Sunday, February 20, 2011


In the old days, managing a country and personal economy is as simple as practicing common sense such as stay out of debt, don’t do anything if it doesn’t make sense, do you homework before signing a contract, etc.

That's the day when people still manage his own financial affair. My grandmother (deceased) is well remember amongst us for such a traits even though she was also mocked for her one bad decision namely keeping her money under the mattress.

She pretty much didn't trust the bank. "makan bunga haram!" she said which actually entirely true. "lebih selamat simpan bawah tilam" she preached, which is entirely false.

Whereas it is true that letting the bank store your money is safer than keeping it at home, it is still false to assume that it is safe to let the bank 'grow' your money for you. The banks today are not what they used to be. There are some services offered by the banks which you ought to decline. One of the banking's branches which you should not consider visiting is their investment bank.

Investment banking as an industry runs almost completely contrary to wealth creation since it thrives on fees rather that capital appreciation. Investment banking is about making DEALS (any deals) regardless of whether the deals make sense or benefit both parties (after all, the advisors to the deals, the investment bankers, get paid based on commission and free stock). Therefore, investment bankers has been known to pursue insane business practices and crazy deals that offer little benefit to the clients. Doing things quickly without actually considering the consequences is the many traits of investment banker which was revealed during the 1997 Asian Crisis and the 2008 US Financial Crisis.

Indeed, investment banking is one of the few industries on the planet in which you can get rich by creating debt for others to pay off. Goldman Sachs, as you know, is an investment bank. And the US 2008 Financial Crisis was riddled with former Goldman Sachs and other Wall Street execs.

What should worry us is the fact that 'investment banking' is such a norm nowadays that even the Malaysia governent and its GLC is practising their own 'investment banking'.

A case point example is our own Tabung Haji (LTH) which was set up in 1963 to help Muslims finance their haj pilgrimages to Mecca. Even its founder has stated that LTH had veered from its noble intentions and had become more like an investment bank. A LTH’s financial statements indicate that the pilgrim fund relies heavily on stock market gains for its profit and dividend payouts. LTH was famous for its acquisition of loss-making shipyard operator Ramunia Holdings Bhd in 2007 when Ramunia's shares were traded within the RM1.20-RM1.40 band. When speculation hovered that Ramunia is about to be acquired by MISC, LTH was busy mopping up Ramunia shares in the market. But the MISC take-over was called off and Ramunia saw its share price plunge. It currently trades only at around 40 sen a share.

The victim? Well after the Ramunia's tragedy, LTH announced the hike of pilgrimage costs shortly later.

Indeed, You can see the "investment banking" stamp everywhere amongst government's GLCs. The Employees Provident Fund is another case point on how we should never trust investment bankers to manage our hard earned cash.

In August 2006, Utusan Malaysia disclosed that RM600 millions of EPF's money had been lost due to the bad decisions by EPF's panels of investment managers (i.e investment bankers). According to the report, EPF's employed 42 manager to manage its investment but only 9 bring back profits.

To me this world financial crisis will repeated itself for one simple reason: we continue to perpetuate the VERY same business practices that created it in the first place. It’s like a junkie getting clean by continuing to use dope. It’s just that the white collar junkie always has super clever explanations and jargon to explain why this is a good idea. The reality is that it’s not. And it’s going to end very, very badly.

Author: I was inspired to write this article after reading Graham Summers's article 'What Happens When You Let Investment Bankers Run a Country?'. Needless to say, because Mr.Graham had done an excellent job in putting it out, most of the contents in this article is actually a plagiarism from his work. I just tweak a bit here and there to make it relevant to local scenario

Note: you may republished / distribute my article at will so long as you maintain its originality and a link to my blog, To make your life easy, you may Copy & Paste the article's raw html code below to your blog / website

1 comment: