Barking up the wrong Keynes

In almost all discussions on economics in the past year the name of John Maynard Keynes has been invoked. The shadow of Keynes writ large over the global economic landscape because his thesis, that the Great Depression could be arrested and, reversed by active fiscal policies by governments, was proven to be effective.

It was pointed out to me recently over a late night cuppa session by a highly knowledgeable economist (an authentic, practising economist, mind you) that many of us are unaware or, have forgotten the historical context of Keynes' General Theory which, in large part, was motivated by Keynes' desire to debunk the Marxist view that the Great Depression signalled the imminent death of Capitalism (with a big "C").

The context of the current economic turmoil is quite different from the Great Depression. But, I won't bore you with the details.

Suffice to say that policy makers and the worried public needs to be very, very clear that any economic stimulus will need to address short-term economic issues and long-term structural issues.

Short-term issues
It is always tempting and, inevitable, that economic stimulus packages will be directed at current ailments. These short-term policies will involve all sorts of spending. Roads, rails, bridges, schools and assorted infrastructure will be showered with funds. But, be warned, the tendering out of these jobs should at all times be open and transparent. Otherwise, there may be negative perceptions.

This form of spending stimulus may also be regarded as trickle-down policies since money goes to specific parties involved in that activity and their suppliers. Whether the broader economy benefits is moot.

That is why many people are, correctly, suggesting that spending be directed towards Malaysia's pathetic public transportation system. An inefficient public transportation is an economic cost because of time wasted in waiting for buses, trains and taxis. Or, time wasted in traffic jams.

And, then, there are tax cuts, fresh investment incentives, lower costs of borrowing and other revenue and monetary policies.

Bear in mind, though, that fiscal spending can only provide some cushion-effect. We will all be falling down and hurting ourselves. The challenge is to minimise the economic and financial injuries.

Long-term and structural issues
Less obvious but, more important, are components of the economic stimulus package that are directed to longer term and structural issues. What are these?

These are issues involving education, productivity, skills, values, creativity and innovativeness. I have written extensively on these points in earlier posts. These will be re-visited in due course.

Barking up the wrong Keynes
Stimulus spending are being characterised as Keynesian solutions. That may not be accurate. It may actually be a wrong characterisation.

To use a pyrotechnical metaphor, in a chemical fire, spraying water is not likely to douse the flame. Thus, economic stimulus packages provide a necessary cushion to attempt to soften the blow of the economic turmoil. However, it is never a complete panacea.

First, Fire All the Lawyers

Eric Etheridge's opinion column in the New York Times describes a gloomy pall surrounding big U.S. law firms in the wake of the economic turmoil. It's an interesting read. There are interesting embedded links in the column to articles that are even more interesting albeit for people in the legal services sector or, people with an interest in sectoral analysis:

Writing in the American Lawyer, Aric Press surveys the economic landscape for big law firms, and finds no good news to report:

If present trends continue in the big firm market, we are heading toward–you pick the cliché–a paradigm-shifting, blood-in-the-suites, terror-on-the-campus hiring and retention crisis. The “economic reset” that General Electric’s Jeffrey Immelt has tagged seems likely to force changes in the way firms recruit, pay, and/or retain their lawyers. The market for labor has changed and, for now at least, there’s no normal to which it can return.

Press details a number of current market facts, then goes on to list five changes to watch for in the coming months:

Lower starting salaries: Bumping starting salaries up to $160,000 in major money centers arguably made sense when profits were booming and firms feared that they were losing their best talent to the hedge funds of Greenwich. Those days are over and yet the 160K bogie remains as inviolate as though it were handed down at Sinai. If the market–and not weird lemming-style management–drove the salaries up, then presumably the market should drive them down. How far? Back to $130,000, where they lodged at the peak of the tech boom? Back to $100,000, which one managing partner refers to as a “life-boat offer”–if you take it, we guarantee not to throw you over the side for several years?

Wage cuts: Several firms have announced wage freezes: no automatic raises for serving another year. This is not particularly novel among clients but it has caused a stir in law firms. It saves some money, but law firm managers admit perhaps not as much as they will need to weather the downtown.

Delayed and staggered starts: [L]ook for firms to behave as their clients do, delaying starts of new employees until there is some demand for their services. And look for them to behave unlike their clients-offering stipends for extended vacations, pro bono service and advanced course work, anything to build loyalty-and keep them out of the office.

Sharply reduced summer classes: It’s just your mother’s rule applied to hiring: don’t put more on your plate than you need. A class of ten, say, handpicked from Stanford, NYU, Harvard, Georgetown, UCLA, Emory, Northwestern, Columbia, Michigan and Fordham, is likely to maintain the partners self-esteem without jeopardizing the firm’s economics in September 2011.

More layoffs: Next time it will be partners.

Bad vibes

The economic challenges are increasing. The First Minister of Finance has stated in Parliament that the 3.5% GDP growth projection is no longer a viable target.

And, thus, it is coming to pass that reality has bitten the country's economic managers.

As if to further underline this candid albeit gloomy prognosis, we now have to watch the incidence of credit card defaults which are expected to escalate in the coming months.

To make matters even more dire, the SMI Association of Malaysia has reportedly indicated that about 1.35 million small and medium industries (SMIs) in the country will face an operational crisis due to dwindling revenue if the government does not raise domestic consumption in the next six months.

There are 1.5 million companies and businesses registered under the Registrar of Companies or Companies Commission of Malaysia, and of these 90% come under the micro- and small-industry categories.

It is estimated that of the 11 million workers in Malaysia, 56% are employed in SMIs and these SMIs are facing survival test in the next six months.

Why tax cuts are better than deferment of tax payments

There is a line of thought that tax cuts forming part of the Malaysian economic stimulus package may not be effective when compared to deferment of tax payments.

The thinking is that since Malaysia has a narrow base of taxpayers, any tax cut will not achieve distributive fairness.

The thinking is also that in the current economic climate, any tax savings arising from tax cuts would be saved by the Malaysian taxpayer and, thereby, negate the intended effect of tax cuts as part of an economic stimulus package.

The thinking is, further, that deferment of tax obligations spread, say, over three years, would have a better salutary effect. The thinking is that deferment of tax payments will leave much-needed funds with corporations and, that the effect would be similar to a form of financing to corporations. The additional effect is that the revenue authorities still get to collect tax revenue, only that it is spread over three years.

I respectfully disagree with the line of thought.

The valiant Malaysian taxpayer
It is a fact that Malaysia, being a developing country, has a smaller middle-class compared to developed countries. In fact, the size of the middle-class is probably the best yardstick for whether a country has achieved developed nation status or, not.

The correct perspective for policy-makers should be that this small middle-class taxpayer base in Malaysia has been valiantly supporting the revenue stream to the government coffers during the best of times and, during the worst of times, to borrow the Dickensian phrase.

Now that times are bad, the taxpayers should get their deserved relief.

Irrelevant consideration
The fact that most Malaysian workers do not pay tax and, therefore, would not enjoy any relief provided by the tax cuts is an irrelevant consideration in any decision relating to a policy to cut taxes.

The issue of fairness to all Malaysian workers is irrelevant in the context deliberating on tax cuts.

For Malaysian workers who earn such a meagre income that they are not eligible to pay taxes, their threats are in the form of unemployment and pay cuts. Such threats are also felt by the tax-paying middle-class, by the way.

Anyway, such threats can only be met with social safety net policies like unemployment insurance, re-training programmes and new job placements.

Predilection to save in bad times
Rationality plays a large part with taxpayers who receive tax cuts. The possibility that 40% to 50% of the tax cuts are saved by the taxpayers should not deter policy-makers. The taxpayers are just making sure that there is enough saved for an economic downturn that has an uncertain duration.

Being rational, they will start spending if economic policies are seen to be sound and sensible. By that I mean, that the rational taxpayer will NOT be optimistic and confident if they see that many stimulus packages are based on negotiated tenders instead of open tenders. Or, that stimulus packages are dressed up as rent-seeking arrangements.

Surely that is not emotive behaviour. That is rational behaviour.

Deferment of tax payments is only postponement of a debt
Deferment of tax payments only helps to ease the cashflow. But, it is still a debt liability for corporations and individuals. What if the economic downturn is longer than expected? A debt is a debt. It has to be paid sooner or later. How's that going to engender business confidence? How's that going to engender consumer confidence?

Tax cuts, confidence and optimism
A policy to cut taxes will be well-received. It will be perceived as an acknowledgement by the government for the taxpayers' contribution to the economic development of Malaysia in past years. It will be felt as a form of financial relief.

The tax savings will translate into additional disposable income. Certainly part of that will be saved. It's the Asian mindset. But, more that half of it will be spent.

More importantly, the Malaysian taxpayer will feel genuine relief. That relief will translate into optimism.

Optimism begets some measure of confidence.

And, as we have been told, confidence is what the moribund economy needs.

Opportunity Maps (and Khir Toyo)

Malaysia's political shenanigans are providing tremendous fodder for all media. Gazillion gallons of teh tarik are being downed at warungs and kedai mamak and, countless thick local coffee at kopi tiams over topics as colourful as nude photos and frogging.

But we shan't add to the noise.

Instead, I want to draw your attention to a strategic management tool called opportunity maps. Businessweek carries an excellent article on opportunity maps here.

To add some colour to this post I am including some representations of opportunity maps:



Sourced from here.


Sourced from FAO.


Sourced from here.


Biodiversity opportunity map sourced from here.

Of course, the concept is not unusual or new. The point I'm making with the example of the diagrams above is that our minds, like Tony Buzan has demonstrated in his mind-mapping books and lectures, can be more effective if channelled to strategic thinking via colour and pictographical representations.

Words are great. But colourful pictures and diagrams may have a greater imprint on our memory. This, in turn, will stimulate out-of-the-box thinking.

But, if all this is too much for any one of us, I guess the so-po blogs have their own colours and, pictography, nude or otherwise. And, for the record, on the Elizabeth Wong matter, I think Khir Toyo has just plumbed depths of fecal matter that I never imagine could exist in our socio-political fabric. It is the type of fetid and putrid conduct that casts serious aspersions on the political party that he claims to be a part of.

Liberalising ownership of retail services sector

The Domestic Trade and Consumer Affairs Ministry's impending move to liberalise the distributive trade sector is a good response to Malaysia's economic challenges.

Liberalisation will come in the form of relaxing the ownership rules in hypermarts, franchising, direct-selling, departmental stores, specialty stores and super stores.

It is the relaxation of the conditions imposed by the Guidelines on Foreign Participation in the Distributive Trade Services Malaysia, which came into effect on December 1 2004.

Once in effect, this liberalisation move will encourage foreign companies to own, control and set up companies and businesses in this sector. The Guidelines, as with all foreign ownership regulations in Malaysia, were a drag on foreign investment.

I imagine that the benefits are the influx of foreign capital into the country and, the commercial and marketing strategies used in more advanced markets being applied in Malaysia. This will generate a greater level of retail activity. Malaysians can and, should take out their note pads and learn new sales and marketing techniques.

Like almost all economic sectors, the Malaysian retail sector is on a downward spiral.

If anyone should doubt whether foreign direct ownership of retail businesses has dubious value to Malaysia's general economy, I suggest that they study the significant impact that Norwegian Telenor-owned Digi has had on Malaysia's telco sector. We can learn from these people and, we will benefit in the long term...unless Malaysians choose to remain indolent and docile.

Education and Economic Development

This is just a short entry to augment Sakmongkol's insightful post, Education vs. Legislation.

I just read a fairly succinct academic paper entitled THE ROLE OF EDUCATION IN ECONOMIC DEVELOPMENT: A THEORETICAL PERSPECTIVE published in the Journal of Rural Development and Administration, Volume XXXIII, No. 1, Winter 2001, Pakistan Academy for Rural Development, Peshawar, pp. 39-47.

The paper takes a holistic view of education and, how it relates to economic development, productivity, income, family and, trade.

It's worth a read.

Rice self-sufficiency

In 2008, Malaysia achieved 73% self-sufficiency for rice. That was good.

What's even better is the 2010 target of 86% self-sufficiency.

To get to the target, the Ministry for Agriculture and Agro-based Industries has an allocation of RM3 billion. That's all lot of money.

It is estimated that there are 426,260 hectares of rice-growing areas in Malaysia.

When will the 100% target be met?

Apparently, Malaysia has a Food Security Policy. So far, all I can find out further about this policy is this link to the Ministry of Information.

Being a staple food, rice is, indeed, a security issue. The 100% self-sufficiency is certainly within the capabilities of this country. 

Majority of Perak Voters Prefer Elections

This is a snapshot of the Merdeka Centre's survey and analysis of the voter sentiment in Perak in the aftermath the the very tumultous events involving the change of the Perak State Government:

BANGI – Following the collapse of the Pakatan Rakyat government in Perak, survey reveals that 74% of Perak voters feel that the state assembly should be dissolved to pave way for elections.

The survey also found that 76% of voters felt that “the people, through elections” should decide on forming government.

A further 62% of respondents felt that the role of the palace in this case “does not reflect the will of the people of Perak”.

IPPs don't want to review PPAs

Should anyone be surprised by Penjanabebas' stand that the IPPs are against TNB's proposal to the government for review of the Power Purchase Agreements (PPAs)?

Even the surrogate parent for the birth of the IPPs, Dr M has come out to call for a review of the PPAs because the huge power reserves, which means unutilised power, posed a heavy burden to TNB. Needless to say, what's bad for TNB is bad for consumers and the country.

