The Concept of Islamic Banking

Below is my article for CIMA Sphere recently:

The Concept of Islamic Banking

by Ibrahim Sani

One of the many dilemmas faced by me, a young Islamic banking practitioner, is having to defend the concept of Islamic banking. Critics often argue (rather passionately) that there is no difference between Islamic and conventional banking. To them, the former is simply the latter in an Islamic costume. This is the most contentious issue with regards to Islamic banking and finance and whether the whole concept is in line altogether with Islam.

Critics often site the example that Islamic banking practises the use of interest rates (or profit rates in my sphere) in the calculations of the banks’ selling price. The only difference I have identified is that the rates (be it fixed or variable) is still couched in terms that are halal (or permissible by Shariah-Islamic Law). These are essentially ‘lending contracts’ with interest rates nonetheless and still an integral part of them. And conclude that this -in substance at least- is unIslamic.

On the other end, defenders of Islamic banking say that a halal transaction is mutually exclusive to haram, for if the deal is halal, therefore it is not haram. One seasoned Islamic banking practitioner has even told me that while all Riba’ (usury) is interest, not all interest is riba’. It is in this light that the defenders argue that Islamic banking contracts are halal even if the determination of the contract price involves interest rates calculations. What is important here is the ‘aqad’ or contractual terms of the transaction.

Critics argue that many Islamic banks (particularly in Malaysia) operate as a subsidiary of a larger, riba’-based conventional bank. And that the Shariah Advisory Committee who is usually comprised of scholars or experts in Fiqh (Islamic jurisprudence) are deemed as collaborators of these riba’-based banks disqualify themselves for being true propagators of Islam and Islam’s brand of financial solutions.

Defenders of Islamic banking on the other hand spend much attention and energy trying to attack the many deficiencies of riba’-based conventional banking. To put it simply, while the two factions disagree on a array of ideas, they do agree that riba’-based is ‘unfair’ and a viable financial solution must be presented to the consumers and widen their options. Why then are they focusing their efforts on attacking each other instead of trying to find a solution to solve or reduce the ’selling price’ of Islamic banking products.

Let’s use an example:

During the Holy Prophet’s (pbuh) time, divorce issues were dealt with using the inter mediation of a Qadi (or Judge). With the development and improvement of the Islamic Family Legal System, the need to have people who were well versed in both Islamic jurisprudence as well as the law of the land in that present time gave birth to a plethora of individuals who facilitated in the interpretation of the laws pertaining to family issues – in particular laws involving divorce amongst Muslim couples. This was the beginning of the formalization -and later on the development of- the Shariah courts.

Estranged Muslim couples who consult Shariah Lawyers in facilitating the smooth proceedings of their divorce are needed to comply with the divine Shariah Law and also needed to ensure that the parties exit their marriage with the ‘fairest’ deal possibly attained by both parties. Does this mean that divorce lawyers are ‘unIslamic’ and that their role in society is to destroy families or at the very least, ‘not in the spirit of Islam’? Of course not!

To fulfill a need, is to also alleviate a problem. If no problem exists, then there is no need to have this need. Consider this, if a Muslim couple is happily married, then they wouldn’t need to consult a divorce lawyer. Similarly, if an individual has no need to be in debt, or no intention to acquire wealth, then there isn’t a need to look for a Shariah based/compliant financial solution.

But for observant Muslims who are in need of financial assistance, either for personal or business objectives, then a financial solution that does not contradict with the values of the Holy Quran must be present.

Just as Shariah Lawyers specializing in divorce does not help solve the the increasing number of divorce rates in our society, Islamic banking is not a solution to the problems associated with the increasing debt ratio in our society. Islamic banking merely serves to alleviate the problems faced by Muslims who are in dire need of financial assistance and that the long term solution for the Muslim Ummah remains the same to create a financial environment where usury is not present.

To be pragmatic, the need to remove riba’ based finance is an obligation imposed on every Muslim, making it Fardh ‘Ain. And I believe that this should be the focus of our attention, and not to criticize each other.

note: this article appeared in CIMA sphere on Oct 16, 2009

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The eye doesn’t see what the mind doesn’t know

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Sponsorship for US non-degree program

MACEE is pleased to announce the 2010 Global Undergraduate Exchange Program.

The Global UGRAD program provides scholarships for one semester or one academic year of U.S. study in a non-degree program. This program is funded by U.S. Department of State. The goal of this program is to provide a diverse group of emerging student leaders, from non-elite and under-represented groups with a substantive exchange experience at a U.S. College or University.

Successful applicants can expect an in-depth exposure to U.S. society, culture and academic institutions by engaging in substantive academic exchanges at colleges and universities across the country.

All Global UGRAD program participants will be enrolled full-time in undergraduate course work chosen from the host institutions existing curriculum to allow students ample opportunity for substantive interaction with U.S. academic and classroom culture. Courses on topics including academic research and writing, critical thinking, time management, note-taking and studying for and taking tests will be offered. Participants will live on-campus with American peers.

Students will be provided with opportunities to participate in up to ten hours of community service activities per semester. Additionally, an internship component will be required for all academic-year participants during the academic component of the program. Internships will be related to each participant’s field of study and/or career plans.

ELIGIBILITY

Eligible students need to be currently enrolled and have completed at least one year of undergraduate study by the time their program begins. Participants must also have at least one term of study remaining when they complete the program. Participants should also be 24 years or younger at the time of application.

TO APPLY

Please complete the application form attached and ensure that the application package reaches us by November 30, 2009. The completed application package should include the application form, academic transcripts, letters of reference, and TOEFL score report. For more information, please Email to Ms. Kalis at kalis[at]macee.org.my Application forms can also be downloaded from here. All applications should be submitted to: MACEE Global UGrad Program 18th Floor, Menara Yayasan Tun Razak 200 Jalan Bukit Bintang 55100 Kuala Lumpur

P1 w1max prelim review

I’ve used my P1 w1max for a grand total of 9 days now, and this is what I have gathered:

1. They weren’t lying about the download speed. I did an internet speed check, and true to their word, the d/load speed was above 1.2mb/s as subscribed by me.
2. They didn’t tell me anything about the upload speed. And upon purchase, I didn’t even bother to ask. And now I pay the price. The upload speed was 70kb (0.07mb/s). CRAP!
3. I can’t use it at home. Its outside the range. During the coverage test when I was purchasing, my house was on the borderline of coverage but the sellers were adamant that even though it is at borderline, I can still get reception (drawing the analogy of a starbucks wifi, I can still get wifi even outside starbucks)

In conclusion, they weren’t lying, and I wasn’t prudent enough. Having said that, it is quite fast, and I would recommend consumers to try it out.

Oh, another sticky point to wonder, are you willing to stay on contract for 24 months?

On the Nobel Prize Economics Category

Three things
 
One) A quick trivia on the Winner of the Noble Prize (Economics Category): Elinor Ostrom (1 of 2 winners, the other being Oliver Williamson)
 
The Nobel is for Economic Sciences, but Ostrom is a professor in Political Science.
B.A. (Honors) Political Science UCLA 1954,
M.A. Pol Sci UCLA 1962,
Ph.D. Pol Sci, UCLA 1965.
Economists all around seem happy she argued convincingly (to some) on the concepts of Institutional Economics (google this term guys!) but is the Prize for Economics or is it an award for the outstanding contributions in the field of economics?
Two) Anyway, to help out those who want to rebut Ostrom’s work (as those who support it are plenty in the cybersphere), here’s my suggestion:
 
That Ostrom argues that people create their (often local) institutional arrangements to deal with the common pool of resources. It is empirically based (mainly) on case studies, but by and large quite relevant when discussing how to develop mechanisms and rules to create new economic infrastructures.
 
However:
 
What several cases here show is that technological innovation can entirely break institutional arrangements around common pool resources that have functioned over hundreds of years.
 
To prove this argument, use these examples:
 
1) Of the strong improvements in fishing where modernization of trawlers and boats allowed fishermen to go further away from their base and therefore dismantled historical regimes over where to fish. Coupled to this, other fishermen can observe their behaviour and outclass each other.
 
2) Of the strong improvements in agriculture where farmers tend to multiply their harvest by innovative and effective farming methods (remember the Japanese taught us Malayans how to plant rice twice a year during WW2?) and this breaks down the historical regimes over what to plant and when? Again, other farmers observe and again try to outclass each other in pursuit of competition.
 
Local administration of common pool resources can be torn down via other means and not just technological innovation. The thing is, if we want to argue which method is the best until the moon freezes over, instead of working with one method in the most effective manner, then we’ll never solve world hunger.
 
 
Three) That is why Dhaka born-Indian fellow Nobel Prize winner, Amartya Sen won the Prize because he analysed HOW TO solve world problems via his work “Welfare economics: solving famine, human development theory, poverty, gender inequality” using various methods available at present instead of developing a new method to work with.
 
There’s two ways to solving a problem: use existing methods (as proposed by Sen), or establish a new pecking order (as propagated by Ostrom). In fact, the economics category winners tend to contradict themselves through their work more often than in other categories.
 
A Nobel recipient once said on the rostrum that ‘he is delighted to win the award and that he is humbled by the recognition’. However, he pointed out that Economics is the only category in the Nobel Prize that you can win by discussing the exact opposite (and therefore contradict) previous winners. Clearly, economics is not for the faint hearted.

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The eye doesn’t see what the mind doesn’t know

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Professional Guidance For Students Applying To Top Universities This Year

This piece is written by Nat, a Harvard Malaysian Alumni. He is offering this service to fellow Malaysians who are thinking of applying to top universities (Yale, Harvard, Cambridge, Oxford etc). I have known him to help a few Malaysians get into top unis, so if any of you are interested, contact him to find out more on how he can help.
 
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This post is also a little overdue -

Some weeks/months ago, I started a new venture of sorts (having ended my 2nd attempt to be a banker recently). I think the time is now right to describe it.

I am currently assisting on a professional basis students who are aiming to apply to top universities at the end of this year (a job which is turning out to be quite fun).

I specialise in helping students intending to attend top American schools formulate an overall application that most comprehensively reflects their very best qualities. (Assistance is readily available for any student applying anywhere that requires an essay and/or an interview).

I work with all aspects of the applications and focus particularly on essays and SAT preparation, two important factors that can still be worked on significantly between now and deadlines in December.

The overall goal is to help students understand what top schools are looking for in applicants, and how to craft an application that displays those qualities of a student that will most likely result in acceptance.

I draw on both my experiences with Harvard, both as an undergraduate and from my two years as an alumni admissions interviewer.

Besides doing this for a living, I am motivated largely by my firm belief that many more talented Malaysian students could gain admittance into some of the best schools in the world with just a little more assistance and guidance. As in so many other fields, I feel Malaysia tragically underperforms in relation to its true potential.

I think I have also adopted Chen Chow’s goal of soon having more Malaysian students admitted into top tier schools than Singapore

So, if you know of any students planning to apply this year (especially to top American schools) and might be interested in such a service, please feel free to have them get in touch with me (nat[at]renyi.net) for further details.

There’s not a whole lot of time left this year (I have longer term ideas for next year, but that’s another story), but there’s still enough to make a difference I feel.

My next class where people are welcome to sit in and sample the experience will be in Taman Tun this coming Monday, the 14th 19th of October. I also currently run classes in Shah Alam and Kajang.

Looking forward to hearing from interested students

Partial review of SuperFreakonomics

Leafing through the ebook (sorry, the paperback haven’t reached our shores yet), I can’t help but notice that Dubner and Levitt grossly misinterpret (even misrepresent) the research of others. I am not disputing their matter, I am simply disputing their representation of other peoples work.
 
The chapter starts with the ‘global cooling’ article and claims that 30 years ago a scientific agreement was reached that the planet was cooling, as opposed to contemporary understanding that the planet is actually warming up.
 
I think they are wrong.
 
Today, a whole suite of climate research programs being researched (many with the backing of tertiary institutions and governments and MNC’s) includes a platitude of scientists and many peer to peer reviews. These researches agrees that global warming is real, and that the cause is human. To the sceptics, you can discredit this study as a big scam, as I did with my earth hour email preceding this.
 
As I understand it, in the 70’s, a few scientists who had a cooling hypothesis conducted that study (notice the plurality) and that these scientists, coupled with media frenzy in support of their theory kept this myth going. A website (http://www.realclimate.org/index.php/archives/2005/01/the-global-cooling-myth/) debunks this myth. Quite isolated study actually.
 
The book argues further:
 
Do the future benefits from cutting emissions outweigh the costs of doing so? Or are we better off waiting to cut emissions later or even perhaps, polluting at will, and just learning to live in a hotter world? The economist Martin Weitzman analyzed the best available climate models and concluded that the future holds a 5 percent chance of a terrible-case scenario.
Haha.
Weitzman’s paper (http://www.economics.harvard.edu/faculty/weitzman/files/REStatModeling.pdf) says exactly the opposite of what superfreakonomics is trying to prove:
 
The conventional economic advice of spending modestly on the abatement now but gradually ramping up expenditures over time is an extreme lower bound on what is reasonable rather than a best estimate of what is reasonable.
 
The correlation of importance in representing correctly what other peoples work/action and the credibility of your own is very much related. Freakonomics was nice, superfreakonomics, (at least in the climate chapter) seems to discredit themselves.

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A bull who can’t find a cow

No, the title is not a sarcasm. Bob the bull killed 2 cows already in the process of him wanting to mate. Just look at the stones of this fella:

foot long bag

It was reported that “I tried to get him to mate twice. Both times, the cows died because their backs broke when he mounted them,” said owner Juharani Jafaar.

Aha, cow-killer bull, good luck in your future endeavours.

Read the full story now.

 

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The eye doesn’t see what the mind doesn’t know

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The copyrighting of culture

This post was inspired by Farish Noor and the events in Indonesia.

Indonesia’s right winged parties (among others) are presently leading the charge of conducting anti-malaysian campaigns. It is quite disturbing to report that the ‘aggrieved members of the public’ in Indonesia are now burning Malaysia’s flags, writing negative reports in the press and also raising anti-malaysian sentiments in their parliament.

Though it is important to note that the ‘preman’ or gangster tactics of Indonesian politics is not new, what bothers me is that the issues raised this time around are about how Malaysia is ‘pirating’ their culture. The Bali dance and the costume that goes along with it, the ‘rasa sayang’ song, and many other cultural things that is predominantly ‘Indonesian’ are now passed off as truly Malaysian.

I agree, that while these signature cultural behaviours originated from Indonesia, one must remember that before the country ‘Indonesia’, ‘Malaysia’ or any ASEAN countries today came into existence, Southeast Asia was an open space where people moved with fluidity and ease. They shared a common Pan-Southeast Asian culture that was inclusive rather than exclusive. Indonesia’s rightful place in history is the main player in allowing a greater inter-cultural dialogue and sharing to take place.

The migration of Indonesians to other parts of Southeast Asia (particularly to Malaysia) is also something that must not be disregarded. I am half minangkabau, the clan that is predominantly living in Sumatra, Indonesia and also Negri Sembilan, Malaysia. If it carries any worth, my culture is deeply rooted to Indonesian soil. The practise of Minangkabau’s cultural law -adat pepatih- is still upheld in my hometown. And that my granddad was a former undang that appoints the ruler of Negri Sembilan. So does this mean that while my clan practised these rights (which are rightfully theirs), they are also pirating ‘Indonesian’ culture and therefore we can’t pratise them?

Ridiculous isn’t it?

The issue I am raising is that while you can copyright plenty of things, culture is something different altogether. Origination, tangibility, evolution, and practitioners of culture are something that is hard to determine. How can one say that this culture is theirs or that culture is theirs when other people from other areas are also practicing it simultaneously? To say that you ‘own’ a particular culture is as ridiculous as saying that rice belongs uniquely to the Chinese, and steaks belong to Europeans. And that if we want to consume such meals, we must pay dues to the rightful owner.

Cultural identity that is ‘genuine’ to one party/country is hard to identify. It is true that the ASSOCIATION of culture is easy to pin point, but to say where it originated from, and how it has evolved with time is not only difficult to do but is also an unfair imposition placed upon practitioners today.

The old Indonesia was never linked to such narrow nationalism or ethnic-racial superiority. History teaches us that great nations emerge through cooperation with others, and not through belligerence and bullying.

But being the political skeptic that I am, Indonesians just want to be riled up and since they have no issues at hand to be angry about, they just picked on Malaysians. Pretty convenient seeing that the ‘right-of-reply’ doesn’t need to be honoured.

[Post was written while I antagonizingly wait for the upper management to approve my paper for a new product which I feel is really good for the market. I hope my bosses presents it well...]

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The eye doesn’t see what the mind doesn’t know

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Eid Mubarak!

Salams to all, especially to Muslims. May you have a fantastic and joyous one too. Forgive my errors and start anew.

Selamat Hari Raya, Maaf zahir dan juga batin.

Nazir Razak interview

One investment guru listed him as top 10 Malaysian CEO’s in the last 50 years. Quite a modest estimate considering his accomplishments. Indeed CIMB is a force to be reckoned with. Below is Nazir’s interview with FinanceAsia. I’ve highlighted some of the key points of the interview.

 

Nazir (left) with CIMB Chairman (C) and the King (R)

What has been the key to CIMB’s positive financial performance over the past year?
I think the performance has been pretty consistent with the rest of Malaysian banks. This is fairly surprising to some people, as we have a fairly large business involving capital markets and indeed we are the most active in the global financial markets. We were able to achieve this in part because in 2008, the turnaround of our consumer banking business actually came through and therefore that was able to offset the 35% decline that we saw in our capital markets business. At the same time, we took rather big steps with regard to our counterparty risk positions and also managed our liquidity very prudently and so this helped insulate the firm from many of the global shocks.

