay population were taken into account, it would imply that up to 25 per cent or one quarter of the country’s present total population are unskilled or semi-skilled migrants who have settled in Malaysia recently, especially since 1970. The influx of over 4 million lower quality human capital at the same time that over one million highly skilled Malaysians have left the country is probably unprecedented in the history of global migration flows (for a profile of the countries where Malaysians have moved to, see table below reproduced from Lee Wei Lian,“A Snapshot of Malaysia Talent Outflow”.)
I have no doubt that many recent migrants to Malaysia are hard working and good people, and deserve to have their rights protected. However, they would never have been allowed into the country or given easy access to citizenship in the normal circumstances of any other country in the world. What has made the difference has been a racially obsessed regime with a political agenda to artificially bolster the Bumiputra component of the population, and to provide that component with citizenship and voting rights aimed at ensuring Malay dominance of the government and country.
The pro-Nusantara cheap labour, easy assimilation (if the migrant is a Muslim or has no objections to “conversion”) policy of the last 30 years and its socio-economic costs and benefit needs to be studied by the World Bank team as a logical complement to the brain drain one. I have no doubt that should this lower level “brain gain” study be conducted, its findings will more fully explain the economic decline that the country has experienced. It will also expose fully the crude demographic numbers game that UMNO under Dr. Mahathir and his civil service underlings have engaged in to ensure continued Malay hegemony.
Ketuanan Melayu forever – the Perkasa slogan - is not a new one. It has been the bedrock of UMNO’s ideology since Dr. Mahathir came to power and will continue to be that way until the Malay population comes to its senses and realizes that the non-Malay communities are not their enemy – it is Malay political leaders that have failed them and are now looking for non-Malay scapegoats to explain why poor Malays have been left behind in the country’s socio-economic development.
Koon Yew Yin
9th May 2011