This is the downside to rent-seeking arrangements endemic during the 1980s and 1990s privatisation drive.

My criticism of the IPPs is set out here. In particular, see my arguments here, if you care to.

In the mean time, the news is that with effect from March 1, electricity tariffs for households will be reduced by 2.54%. Commercial rates will be reduced by 2.7% while industrial rates will fall by 5%. I guess beggars can't be choosers in this economic climate.

Be that as it may, I still maintain that the IPPs should be nationalised. 

Designing the Future of Business

I am aware that many blog surfers roll their eye-balls into the high heavens when the see the type of posting that I'm making here. This is the type of posting where I adopt and paste, wholesale, entire articles that I regard as being of relevance to me and other Malaysians. So, bear with me.

My increasing emphasis on design and innovation is based on a basic set of premises which I truly believe in:

Field-flattening
Design and innovation is what I regard as a field-flattener (a phrase I am inventing). What do I mean? The phrase is a play on the expression, level playing field.

In other words, with sufficient technical training and exposure (especially via the Internet), Malaysians endowed with imagination can think up designs for products and processes that have commercial application and value.

You don't need excessive government grants. You just need a PC or latop for Internet connectivity. You just need a good sketch pad or any piece of paper.

I have earlier written about crowdsourcing. So, there are actually channels whereby Malaysian creativity can find a global marketplace via crowdsourcing. You don't need to lobby for a meeting with Ministers for grants.

Even if you are a Kelabit Malaysian living in the Bario Highlands of Sarawak, you can be part of the global marketplace for industrial design. Create a viable design and put it out there.

Translating innate artistry into industrial designs
As I have written earlier, inspiration and impulse can come from anything around us.

I don't have such talents. But, I know that in places like Limkokwing and One Academy or, even, Central Market KL, just to name three places, there are incredible creative talent in Malaysia being showcased. These talents can be directed towards commercial and industrial application, not just for portrait and landscape painting or graphic arts.

Anyway, in case you think I am being crazy again, read this rather long piece by Marty Neumeier that I plucked from Businessweek. It's really worth a read. For the speed-readers, I have taken the liberty to highlight in bold the passages that caught my eye:

Forget total quality. Forget top-down strategy. Design is the engine that can transform a company into a powerhouse of nonstop innovation

Imagine a crazy wonderland where most of what you learned in business school is either upside down or backward. A land where customers control the company, jobs are avenues of self-expression, the barriers to competition are out of your control, strangers design your products, fewer features are better, advertising drives customers away, demographics are beside the point, whatever you sell you take back, and best practices are obsolete at birth. Meaning talks, money walks, and stability is fantasy. Talent trumps obedience, imagination beats knowledge, and empathy trounces logic.

If you've been paying close attention, you don't have to imagine this scenario. You see it forming all around you. The only question is whether you can change your business, your brand, and your thinking fast enough to take full advantage of it.

Designing the Way Forward

Until now, companies have used design as a beauty station for identities and communications, or as the last stop in a product launch. Never has it been used for its potential to create rule-bending innovation across the board. Meanwhile, the public is developing a healthy appetite for all things design.

A 2007 survey by Kelton Research for Autodesk (ADSK) found that when seven in 10 Americans recalled the last time they saw a product they just had to have, it was because of design. The survey found that among younger people (18 to 29 years old), the influence of design was even more pronounced. In Britain, a recent survey by the Design Council found that 16% of British businesses say design tops their list of key success factors. Among "rapidly growing" businesses, no fewer than 47% rank it first.

The ballooning demand for design is shaped by a profound shift in how the First World makes its living. Creativity in its various forms has become the No. 1 engine of economic growth. The creative class, in the words of University of Toronto professor Richard Florida, now comprises 38 million members, or more than 30% of the American workforce. McKinsey & Co. authors Lowell Bryan and Claudia Joyce put the figure only slightly below, at 25%. They cite creative professionals in financial services, health care, high tech, pharmaceuticals, and media and entertainment who act as agents of change, producers of intangible assets, and creators of new value for their companies.

But when you hear the phrase "innovative design," what picture comes to mind? An iPhone? A Nintendo Wii? A Prius? Most people visualize some kind of technology product. Yet products—technological or otherwise—are not the only possibilities for design. Design is rapidly moving from posters and toasters to include processes, systems, and organizations. Design is the accelerator for the company car, the power train for sustainable profits. Design drives innovation, innovation powers brand, brand builds loyalty, and loyalty sustains profits. If you want long-term profits, don't start with technology—start with design.

Brand and Deliver

A former editor of Windows magazine, Mike Elgan, illustrated the difference between ordinary brands and charismatic brands in two succinct sentences: "Microsoft (MSFT) CEO Steve Ballmer is famous for a crazy video in which he yells, "I—love—this—company!" In the case of Apple (AAPL), it's the customers who shout that."

In the previous century, a little brand loyalty went a long way. Often, what passed for loyalty was merely ignorance. If customers didn't know what their options were, they would stick with the devil they knew. Today's Microsoft may be one of the last major companies to profit this way. In the new century, customer ignorance won't be enough to keep competitors at bay.

Agility Beats Ownership

Today, there's no safe ground in business. The old barriers to competition—ownership of factories, access to capital, technology patents, regulatory protection, distribution choke holds, customer ignorance—are rapidly collapsing. In our Darwinian era of perpetual innovation, we're either commoditizing or revolutionizing.

Why does change always have to be crisis-driven? Is it possible to change ahead of the curve? What keeps companies from the continuous transformation needed to keep up with the speed of the market?

A company can't will itself to be agile. Agility is an emergent property that appears when an organization has the right mindset, the right skills, and the ability to multiply those skills through collaboration. To count agility as a core competence, you have to embed it into the culture. You have to encourage an enterprisewide appetite for radical ideas. You have to keep the company in a constant state of inventiveness. It's one thing to inject a company with inventiveness. It's another thing to build a company on inventiveness.

To organize for agility, your company needs to develop a "designful mind." A designful mind confers the ability to invent the widest range of solutions for the wicked problems now facing your company, your industry, and your world.

Next, Eco-Everything

Necessity may well be the mother of invention. But if we continue to manufacture mountains of toxic stuff, invention may soon become the mother of necessity. Our natural resources will disappear and our planet made uninhabitable.

As a thought experiment, imagine a future in which all companies were compelled to take back every product they made. How would that change their behavior? For starters, they would make their products with parts they could salvage and reuse at the end of their lifecycles. This, in turn, would spawn whole industries dedicated to the design of reusable materials. As companies struggled to afford the full cost of manufacturing, the prices of products and services would rise. To keep prices under control, companies would localize their operations to save on transportation costs. Localizing businesses would change the nature of communities, creating a network of quasi-independent economies more akin to the Agricultural Age than to the Industrial Age.