What was the most challenging decision you faced during that period?
Actually, the most challenging decision I faced was whether to proceed with the acquisitions we had embarked on during that period. If you looked around in the region and elsewhere at the time, people were reneging on deals left, right and centre. And there were times when some people thought that finance was going to fall off the cliff. So it was quite hairy as we had M$5 billion ($1.4 billion) worth of acquisitions on the plate. We had to look at it all very carefully, steady ourselves and believe in our view, which is that this is for the long term and we can still create value even though valuations were off, relatively speaking.

What was the original motivation behind the strategy of acquiring more banks and becoming a regional player?
In the early part of 2004 we were a liquid, Malaysian investment bank that had 30%-40% market share, and when we looked ahead we were wondering where to go to grow? So we decided we had to look around regionally. And then we made this rather dramatic acquisition of GK Goh. Then we started looking around even more in the region and quickly we realised we were not going to get very far without a bigger balance sheet. At the same time, I looked at the way accounting was going — mark-to-market accounting, etcetera — where accountants lost their prudence and basically decided to go with anything that smoothed out earnings. That made it very difficult to be a listed pure investment bank. And the third thing that came into play was a convergence of interests. The GRC [governance, risk management and compliance] reform in Malaysia was just beginning, and the new Khazanah [the investment holding arm of the government] mandate came into play — they were encouraging companies to re-energise themselves [and merge]. So we had a sister bank, Bumiputra Commerce Bank, that was in dire straits. There was a convergence of interests. The holding company of BCB hired McKinsey and asked them what to do. And when they came to me and asked me what I thought, I said to them, ‘Look, for the first time as consultants you are actually going to get a solution. This is the solution. We merge the investment bank and the commercial bank and I will run it.‘ In the past, there had been overtures for me to just cross over and go run the commercial bank but I thought that lacked scale. The best thing to do was to merge the two entities, to merge the people. And all that came together in 2005. From a larger perspective this was also about economies of scale. I think a commercial bank needs a regional-level scale. We feel the right position for us is to be between mindlessly global and hopelessly local. And I think we’ve found that position.

How difficult is it to manage the transition from being a Malaysian bank to a regional player?
In some ways it is actually easier for us. Think about it — is it easier for me to go to Indonesia or for a global bank to go to Indonesia? And in terms of solutions that we offer, do I understand the requirements of say the development of a rupiah-bond market better than a global bank, given the Malaysian experience in the region? I do. You must also remember that when we go into these markets we try very hard to make sure that it is not just CIMB, but rather it is a combination of CIMB and a local franchise coming together. As a result, people see us as local. If you go to Indonesia they see us as the old Bank Niaga franchise plus CIMB. If you go to Thailand they see us as the old Bank Thai guys plus CIMB. And even in Singapore they see us as the old GK Goh franchise plus us. In a way, we want to be seen as a local brand.

I do remember when you were making some of those early acquisitions a lot of people said: ‘This isn’t going to work’. Were your investors among those critics or were they on board from the beginning?
They weren’t all onboard. When the group first entered Indonesia in 2002 the stock got panned and we lost about 25% in value when we announced the acquisition of Bank Niaga. Keep in mind this was at a time when some people thought Indonesia was in bad shape. We were the first — and only — people who bid for Bank Niaga. At the time the feeling was: ‘Why are you going into Indonesia? Do you know what you’re getting into?’ So on and so forth… But since then we have proven that we can do business in Indonesia, and indeed in general, that we can do business abroad. But you know we have been very careful about winning investor confidence. One of the things we do is that every time we do a transaction we take investors through, in quite a lot of detail, every step of what we plan to do and why we think this is a good transaction. We actually show the books and explain the synergies.

What’s the importance of Asean as a region and how has that changed with China’s growing economic and political power?
I think, in many respects, we are a microcosm of what Asean is all about. I think the individual Southeast Asian countries on their own will struggle unless they come together as an asset class and as an economy. I see a lot of upside, specifically with intra-Southeast Asian trade and travel, if we come together. So we have to come together from the external perspective, if you like, because when investors look across their options they need the size and potential of a 600 million population investment choice. And then you have China. Asean has a lot to offer in the new global landscape given our proximity and connections to China. And I think we are very comfortable with that point. When [Ming Dynasty admiral] Cheng Ho came to Malaysia he dropped off a princess for our royalty to marry in view of building relationships. When the Portuguese came we got invaded. We prefer the Chinese approach.

What is CIMB’s strategy in China? I know you already have a presence there.
I think it’s going to be very step-by-step. We see ourselves first as a regional bank, but you have to have some operations in China. We have to facilitate our companies that are investing in and doing business with China. And the ability to do that is strengthened when you have some presence in China. So our first step, is a very tentative step, it is a small investment in a bank in Yingkou [in Northern China]. First we will see how we do and then we will go back to our shareholders and let them know how we want to move forward longer-term.

