Mahathir’s words

HUMPTY DUMPTY

Mar1st 2013 Written by chedet

///1. I don’t know whether our schools today acquaint the children with Humpty-Dumpty but I am sure older Malaysians are familiar with the character, and know the following ditty
“Humpty-Dumpty sat on the wall

Humpty-Dumpty had a great fall”

2. For those who are not acquainted with this ditty I would like to explain that Humpty-Dumpty is an egg, a great big imaginary egg and it sat on a wall.

3. Then this great egg had a fall.

4. We all know what happens when an egg falls. It breaks into innumerable pieces of shell, spilling out yolk and egg white. And the ditty went on to say that all the king’s soldiers and all the king’s men could not put Humpty Dumpty together again.

5. Somehow I am reminded of the currency crisis experienced by Europe today. Try as they might they have not been able to recover the great financial wealth which Europe had been enjoying all these many years. Trying to put the European economy and finance back into the great thing that they were is like trying to put Humpty Dumpty together again.///–Mamakthir

An egg is an inert object, and it cannot be compared to an economy which experiences ups and downs called business cycle. The financial wealth that they had in the recent past was their better achievements which the countries hope to return to. Even if they could not, they had at least achieved some greatness in the past.

///6. The Europeans seem to think that they can restore their wealth to its former self by some kind of financial juggling. And because they think so, they refuse to recognise that their economy is beyond repair. They are actually in a state of denial.

7. The fact is that their economy was not sound in the first place. They believed that their wealth was real but it was not. It was really make believe wealth created by trickery. Their so-called wealth was created through tricks in valuation. Share prices for example were increased not because the businesses were making profits but because of the demand for the shares. And very often the demands were artificial, cleverly manipulated by the market players.///–Mamakthir

Whether the European countries are truly wealthy or not, their per capita GDP is much higher than Malaysia. If that wealth could be created by trickery, why did not Mamakthir do it when he had 22 years? Or yes, Mamakthir believes only in wealth creation through hard work, and he did not want Malaysians to be immoral enjoying wealth created through trickery; anybody believes that?

If there were tricks in evaluation to make one wealthy, as if in a magic show, what has stopped Malaysia from performing it? With those tricks, Najib can at least reduce national debt from RM 540 billion and Mamakthir should show Najib the tricks rather than declaring that the debt level was not dangerous

///8. The money they use for all those wealth-creating tricks were not real either. The banks lent money which they did not have. The banks created the money out of nothing. The money lent is then regarded as the asset of the bank. The more they lent, the bigger the bank’s asset. It was alright as long as they did not abuse this money creation too much. But they became greedy and created too much. This non-existent money is then invested in the shares of companies which were incapable of producing anything substantial, too much which were not profitable. They were invested in houses which did not exist or were not even built. But on paper, in their book these non-existent things were given values.///–Mamakthir

It was not very long before yesterday that commodities were exchanged before paper document called money was accepted as a store of value. When the money is accepted for exchange it is real, else counterfeit. The bank survives its operation based on trust. So long as the bank is able to maintain the cash flows, real economy functions. It may be true that some investors put their money on houses which did not exist, like in Malaysia, based on artist impression of the project. Malaysians recently invested in a gold trading company with the name started with capital G, which had Mamakthir officiated the opening ceremony. That company promised to pay three percent yields every month; it was later found to be a ponzi scheme. Investors are as varied as there are people, and one wonders how that company G could get a former Premier to advertise for the company.

///9. The money created is also lent for the purchase of non-existent currencies which only appear in the books of the banks. When this non-existent money was bought or sold the only thing that happened was the transfer of the ownership of the figures in the banks to the new owner, the so-called buyer. Somehow the owner of this non-existent money was able to buy things with it as if the money is real. This money takes the form of cheques, credit cards and entries in bank books. The owner is seemingly rich. Hundreds of thousands of these seemingly rich people push up the per capita income and GDP of the nation. The nation is then considered to be a developed nation based on figures collected of the GDP, and the per capita.///–Mamakthir

Yet the currency notes of these countries are accepted everywhere, and sought after too. If that was so simple, why should Malaysia lag behind Singapore at one-sixth of its per capita GDP? Is it because Malaysians are religious, or the government leaders are religious that they prefer honest living? How then is Malaysia the most institutionally corrupted nation in Asia?

///10. And there are many other financial products which do not really exist but which can be invested in to give huge profits.

11. But then the balloons burst. The borrowers failed to make even the nominal profits and returns and could not repay the loans which had been registered in the books of the banks. For a while it was possible to hide with imaginative accounting. But the amounts became so huge, running into tens and hundreds of billions that even smart accounting could not hide the losses. The great banks failed and went bankrupt.///–Mamakthir

Only fools would part their money for something that did not exist. When one buys an insurance coverage, one can say that he buys a protection, and other could claim that he bought a piece of paper where the product does not exist.

The bank failed because the insurance scheme for the financial arrangements failed, probably because financial regulations were not perfect. Humans err, and US congress has passed the Frank-Dodd bill hoping to prevent a repeat of the financial crisis. Trading of the “financial products which do not really exit’ continues, as these helped to move real economy that the West has been able to enjoy more than Malaysians.

///12. When banks go bankrupt they drag down everyone with them. The so-called financial institutions collapsed. There is a recession and the financial crisis that we are seeing today.

13. What this means is that all involved, the banks, mortgage companies, insurance companies hedge funds etc…etc… lost money, huge sums of money. Now, when one loses money one becomes poor. But the Europeans do not want to admit that they are poor, that Humpty-Dumpty had fallen off the wall. They want to believe that they are still rich, that the wealth they owned before would somehow come back. That the wealth was not real did not bother them. Somehow through some kind of magic the wealth would return. Somehow Humpty-Dumpty would become whole again, like when you reverse a movie film.///–Mamakthir

A recession means that the quarterly GDP growth was lower than the previous quarter in two consecutive quarters. There exists recession on normal business cycle, and it is not the end of the world to have recession after a financial crisis. Had there been no financial arrangement which ended in crisis, the economy growth would certainly be lower in the earlier period, and people would not have enjoyed the “make-believe wealth which provided real enjoyment.” The countries concerned obviously consider the ‘imaginary’ financial products helpful to the economy else there was no need to fix them.

///14. Some even believe that they are actually still as rich as before and can continue to live the life they were used to. They rebelled against austerity measures, they go on strike, holding demonstrations because of high cost of living and unemployment. All these only worsen their situation. They refuse to accept that their country can be bankrupt.///–Mamakthir

That is Greece, a country which had a glorious past. The government practiced populist policies much like what Malaysia is doing, and the Statistics Department cheated until two years ago when a former IMF statistician returned to revamp its statistics. BN government doctors statistics too.

///15. Still their Governments and their experts try to think up of ways to restore their wealth without having to work for it. They still believe they can conjure a return to prosperity without doing any real business of producing goods, of trading and of providing services.

16. If before they could enrich themselves by financial manipulations, they believe they can somehow recover through the same kind of manipulation and financial tricks.///–Mamakthir

Goods and services move to where the money demands them. Thus, real economy responds to money. It would be good to know the way to manipulate financial tricks because goods and services do not care about the tricksters, only the money.

///17. But the fact is that Humpty-Dumpty just cannot be put together again. So it is with the false wealth that they had created. The wealth cannot be recreated and put together in some magical way.///–Mamakthir

The people in those countries are enjoying a higher standard of living than us in Malaysia. For example, they feel secure quite unlike in Malaysia where crime is awaiting to happen all the time.

///18. But the wealth can really come back. It will need a lot of real work – the kind of work which originally created their wealth. Real money has to be invested to produce goods at competitive prices and to sell them in the market to make real profits. With the technological knowhow they possess it would not be difficult to return to manufacturing and providing services.///–Mamakthir

People work smart as well as work hard. In Mamakthir’s regime he conditioned a sector of the population to depend on his lead so that he could continue to be the powers-that-be. Now he talks about working hard; yes he meant it for the Europeans.

///19. To be competitive they must accept lower wages and lower profit margins. They can no longer give themselves huge bonuses. They must pay taxes so their Government can provide needed infrastructure. They should forsake tax havens.///–Mamakthir

20. Lifestyle will have to be changed radically. High wages for workers together with shorter working hours as well as the lavish perks will have to be revised downwards. Workers must work hard and be productive. Increases in wages must be accompanied with higher productivity. Working hours and working days must be revised.

21. Management and executives must also expect to be paid less based on their productivity and profits. Bonuses should not be automatic. Even when deserved they should not be ridiculously high.

22. It will take time. But it would not be as long as when they built their original wealth.

23. It is galling. To go back to being poor, to have to work hard to produce real things, to learn to sell in a fiercely competitive market, it will be painful. But it will be real wealth. It will be cash in the banks and not merely numbers.

24. The banks can still create money to lend but the amounts will have to be limited and the loans prudent. Leveraging must not be excessive.///–Mamakthir

It looks like he is talking about selling goreng pisang in kampong environment.

///25. One thing the Europeans must learn is to give up is their belligerent ways and their huge budgets on weapons. They must give up their idea that they are responsible for spreading their philosophy and systems to every country in the world. They must not resort to war because it will bankrupt them and prevent recovery.

26. I am not extending gratuitous advice to the Europeans. I am aiming this at countries which have somehow escaped the financial tsunami. Don’t copy the Europeans. If your systems are doing well, continue with them. Europeans don’t have a monopoly of wisdom.///–Mamakthir

Mamakthir is worried about the spread of true democracy to this part of the world. He would have wished that internet never arrives so that BN can continue fooling people all the time. Europeans do not claim a monopoly of wisdom unlike here where some people claim monopoly of God.