In Germany, Volkswagen (VOWG) is demonstrating that corporate responsibility doesn't end at the loading dock. The company is already selling cars that are 85% recyclable and 95% reusable, and it's building a zero-emissions car that operates on a fuel cell, 12 batteries, and a solar panel instead of fossil fuels.

While eco-sustainability isn't yet top-of-mind for most CEOs, when the tide finally turns, it'll turn fast. There's already a significant migration of talented executives from traditional technology to green technology. As venture capitalist Adam Grosser puts it: "They have had their consciousness energized, and they believe there is a lot of money to be made."

Business is Design Blind

Until a decade or so ago, the public's taste for design had been stunted by the limitations of mass production. Now people have more buying choices, so they're choosing in favor of beauty, simplicity, and the "tribal identity" of their favorite brands.

Yet if design is such a powerful tool, why aren't more practitioners working in corporations? If economic value increasingly derives from such intangibles as knowledge, inspiration, and creativity, why don't we hear the language of design echoing down the corridors?

Unfortunately, most business managers are deaf, dumb, and blind when it comes to the creative process. They learned their chops by rote, through a bounded tradition of spreadsheet-based theory. As one MBA joked, in his world, the language of design is a sound only dogs can hear.

For businesses to bottle the kind of experiences that rivet minds and run away with hearts, not just one time but over and over, they'll need to do more than hire designers. They'll need to be designers. They'll need to think like designers, feel like designers, work like designers. The narrow-gauge mindset of the past is insufficient for today's wicked problems. We can no longer play the music as written. Instead, we have to invent a whole new scale.

Tax cuts in the second stimulus package?

It would appear that the government may include some tax cuts for corporates and individuals in the second stimulus package.

The intention is, obviously, to leave more money in the pockets of individuals in an effort to stimulate consumption and, therefore, aggregate demand. This blog has advocated tax cuts here.

As for the corporates, any tax cut enables retained profits to be ploughed back for re-investment which, if done, is hoped to contribute to aggregate investment in an effective manner.

Further reduction in employee EPF contributions
It also appears that another policy to lower EPF contributions by employees will form part of the second stimulus package. I'm not sure about this. But, as with the previous EPF cut, so long as employees have the choice to decide whether to accept lower EPF contribution I will not take serious issue with it.

Having said that, I would encourage employees to reject lower EPF contributions. This is your retirement nest egg, people.

RM10 billion estimated
The size of the package is said to be about RM10 billion just as many of us have guessed. The super-sizing may come later if the first and second stimulus does not kick in the counter-cyclical effect.

Read the Edge Daily report on this here.

I would imagine that the little birdie that informed the media must have flown out from the MOF to prepare the public via some kite-flying exercise.

Let's wait for more specifics.

How the Mark-to-Market Rule affects Economic Recovery

I have written about the mark-to-market rule aka fair value accounting on several occasions here.

Economic policy-makers should pay heed to the view that the mark-to-market rule (for easy writing I dub it the "m2m rule") hinders economic recovery efforts. I take this view.

Basically, the m2m rule requires accountants in banks and corporations to review the value the assets of securitised assets and assets of corporations based on prevailing market prices.

How the m2m rule affects economic recovery efforts
One of the key factors that affect economic stimulus packages in Western counties, particularly, the U.S., has been the valuation of securitised assets in the books of banks. I have offered one radical solution of legislating to fix the valuations of toxic assets here. So far, no takers.

There are 2 areas where the m2m rule has an adverse effect on economic recovery efforts:

First, in a contracting economy banks that comply with the m2m rule will constantly be downgrading the valuation of securitised assets. When this is coupled with the borrower company's poor sales turnover and declining profits, it can only mean that when the risk management software kicks in, the banks will want the borrower to top-up the securitsation. Worse still, the banks may regard the loan as non-performing. The loan becomes an NPL.

To be fair, Bank Negara has agreed that Malaysian banks defer the m2m rule. I have forgotten how long the deferment is for.

Second, the m2m rule will impact publicly-listed companies ("PLCs") at Bursa Malaysia. If the time-table set by the Malaysian Accounting Standards Board ("MASB") is strictly adhered to, by Jan 1, 2010 the m2m rule will kick in for most key Malaysian business sectors. When this happens, there is a strong possibility that it will have an adverse effect on economic recovery efforts.

Why?

Accountants and the Bridge Over The River Kwai Syndrome
The global accounting fraternity has worked very hard since one of their greats, Arthur Andersen died an unnatural death in the wake of the Enron and Worldcom scandals.

The m2m rule is the fruition of hundreds and thousands of man-hours of committee- and sub-committee meetings by accounting standards boards throughout the world. Officially, the m2m rule is known globally as International Accounting Standard (IAS) 39 or, in Malaysia as Financial Reporting Standard (FRS) 139.

After such a Herculean effort, where the accounting fraternity even managed to rope in the U.S., to agree to the accounting standard the accounting fraternity will not yield easily to the deferment of the m2m rule.

As recently as in this month's issue of In the Black, the magazine for CPA Australia, its CEO Geoff Rankin wrote in defence of the m2m rule. In November last year, the ACCA had supported MASB's defence of the time-table for the m2m rule.

I call this the Bridge Over The River Kwai Syndrome. A case where, after so much effort being put into an endeavour, one cannot imagine changing or, re-directing or, defering the implementation of the end-product.

Where the m2m rule fails
My proposition is that the m2m rule only works when there is a stable economic environment. Where economies expand and contract in the ordinary course of cyclical movements, the m2m rule works quite well, I think.

The m2m rule is intended to ensure that all stakeholders of banks and corporations have accurate financial information in order to formulate their business plans and investment decisions.

The m2m rule fails when there is a very dire economic situation such as the one confronting the whole world.

Let's be frank. The m2m rule, to paraphrase the Jack Nicholson character in the movie As Good As It Gets, only describes the water when everyone is drowning. Geoff Rankin's analogy was that just as you can't blame the thermometer for the Australian heatwave, you can't blame the m2m rule for the economic crisis.

Is that accurate?

The nightmare scenario is that the m2m rule creates a self-fulfilling prophecy. It triggers off a pro-cyclical vicious cycle at a time when economic policy-makers are trying to create a counter-cyclical virtuous cycle through economic stimulus packages.

The dilemma is that accountants, being fearful of tortious and statutory liabilities, will adopt a conservative stance and refuse to exercise broader judgement in applying the m2m rule. The International Accounting Standards Board (IASB) has, in the wake of the U.S. fiasco, attempted to stress the importance of the use of judgement in applying the m2m rule by releasing guidance in October 2008 on how to determine fair value when markets are illiquid. But, such guidance ring hollow to accountants who would naturally prefer to exercise zero judgement i.e. take a very conservative view on fair valuation rather than to run the gauntlet of liabilities for having exercised broader judgement.

So, I say, please defer the implementation the the m2m rule until genuine economic recovery kicks in.

