Appetite for Destruction
By admin | October 7th, 2008 | Category: Lawyers' Articles |
by Khairul Anuar bin Shaharudin (Advocate & Solicitor)
I am not an economist, an analyst or even a lawyer who advice banks how to close million dollar transactions. I am not even a stock player, unless you call owning ASB as stock trading. I have never has an amount larger than RM1,000-00 in my wallet and no more than RM10,000-00 in my bank account at any one time, other than the time my personal loans had just been approved where it ballooned, albeit very momentarily to just below RM50,000-00. My firm just do real estate and banking with corporate work for SMEs once in a while. Oh, and intellectual property. We would like to be known more as a boutique firm, more than anything. Hell, my staff knows each of their files by heart…We would like to keep it that way (is this advertising? I am writing this for friends and clients)
Client’s money? Now that’s another matter. I only handle clients money with velvet gloves. Trust me, I’m a lawyer, after all….
The preamble above is a prelude to what I am going to madly raving about next. I am mad about the way people keep bailing big business, whether it was done in Malaysia ten years ago or just last week in good old Unites States of America. It was done by Presidents, Congresses, Parliaments, Prime Ministers and every institutions or power who holds the fate of millions in their hands. USD700 Billion. How much is that? Enough to buy a country? Enough to feed all the poor? Enough to make one rich in 40 lifetimes? It seems that its not even enough to save those who needs saving. They say they may need another USD500 Billion to really save the “Wall Street”. Come on…
Just one question “Why did they do it?”. Why did they give loans to those who didn’t deserves it and why did they then sell the loan many time over? Are they dumb? Are they daft? It seems that they are not. They are the smart ones and they are still the one laughing all the way to the banks after the bailout.
Didn’t all this starts with appetite? They say to the Main Street guy like me that you need to know your risk appetite before you invest your hard-earn money. This is for those who are new in investing. The basic idea is the higher the risk, the higher the return. Now, do you know what the economist say that can save Malaysia in these trying time? That’s right. Appetite again, but a different type of appetite called ‘local consumption’. You eat what you sow. Basically, those things that you have been exporting to other country, you eat it for yourself.
I never believe in what banks do, whether they are doing it under the banner of ‘Islamic banking’ or just plain banking although they are the one who help me be where I am today. Nobody ever lend someone something for free. Ask anyone. Ask Tony Fernandes or Tengku Zafrul who happens to be in my FB friends list. In Islam its called upah or wages when you got paid for what you do. There is musyarakah and mudarabah or profit sharing if you give money to someone to work it for you then you share the profit. They says that this are the basis of Islamic banking (though not all use it).
But what is work to a banker? Is it real economy? To me real economy is when I see sweat runs down someone’s forehead. A doctor who saves lives. A salesman who sells things. A restauranteur who cooks or manage a restaurant. A CEO who runs the business which deals in tradings. Those who receive payments for services well done. When money exchange hands for something I can see with my own eyes, then that is real economy. The financial system? Most of it deals in false economy. Do you even know where your money goes when you buy a financial stock? Economy made by a drop of a hat. Promises. Mostly undelivered.
I was brought up by a lady who owns lands and a landscaping business. She has gain 1000% of profit on lands that she bought 30 years ago. She sweated and toiled under the sun to ensure her sons, the three of us, has a bailout if we ever need one (our education was funded by my parents being Felda officers). We have received many bailouts. Some in forms of loans and some as gifts. However, one of my many arguments with my mom is the need for us to feel failure. My eldest brother is the bravest of the three of us. He has decided to NOT receive any more bailouts. He had tried his hand in IT business but failed and joined my mom for a while before falling out. Since 2005, he has been working with a company doing IT consultant. But, being my mom, she still gives it via the grandchildren.
I am NOT asking to fail. I am just saying that failure is needed to understand success. I and my partner starts in a 500 square feet office with us as our own staff. We were so broke that I slept in the office to cut my cost of living. I know how it felt to be down on your luck. I am still not that rich yet. I can’t afford to NOT go to office although I can come and go anytime I want.
My point is with all this rambling, bailout is for wimps. Let the big businesses fail, then let the economy fail. Then you build it back brick by brick and you will understand the need to be prudent in every business that you do. It does not solve any problem. It will create more problems. Banks are not gods. They are nothing without the person who really do real work. They are opportunist and always will be. Go back to the real economy. Where you have to work for every penny or every sen. Where the word ‘appetite’ refers to getting food on the table for your family.
What say you?
Not to deprecate any of your views on the real and ‘false’ economies, or the value of hard work and toil, but the recent wave of bailouts is not motivated by any desire to save these doyens of high finance. While it is undeniably true that they are a major cause of our current crises (most notably with the exotic debt instruments most Western banks took to issuing to clear loans off their books, leaving them in a position to issue more loans, to more and more unstable borrowers), the bailouts, whether by bank deposit guarantees, direct purchasing of stakes in companies or the illiquid asset-government bond swap deals favored by the American Federal Reserve Bank, are aimed at protecting one thing - the economy. The free and ready availability of credit has been a cornerstone of the 20 year bull market that we have just left behind. A steady supply of credit is essential to every aspect of business efficency, be it letters of credit used in contracts for goods, corporate overdraft facilities or even the issuance of commercial paper used by many companies to issue debt on their own terms. It is this supply of credit which was threatened by banks going under, for the remaining banks now feel the need to hoard as much cash as they can to ride out the tough times ahead. In doing so, they restrict the credit available to businesses, leading to such recent scenes such as ships lying half-constructed in South Korean shipyards due to the inability of shipmakers and buyers to obtain credit to purchase parts from suppliers. And it is this prospect of business not being able to access credit that has truly terrified the USA, formerly a champion of the free-market economy, into taking steps normally associated with Socialist/Communist/State-planned economy governments (ie. the bailouts, taking of direct stakes in companies, etc…). And while it is true that unscrupulous bankers offered opaque products which the common man was never going to be able to assess properly (even banks couldnt properly assess their exposure to risk, as witnessed by the wholesale wave of bank failures), it is also true that politicians and regulators lent a big helping hand to the development of the crisis by firstly encouraging banks to make loans to as many people as possible (creditworthiness of borrowers played second fiddle to the concept that everybody should be able to buy a home, no matter how poor or financially reprobate) and secondly, by failing to raise interest rates when it was clearly apparent that a bubble was forming in asset and commodity prices - bubbles, by their nature, are transient.
Anyway, just wanted to make the point that the bailout is not about saving bankers (though the financial industry and its assortment of lobbyists has undoubtedly had a hand in the drafting of current emergency bailouts), its about making sure the recession the world is entering (defined as 2 or more quarters of consecutive decline in GDP) does not balloon into a depression (where real GDP declines by over 10% per annum).