There is a view that Malaysia is still overbanked. As banking sector libereralisation opens Asean markets to foreign rivals, how well placed is CIMB to compete?
We’ve seen different stages of liberalisation over the years. If you play it right, liberalisation is always an opportunity for stronger banks to become even stronger. When we were an investment bank we saw the liberalisation of that industry actually strengthened us, while the smaller, more marginal players struggled to survive. I think in [commercial] banking it won’t be dissimilar, I don’t disagree that we are overbanked. I don’t know what the right number [of banks] is, perhaps five or six, rather than the nine today. For us, our strategy is to become very regional so I don’t think we’re going to play a big part in any consolidation.

How important, longer term, is investment banking to CIMB group?
You know we are very strong believers, despite what some people say today about the concept, in the universal banking model. I think there are very strong synergies between capital markets, treasury and retail. At the heart of the franchise is just this — this model, which is very powerful. But it is very tough to manage. From the beginning I’ve always said it’s all about the ability to manage both traders and tellers in one organisation. Can you get them to talk together and work together? In that regard, we think it is very important to be strong in both areas.

What has to happen, or at what point do you think you will have achieved your vision of CIMB?
In 1996 we had a clear vision of what we wanted to be. We announced a mission statement that we wanted to be the No. 1 investment bank in Malaysia. In many respects that was achieved and that is why we have had to move on. Now, that vision statement is to lead in regional universal banking in Southeast Asia. We are far from it. To be there, we would have to be really seen, in terms of earnings, in terms of customers’ attitude, in terms of shareholder composition, as a truly regional bank. Today, yes, we have the best regional platform but we are still predominantly a Malaysian bank. The transformation will take several years, but it will happen. I am on the record as having said that by 2015 Indonesia will make up a bigger component of our business than Malaysia. But we also want to be seen — be it by the international investor or the Thais or the Filipinos — as a truly Southeast Asian franchise.

The global banks have been badly shaken by the financial crisis, but Asia’s banks have been relatively unscathed. Was this a result of good luck or good judgment, or both?
I don’t know whether you describe it as luck or judgment but a lot of it is because Malaysian banks and regulators learnt very hard lessons during the Asian financial crisis. I know some people say we caused this current crisis because we all started saving like hell — but if you look at the way we are regulated we are all clearly operating based on a very strong memory of what happened. And today, I don’t think a couple of weeks can go by without Bank Negara speaking to Bank of Thailand or Bank Indonesia about CIMB — and I think years go by without the Fed speaking to the state regulators in Europe.

We have seen the consequences of poor oversight and regulation of the financial services industry in the developed market. What lessons do you think this current financial crisis presents for banking industry reform in Asia?
If the global financial crisis had happened say five years later, the damage in Asia would have been worse. I think it is for us, at the very least a sanity check. For the world, it is forcing a very hard look at finding out what is the right way of banking. But one of the difficulties is, we obviously have to agree on what were the causes of the crisis and move on from there. Yes, there were causes that were outside banking per se, but there has also been under-regulation of global banking. There has been the issue of globalised networks that are governed by a wide variety of domestic and local regulation. That doesn’t work. But yet, can anyone really see a global regulator? How do we deal with this? But it’s absolutely required that we do deal with this. If you look at the leverage or arbitrage that was going on, it was incredible. I can’t for the life of me understand how banks were 50 to 60 times leveraged. But they were able to do it because they were regulated in one country and leveraged in other markets and their primary regulator didn’t know about it and couldn’t see it quite clearly. All this has to be dealt with, otherwise this crisis will happen again.

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The eye doesn’t see what the mind doesn’t know

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Kota Damansara residents against Carrefour project

Very near my residential area, about a hundred Kota Damansara folks staged a protest next to the construction site for Carrefour hypermarket yesterday. They have been campaigning against the project in their area since November 2007.

This is the latest protest against the project. In April 2008, about 400 residents staged a similar protest.

They fear that the hypermarket, located just next to the primary school, would lead to congestion in the neighbourhood, sound pollution, and more traffic being diverted to the entrance to the school, thus endangering the safety of pupils and disrupting their learning environment.

A spokesperson said they now felt compelled to take the matter to Court. The residents’ associations of Gugusan Dedap and D’Villa Avenue, the parents-teachers association of the school and a resident (who was not served with the Borang A Notice by MBPJ) filed a legal suit in the Shah Alam High Court against MBPJ and the Selangor State Government on 20 March, 2009. They are seeking a declaration that the approval granted by the town council and the project is illegal and contains procedural impropriety and is therefore invalid. They are also hoping to obtain a ruling that the lifting of a stop work order was illegal and void and an injunction to restrain the council from allowing the project.

The residents are claiming that the council had overlook a house at 2 Jalan Kenyalang 11/6G, which lies within the 66 feet ruling when serving notices to neighbouring properties. They also claim that the council had failed to abide by the prescribed period of 21 days as stated in the Borang A Notice when it approved the planning permission on 24 September 2007 (before the expiry of the 21-day period).

Community representatives are also planning to lobby Carrefour in France to find out if the project is in line with the business group’s corporate social responsibility practices.

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Does t4tbh contain inconsistencies?

A Malaysia Kini Article says so. Nat Tan of jelas dot info explains further. Regardless, I am marvelling at the power of press freedom and wish to highlight the need to not violate the freedom of expression.

Mahathir Mohamad in his recent posting talked about how to shut your enemies up via legal means (ie sub-judice).

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t4tbh dot blogspot

Truth 4 Teoh Beng Hock. It’s been a week since Teoh Beng Hock fell to his death at a building in Shah Alam where he had just been questioned for 11 hours by the MACC. The finger-pointing hasn’t stopped, even after the Cabinet has ordered an Inquest and a Royal Commission of Inquiry to find out the truth of the tragedy. Sometimes you wonder if it’s justice they are really interested in.

All sorts of people have started all kinds of cyber threads on the death of the DAP political aide but this one, t4tbh.blogspot.com, which was started on Thursday by an anonymous person/group, is bound to draw the interest of many parties. The blog is focused not on the tragedy but on the investigation purportedly being conducted by the MACC at the time of Teoh’s death.

I was alerted of the blog early this morning and I’ve not been able to verify what I’ve just read, but 2 things are immediately obvious: 1. that the blog is politically-motivated, and 2. that it contains very serious allegations of corrupt practices in one party.

Truth 4 Teoh Beng Hock. It’s been a week since Teoh Beng Hock fell to his death at a building in Shah Alam where he had just been questioned for 11 hours by the MACC. The finger-pointing hasn’t stopped, even after the Cabinet has ordered an Inquest and a Royal Commission of Inquiry to find out the truth of the tragedy.

Sometimes you wonder if it’s justice they are really interested in.

All sorts of people have started all kinds of cyber threads on the death of the DAP political aide but this one, t4tbh.blogspot.com, which was started on Thursday by an anonymous person/group, is bound to draw the interest of many parties. The blog is focused not on the tragedy but on the investigation purportedly being conducted by the MACC at the time of Teoh’s death.

I was alerted of the blog through Rocky’s Bru’s blog just now and no one is able to verify what I’ve just read, but 2 things are immediately obvious:

1. that the blog is politically-motivated, and

2. that it contains very serious allegations of corrupt practices in one party.

Do Read the blog’s latest posting: The Modus Operandi of DAP in Selangor

*****

‘The eye does not see what the mind does not know’

23rd July – Anniversary for many things

Who’d've guessed that 23rd July is the anniversary for many things. Most notably:

• “The Little Mermaid’s” 20th anniversary
• The 4th anniversary of the Sharm-al-shiekh, Egypt bombing killing 88 people (one of them I knew)
• The 56th birthday of Malaysian PM, Dato’ Seri Najib Razak.

Happy Birthday Sir. Do reflect upon your accomplishments, as well as shortcomings in this auspicious day of yours.

Ooh, it’s also the:

• 21st anniversary of General Ne Win’s (Burmese wacko dictator) resignation after pro-democracy protests rocked the country.

*****

‘The eye does not see what the mind does not know’

The Star polls says only 17% use highways more than 80 times

I examined Malaysia’s new highway discount policy here and concluded that its not going to make much difference. The Star’s poll says 83% of road users won’t qualify for the discount, effectively qualifying my assertion in the previous posting (if you believe in online polls).

On the other hand, Mahathir carried his own poll here. Conclusion? Mahathir at odds with the decision of the government (Again!).

Other news, former PM Abdullah Badawi now says ISA should be repealed. This is funny, because during his time, he sacked his own minister (Zaid Ibrahim) when Zaid said the same thing.

What nonsense.

*****

‘The eye does not see what the mind does not know’

Oil Story: Shell, Exxon biggest income earners

Welcome back to my ‘oil story’ series.

Today I plan to cross examine the players in the oil industry. Remember the movie ‘there will be blood‘? A story about pioneering oil prospectors? I loved it. Assuming that was a true story, imagine what today’s oil companies have become compared to the pioneers in the business.