One final reminder, the MASB deadline for the full implementation of the m2m rule is Jan 1, 2010.

Designing challenges from history

This is another short post just to demonstrate the industrial design challenge that is squarely within Malaysian capabilities.

A vessel found in 700 AD, several centuries before the Vikings ruled Norway, the Oseberg ship from approximately 800 AD and the knarr from around year 1000 AD all have one thing in common; their rounded bows were the inspiration for Ulstein’s latest design, the x-bow container ship.

This design is not new, launched last year the Bourbon Orca was the first vessel launched with Ulstein’s revolutionary bow design. Now the company is set to incorporate this design into a new class of short-sea shipping vessels.

The ULSTEIN AX104 Bourbon Orca, the first vessel with the ULSTEIN X-BOW , was appointed Ship of the Year 2006, and served to demonstrate how the Ulstein Group is turning visions into reality while also creating ship history.
However, the benefits of the bow are not restricted to offshore vessels, explains managing director in Ulstein Design Rolf Inge Roth. “The principle features of the ULSTEIN X-BOW® are as relevant for a number of merchant vessel applications as they have proven to be for offshore applications.”

Advantages of ULSTEIN X-BOW® :
• Higher transit speed in adverse weather conditions
• Reduced fuel consumption in head seas and following seas
• Reduced fuel consumption in ballast condition due to improved lightweight distribution
• Negligible slamming reducing the risk of damage to the vessel
• Lower pitch and heave accelerations, and enhanced protection of cargo areas reducing the risk of loss or damage of cargo
• Increased payload capacity for certain applications and configurations
“Particularly small and medium sized vessels engaged in regional trades are set to capitalize on the benefits offered by the http://gcaptain.com/maritime/blog/a-viking-ship-redesigned-for-modern-use/X-BOW®, and we are currently evaluating this feature for use on container feeder vessels, ro-ro vessels and certain general cargo vessels”

The pictures and passages are extracted from here.

As I said, what we Malaysians need to do, is to challenge ourselves to look beyond the obvious. In the above example, the Norwegian designer derived inspiration from the hull design of a Viking ship over a thousand years old.

I end by drawing your attention to the trademark ULSTEIN X-BOW® which means that the industrial design has been trademarked and, no doubt, patented. That is the value of intellectual property.

Malaysian educational institutions focusing on industrial designs need to encourage more young Malaysians to think outside the box.

Tired of bad news about the financial markets? Censor it

I just read an interesting report from The Economist about the attitude taken against negative media reports on the state of the economy and specific corporate entities in Taiwan and South Korea.

.
Picture Source: The Economist

I am aware that Malaysian corporates are often testy about negative news about themselves. But, I must say that I'm glad I'm not blogging in Taiwan or South Korea. If you want to know what I mean, read The Economist's report here.

The creativity of crowds

My first exposure to the idea of crowds was Elias Canetti's book, Crowds and Power. Although, as an undergraduate, I was fascinated by the enthusiasm of the left-leaning Politics 101 lecturer (replete with a woolly turtle-neck pullover), Canetti's study of crowd behaviour as it manifests itself in human activities ranging from mob violence to religious congregations and football fan behaviour in stadiums did not seem to have any resonance beyond intellectual curiosity.

But, of late, I have been very interested in a different type of crowd. A virtual crowd. A virtual crowd that has commercial possibilities.

In an post that I did some months ago, I highlighted a Time article on the phenomenon of crowdfunding which has helped charities and political activity (the greatest example being Barack Obama's presidential campaign). Certain political parties in Malaysia are probably cluey about this fundraising methodology.

Crowdsourcing

I was even more intrigued to read in Forbes about the phenomenon of crowdsourcing. I looked it up and here's what Wiki has to say about it:

Crowdsourcing is a neologism for the act of taking a task traditionally performed by an employee or contractor, and outsourcing it to an undefined, generally large group of people or community in the form of an open call. For example, the public may be invited to develop a new technology, carry out a design task (also known as community-based design and distributed participatory design), refine or carry out the steps of an algorithm, or help capture, systematize or analyze large amounts of data.

The term has become popular with business authors and journalists as shorthand for the trend of leveraging the mass collaboration enabled by Web 2.0 technologies to achieve business goals.

Crowdsourcing is a distributed problem-solving and production model. Problems are broadcast to an unknown group of solvers in the form of an open call for solutions. Users--also known as the crowd--typically form into online communities, and the crowd submits solutions. The crowd also sorts through the solutions, finding the best ones. These best solutions are then owned by the entity that broadcast the problem in the first place--the crowdsourcer--and the winning individuals in the crowd are sometimes rewarded. In some cases, this labor is well compensated, either monetarily, with prizes, or with recognition. In other cases, the only rewards may be kudos or intellectual satisfaction. Crowdsourcing may produce solutions from amateurs or volunteers working in their spare time, or from experts or small businesses which were unknown to the initiating organization.

Perceived benefits of crowdsourcing include:

• Problems can be explored at comparatively little cost, and often very quickly.
• Payment is by results.
• The organization can tap a wider range of talent than might be present in its own organization.

The difference between crowdsourcing and ordinary outsourcing is that a task or problem is outsourced to an undefined public rather than a specific other body. The difference between crowdsourcing and ordinary outsourcing is that open source production is a cooperative activity initiated and voluntarily undertaken by members of the public. In crowdsourcing the activity is initiated by a client and the work may be undertaken on an individual, as well as a group, basis.

CrowdSpring.com
The article I read in Forbes focuses on a company called CrowdSpring.com, which allows buyers to run competitions for company logos, Web sites, T-shirts and the like. For buyers of designs, that means more choice at a fraction of the cost of hiring designers.

For aspiring designers, it means a shot at stealing work from entrenched design firms.

This is a win-win proposition.

Applicability to Malaysia 

I see this as an opportunity. Malaysia has so many colourful communities. Our culture is so varied and colourful. The designs of batik, songket, wood carvings and dresses are wonderfully creative and intricate. 

What we need to do, is to replicate all this Malaysian creativity from the physical world into the virtual world.  

What we need are technopreneurial talents that can connect Malaysian cottage industries with the greater world of commerce by matching buyers with designers.

This can be done from the comfort of our homes. It has very low entry cost. All it needs are technopreneurs to provide the hosting and, creative Malaysians to present their works for each area of work.

Rather than me boring you further, click on the link to CrowdSpring.com and let me know what you think.

Dr M thinks RM28 billion stimulus is necessary

Dr M is reported to have suggested that an RM28 billion stimulus package is necessary. He also suggests that this large stimulus package can be funded from EPF's RM250 billion worth of savings.

Echoing what Ku Li had observed, Dr M said that any stimulus package needed to take into account the total economy. The package has to be selective and, the government should not merely dish out assistance to any sector alone.

He is quoted as having said that, "It is not a question of just giving out the money and suddenly the economy grows. You have to pick and choose what you do in order to really achieve some impact from the money that is being spent".

EPF as a lender to the government
Frankly, I'm comfortable if the government is the borrower of RM28 billion from EPF. Here are my reasons:

• First, the yield on the borrowing and repayment terms must be reasonable. It cannot be lop-sided. The government collects a lot of revenue. It is the most reliable borrower in the current economic climate.

• Second, detractors must not decry their EPF savings being put to work by the government. In the current economic climate, lending to the government is a damn sight better than to have EPF punt in Bursa Malaysia.

• Third, if we all regard Malaysia as being one big boat that we are all in and, if lending EPF money to the government will enable a concerted and targeted fiscal stimulus package to be implemented, we should support it. Such a move will create more liquidity in the economy. It will create more economic activity. This will restore business confidence. Aggregate investment by the private sector will rise again. Malaysians will be assured of jobs. Aggregate demand and household consumption will increase. The boat will be saved. We will be economically saved.

MGS @ 6% p.a yield
To keep it simple, the borrowing should be made via issuance of 5-year term MGS at an annual yield of 6%. This should allay any concerns by EPF stakeholders.

The current state of play: Malaysia is the 3rd most exposed economy in Asia
Credit Suisse, in its latest bulletin (alerted to me courtesy of the great walla), reckons that Malaysia is Asia’s most exposed economy to the global downturn after Hong Kong and Singapore.

E&E sector is looking worse by the day
Almost half of Malaysia's GDP is directly connected to the export market led by the electrical & electronics (E&E) sector. It is estimated that more than one-third of Malaysia's GDP is directly related to merchandise exports, which are heavily concentrated in E&E products that form 40% of the value of total exports.

Tourism?
The tourism sector contributes to 7% of the total value of GDP. This is the highest tourism component in any Asian economy outside of Japan.

Commodities export values down
Petroleum products and palm oil contributed to 10% of Malaysia's GDP last year. This is expected to fall to 5% of GDP in 2009.

Consumer and business sentiment near all time low
Based on MIER indicia, Malaysia's consumer and business sentiment dropped sharply in 4Q08 and continues to be deeply pessimistic.

Business sentiment is at its lowest since the index’s inception in 1987, while consumer confidence is also close to its lowest point. Similarly, retail trade, residential property, and employment indices all fell sharply in 4Q08.

Now, does anyone dispute the government lending RM28 billion from EPF?
Given the bleak picture painted above, the current economic trajectory is headed towards a contraction of negative 0.5% of GDP.

I think Dr M's call makes sense.

But, I worry about the specifics of where the stimulus should be directed.

We need a big picture strategy. I need to re-visit my previous posts under the label strategy to embellish the proposals that I made earlier. Heaven knows, Malaysia's economic managers could do with some help. But will they listen to bloggers?

Malaysia needs to do more, and do it faster, for the economy

The Malaysian Insider has an interesting op-ed piece under the same title:

The Prime Minister-in-waiting's job has just gotten harder. Fighting political fires over the weekend, Datuk Seri Najib Razak now needs to wrench his attention away to focus on the economy as Asia's outlook rapidly deteriorates.

The International Monetary Fund yesterday roughly halved its growth forecast for Asia to 2.7 per cent, on worsening expectations for China and South Korea. Just two months ago, it had expected Asia to post 4.9 per cent growth in 2009.

While Asia was not the epicentre of the current crisis, Asia "has been hit hard", said IMF managing director Dominique Strauss-Kahn. "A worse outcome cannot be ruled out," he said at a briefing in Washington.

His words should dash hopes that Asia would experience only a mild downturn. This, in turn, means Malaysia needs to do much more, and do it faster, to cushion the impact of the year ahead. More importantly, the government needs to lay important groundwork to hasten the recovery that the IMF expects to come in 2010.

So far, the government's track record has been disappointing.

Since the RM7 billion from its first stimulus package, announced in November, has yet to reach the ground, few expect much at this time from the second stimulus package which is to be unveiled this month.

Little else has been done other than glossing over bad news and assuring Malaysians that the country's financial sector is buffered from the global crisis.

Retrenchments appear to be gathering speed, as multinationals mull over three-day weeks. Malaysia's top trading partners — Singapore, Japan, the United States, China and South Korea which are destinations for 50 per cent of our exports — are in recession. A massive reality check is just around the corner.

The problem is the country has relied far too long on initiatives to boost public demand, through stimulus packages and in the past massive infrastructure investment, to get through times like these.

What the government should have been doing, and needs to start doing today, is implement policies that will unleash domestic demand. Domestic demand is household demand, and household demand is boosted when income improves, so measures like tax breaks and tax cuts will have the most immediate impact.

Read more of the piece here. 

Aggregate investment supersedes aggregate demand as an economic recovery factor

But, after you have read the piece, especially the part that deals with the purported importance of consumer spending, I implore you to read the criticism that blogger etheorist has made about household demand (i.e. consumer spending). etheorist, quite correctly, suggests that the real key to meeting Malaysia's current economic challenges is private investment. etheorist makes the important observation that aggregate investment in Malaysia has fallen quite seriously:

The job of the government today is indeed to stimulate the economy. Government deficit spending is helpful, but it is important for the government to re-establish private sector confidence in this economy as the place where fortunes can be made by those who choose to work hard. This is why there is constant flux in the election results - because the people cannot seem to be able to find politicians whom they can have confidence in in looking after their (the people's) basic welfare.

Read etheorist's seminal views here.

The Edge Daily also carries a follow-up report on Nazir Razak's comments on the Malaysian economic challenges (which was featured by me a few blog entries ago) in a piece entitled, Focus on strategies, not just stimulus.

Sergeants are better than Lieutenants

This is one of the messages that the government needs to send out as soon as possible.

Let us be clear about this. There will be no economic stimulus quick-fix that can reverse an economic downturn in Malaysia. All that an economic stimulus package can do is to soften the blow.

One of the key areas of Malaysia's economic policy that needs to be revamped is the low-cost centre approach to economic development and, to attract FDIs.

How do we do it?

Human resource development
How do we develop Malaysia's greatest resource i.e. it's citizens?

Vocational training
The answer is to allocate greater financial resources into vocational training institutions.

A lot of resources have been allocated to tertiary education. We even have a ministry devoted to it. It's called the Ministry of Higher Education. The results have not been encouraging. But, I'm not interested in this issue at the moment.

For the moment, my call is for a fiscal allocation directed towards vocational training in the following manner:

• The improvement of existing training programmes at existing vocational institutions.

• The creation of new training programmes especially in the area of:

- ICT

- Electronics

- Mechanics

- Industrial design

- Oil & gas technologies

- (whatever else that I have overlooked)

• Increasing the number of lecturers and trainers for these programmes by recalling retired Malaysians who have practical experience in relevant aspects of the vocational training programmes. Advertise these job vacancies. Retired, experienced Malaysians will respond.

• Subsidise the cost of these training courses.

• Subsidise the costs even more for applicants who have financial difficulties. Use a means test to determine eligibility.

Sergeants are better than lieutenants
This is one of the surest factor to successfully implement the Malaysian economic strategy to shift us from a low-cost centre to a higher cost, higher skills centre.

We know we cannot compete with Vietnam, Thailand or India as low-cost industrial centres.

And, if you have watched the TV series Combat from the 1960s (still showing sometimes on TV2 nowadays) you will know that the real work is done by Sergeant Saunders and Corporal Kirby. The Lieutenant comes in only once in a while.

This Combat example is a perfect analogy for vocational training for diplomas that creates Corporals and Sergeants that can do the job at the shop floor.

The Lieutenant's role are played by graduates from tertiary institutions with a lot of theory. They wear neck-ties and sit in air-conditioned offices. They push paper.

There's nothing wrong with that, of course. But, when real work needs to be done, it has to be the Malaysians with vocational training.

Ministries involved?
For good measure, the following Ministers need to get cracking on this proposal:

• Minister of Finance (either 1 or 2) - for the financial allocation and audit of use of funds; and

• Minister of Human Resources - to work with the vocational institutions and deployment of funds;
  

• Minister of International Trade and Industry - to identify the economic sectors that Malaysia is seeking to promote as part of the strategic shift from a low-cost centre to high-cost, high-skills centre.

Nazir Razak: Govt must show economic leadership

Okay, now it's no longer a case of some nondescript blogger making the call. Nazir Razak, the group chief executive of CIMB and younger brother of the First Minister of Finance, has sent a strong message to the government for the need of economic leadership beyond the fiscal stimulus and monetary measures announced so far. 

As reported in the Edge Daily:

He suggested five key strategies, including the review of the New Economic Policy (NEP), to help position Malaysia amidst the global economic slowdown which not only posed a major challenge for the country but also presented tremendous opportunities.

“The Malaysian government must show economic leadership beyond just orthodox fiscal stimulus and monetary measures, as major global economic dislocations and enforced reconstruction present not only severe challenges but also tremendous opportunities,” he told the press after the company's extraordinary general meeting here today.

Nazir said that while fiscal and monetary stimulus would provide a temporary boost to the economy, we need strategic and proactive leadership to advance Malaysia’s relative economic position in the new world order that will emerge from this crisis.

"In that context, when I talk about strategic leadership, the government should look at more than just signing a big cheque and reducing interest rates. They need to take the lead in terms of key strategic moves in this environment so that we advance Malaysia’s economic position," he said.

Apart from a review of the NEP, the other strategies he proposed included attracting talent, leveraging on the Middle East, China and India and encouraging cooperation between the academia, business and civil service.

As more established Malaysian personalities join in the public call, made initially by bloggers, for stronger economic leadership, the Federal Government and UMNO-BN cannot continue to maintain a business-as-usual attitude which can easily be misinterpreted as being ignorant or, in denial mode.

Either:

• Change the economic strategy now; or
  
• Change the Ministers in charge of the economy; or
  
• Change both.

It's the economy that matters most to Malaysians

A Merdeka Centre survey carried out between December 2008 and early January reveals that most Malaysian voters were concerned over economic related issues comprising:

• 22% who cited “unfavorable economic conditions”;

• 17% citing “rising cost of living”; and

• 4% who cited “unemployment”, respectively, as the most important issue or problem in the country today.

These concerns were followed by17% who cited ethnic related worries such as “racial inequality” (9%), “worsening ethnic relations” (6%) and “lack of unity among Malaysians” (2%).

Governance related concerns were the third most quoted response with 9% citing “corruption” and 1% citing ineffective/unconcerned government”.

WANTED: Politicians who can manage the economy

One clear inference from the survey is that any political leader who can demonstrate leadership mettle on the management of Malaysia's economic challenges is likely to be the most popular Malaysian leader.

Just to be even clearer, by "leadership mettle" I mean the ability to understand the economic challenges and the ability to produce policies and strategies to deal with the challenges in a manner that will enable the Malaysian economy to recover quickly.

Politicians who are content just to take potshots on economic policies without offering solutions do not qualify.

Politicians who are somnambulistic in managing the economy should be tucked into bed for long-term stasis.

At the moment, the ONLY Malaysian politician that seems to meet the criteria of having economic management "leadership mettle" is Tengku Razaleigh Hamzah.

Pin-point stimulus needed, not pork-barrel stimulus

The Malaysian government reckons that the fiscal deficit in 2009 will rise to 4.8% of GDP. But the ratings organisation, Fitch Ratings, reckon that the deficit will be about 5.7% in 2009 and, GET THIS, Fitch Ratings reckon that the deficit may increase to 7.4% of GDP in 2010.

These numbers shouldn't scare Malaysians. More than 90% of Malaysian debts are Ringgit-denominated. So the currency risk is minimal. Only 7% of Malaysian debts are foreign-currency denominated.

But, the thing to watch is how the additional RM10 billion stimulus package is to be executed because a poorly executed package will make the seriously high fiscal deficit a long-term economic burden that Malaysian taxpayers will have to bear. The long-term damage to the Malaysian economy will be serious.

The dubious effect of the first RM7 billion stimulus package
The first stimulus package of RM7 billion has a dubious application. As we know, the first stimulus package announced in November 2008 has been allocated mostly to infrastructure projects, which include:

• The building of low and medium-cost houses;

• The upgrading, repairing and maintenance of police stations and living quarters, and army camps and quarters;

• Minor projects like village roads, community halls and small bridges;

• Public amenities such as roads, schools and hospitals; and

• The building and upgrading of roads in rural areas, villages, as well as agriculture roads.

As MIER has correctly questioned, the first stimulus package benefits the construction sector, but what about the rest of the economy? What is the multiplier effect of the first package? How much leakage goes to foreign workers who liberally populate the construction sector?

Principles to observe for the second stimulus package
The second stimulus package, estimated at RM10 billion, has got to be better spent.

Najib will do well to note the cautionary advice generously dispensed by Tengku Razaleigh Hamzah:

22. The world recession is a critical opportunity for us to re-gear and re-tool the Malaysian economy because it is a challenge to take bold, imaginative measures. It lights the fire under our feet to make transformative improvements in governance and politics. It also demands that the government spend boldly on the right things, in the right way, to stimulate demand.

23. Two criteria for ‘the right things” would be those public investments with the widest multiplier effects, over the short and the longer term. Over the short term, there are often tradeoffs between impact on demand and on improved economic capacity. Over the long term, the two are the same. The “long term multiplier” is nothing less than the improved capacity of the entire system.

24. So we must think carefully about what we spend the “fiscal stimulus” on. There is no such thing as a free lunch. We will be going into deficit to finance this stimulus, so it can’t be about just spreading money around. So far there has been no impact from the stimulus package announced in November, nor was it clear what the economic thinking was behind that measure.

25. We don’t need another stimulus “package” of spending here and there. What we need, and what the crisis gives us a chance to implement, is a set of bold projects with an economic story behind them to help Malaysia make the developmental leap we have been missing. We have a once in a lifetime economic challenge. We must meet this challenge with a historic sense of purpose. That means, not with a “stimulus” consisting of ad hoc pork barrel expenditures but a set of public investment projects guided by a vision, designed around a strategy and governed with bullet-proof integrity.

To be reminded of the bold projects that Ku Li spoke of click here for his ASLI speech. Read, in particular, paragraphs 27 to 37.
___________________________
Postscript: It is always nice to know that one is in good company. Maybank Investment Bank (formerly known as Aseambankers) has written a piece entitled The second economic stimulus package should focus more on micro measures which appear to be consistent with the propositions put forward by this blog over the past months.

Perak political capers via Malaysiakini

This story must be told from the prism of Malaysiakini reports.

Advantage, UMNO-BN
First, it was advantage to UMNO and BN. Malaysiakini reported Prime Minister Abdullah Badawi's announcement that two PKR reps in Perak were joining UMNO-BN.

It appears that Behrang assemblyman Jamaluddin Mat Radzi, the Perak EXCO for Entrepreneur Development and Cooperatives Committee wishes to defect from PKR to UMNO. Likewise, the Changkat Jering assemblyman Mohd Osman Mohd Jailu, the EXCO for State Tourism and NGO Committee also wishes to do so.

Deuce, PKR-PR
Then, a return volley from PKR.

These two men appear to have signed undated resignation letters soon after the March 8 General Elections. This Malaysiakini report shows that Ngeh of DAP-Pakatan says the letters are valid. Malaysiakini also reports that the duo denies its validity.

Enter Election Commission?
The two resignation letters somehow found their way to the Perak State Assembly Speaker V. Sivakumar who (as reported in Malaysiakini) announced that both men had resigned and, later met with the state Election Commission director Ahmad Adli Abdullah at 8am on Monday and, officially submitted the “resignation letters” of the two assemblymen so that by-elections can be called for the two seats within 60 days.

Enter, legal barracudas?
Jamaludin has used the word "duress". This is a loaded legal expression. It means that the whole episode will end up in court.

But, don't hold your breath. The judicial process may turn out to be academic unless...

Unless, UMNO and BN legal eagles stand ready to get an injunction to prevent the Election Commission from proceeding with the by-elections. According to Malaysiakini Anwar Ibrahim is preparing for by-elections.

State constitutional crisis?
This will create a Perak state constitutional crisis on whether the two men are able to continue to serve as state assemblymen.

Dissolution option
That is why a scenario being canvassed by PKR (do DAP and PAS agree?) is whether the Perak State Assembly should be dissolved. Or, is it a scenario perpetrated by UMNO?

The most awful scenario
Perhaps the most awful scenario is the allegation made by PKR Ipoh Barat division head Fauzi Muda who, according to Malaysiakini, leveled the damning claim that Umno deputy president Najib Abdul Razak had tried last year to induce him to secure the crossover of two Pakatan Rakyat representatives in Perak.

MCPX

Fauzi said he had been offered a total of RM50 million for his services and to pay off those he managed to convince, but that he had remained non-committal.

While conceding that he has no concrete evidence to back his allegation, he nonetheless dared Najib - also the deputy premier and deputy head of ruling coalition Barisan Nasional - to deny the claim.

Read his Statutory Declaration here.
__________________________________

So, having made a cursory examination of all of the above, Malaysians will have to wonder how in Heaven's name does ANYONE have the bloody time to deal with economic management?

This time around the caper appears to have been started by BN-UMNO.

Tits with tats
I tend to share the view taken by Sakmongkol about this tit-for-tat caper and I can do no better can to quote him:

What UMNO shows is that, it is no different from Anwar Ibrahim in terms of values that it has. Despite its trumpeted remonstrations and pompous righteousness against party hopping, when push comes to shove, our acceptance of the two renegade PKR man proves that we are as opportunistic as Anwar Ibrahim. But then Anwar Ibrahim is just the other side of the coin, No? Of course we will rationalise our behaviour as pragmatism and doing what any ordinary party will do.

Thinking outside the box

The economic turmoil that the whole world is facing started with the bursting of the asset bubble in the U.S. 

The bursting of the asset bubble caused 2 things. First, banks experienced a diminution in value of security since the value of the property that secured the housing loan dropped. This led to a default in the housing loan. The immediate action banks had to take was a foreclosure action to recover the loan.

Second, CDOs and CDS derivative instruments that included such loans or mortgages in their basket of securities, had to be downgraded. This damaged the capital market in Wall Street and other financial capitals throughout the Western world.

The ripple effect tore through the real economy as bank liquidity began drying up. The ripple also pervaded the stock markets causing a collapse in share prices. Wealth began to shrink. More liquidity dried up.

Go back to the source. The root of the problem is the value of the assets or properties that formed the securitisation for banks.

This is the subject matter that the Troubled Asset Relief Program or TARP was supposed to address.

The problem is that the value of the so-called toxic assets cannot be pinned down. 

Any econometric or mathematical model depends upon certain fixed assumptions and certain variables. The valuation of assets is currently a major variable. This led Stephen Roach of Morgan Stanley to observe that the key thing is to find a way to value and dispose of the bad debts from the books of banks. He said, correctly, that the issue is how to develop a pricing mechanism for toxic assets.

In other words, how do we convert the valuation of toxic assets from a variable that keeps changing minute by minute and hour by hour and day by day into a fixed valuation? 

Fix that and TARP has a chance of working. And, if TARP works, the financial markets and capital markets will find the bottom earlier and economic recovery can be more easily mapped out. Not just for the U.S. but, for the rest of the world.

My suggestion, crazy as it sounds is, that the U.S. Congress should legislate the value of the toxic assets.

The free market pricing mechanism has failed in the sense that it is in an irrational free-fall mode with the bottom being nowhere in sight.

Times are so dire that even in the bastion of capitalism, meaning the U.S. there is now a widespread resignation that banks may need to be nationalised. 

So, why shouldn't the U.S. legislators consider a piece of legislation to fix the value of the toxic assets based on say, the values as at 1st January 2007? 

Forget about the mark-to-market rule for the next 3 years. FRS 139 or it's U.S. equivalent IAS 39, should be kept in deep-freeze for 3 years. That should be enough time for the U.S. and the whole world to pick up the pieces.   

For good measure, the legislation should have a sunset provision that the free market pricing mechanism will kick in for the toxic assets 3 years from the date of enactment of the legislation.

How about it, world?