BBC reported that Forbes’ study show that Shell and Exxon are the worlds highest revenue makers in the world respectively. Cutting off Wal Mart at the top for the first time in years. Forbes said that 7 out of 10 biggest companies (in 2008) in the world are oil-producing companies, despite falling prices of the said commodity.

But then again I remain skeptical to the way Forbes conduct their study.

This was the same study that said in 2007, that Citibank was in Forbes 500 presumably because they had USD 2.5 trillion worth of assets. But because more than 90% of their assets are receivables in the form of credit, how much can they then convert these receivables into net assets? Are they really then worth that much? Look where they are now?

The same can be said about speculating oil companies’ net worth and estimating their revenues. Too many variables have to be factored in to calculate their financial performance prior to the companies publishing their audited annual financial reports.

The purpose of me writing this post is to drive in the point that oil companies making obscenely menacing profits might just be a mirage. And that the purpose of Forbes putting oil companies at the top of the pyramid is to probably quell the speculation that oil companies are not making enough.

If my reading is true, and if this study is well marketed, we might see a slight dip in oil prices.

p/s: assuming that is does dip, how then am I to prove that it is because of my reading into the situation? Ha!

*****

‘The eye doesn’t see what the mind doesn’t know’

For young Execs: Does EPF help us get enough money for retirement

I remember reading a book (whose author I no longer remember) about the concept of savings. He made a comparison between two investors.

Investor A starts saving small amounts when he is 25 years old. He stops investing upon reaching retirement age of 55 yo.

Investor B starts saving big amounts when he is 35 yo (10 years late). He also stops at 55 yo.

After factoring in inflation rates, fluctuating interest rates, etc. etc., it turns out that investor A has more savings than investor B even when investor A keeps away small amounts (as opposed to big amounts like investor B).

Moral of the story: start early when investing.

—–

A good article here reveals whether we will have enough money for retirement using the EPF structure. Key points include:

• We need to invest in other portfolios and not just rely on EPF solely.
• We need to change our spending habits when we retire.
• We need to clear all our debts before retiring. And,
• We need to get insurance (health, life etc) and also take up education funds for our kids.

The article calculates how much money we’ll have at 55 yo using parameters that the author placed.

It kinda looks scary because no matter how much you save today, it seems like we still need to be frugal when old age forces us to retire.

—–

Bottom line: Keep on investing. Plus find ways to obtain financial freedom.

*****

‘The eye does not see what the mind does not know’

Economic impact of 20% toll discount

Works Minister mentions about the 20% toll discount for highway users and how to claim here. Question is, what is the impact of it to a) Road users b) Highway operators c) Federal Government.

I know this is a localized issue here in Malaysia, but my presentation shall be in a way where in can be juxtaposed to other countries as well.

On Road Users:

• I do not believe that this discount will encourage traffic volume as users are unlikely to travel more to get the rebate.
• I do believe that businessmen and salesmen would benefit because of the already high usage of the highway, but it does not change traffic habits of road users.
• Companies won’t benefit because lorries are exempted from this policy. Evidence here.
• Remember, the discount applies only after the 80th time users go through toll checkpoints in a month. Simple maths would mean users must on average (not including saturdays and sundays) must use the highway at least 4 times a day. Quite unlikely if you ask me.

On Highway operators:

• Because of the marginal decrease of earnings for toll operators derived from this policy, toll operators won’t be losing much.
• And even if they are losing much from the rebates offered, the Fed Gov I think has to repay back the loss of earning because the two parties signed an agreement with some effect, addressing this issue.

On the Federal Government:

• Stalemate of positive yield in the above two stakeholders does not mean the same for the government, because contrary to statements given by government officials, this policy IS A POPULIST policy. Why?
• Because it offers marginal satisfaction for other stakeholders while the fed gov can continuously play this issue in media.

Do not assume that populist measures are BAD measures. It just simply means that the satisfaction derived does not match the hype that it is associated with.

I ask myself this question: Will I benefit from this policy? Nope. Can I think of ten of my friends that can benefit from this policy? I’m still thinking….

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‘The eye does not see what the mind does not know’

The Dunning-Kruger Effect

The “Dunning-Kruger Effect” is an example of a cognitive bias disorder.

It means that incompetent people often lack the ability to recognize their own incompetence. They suffer from illusory superiority, which means that not only do they reach erroneous conclusions, but they hold fast to them with great self-confidence. Their incompetence robs them to realize it, and so they rate their abilities as above average

The “Dunning-Kruger Effect” is an example of a cognitive bias disorder.

It means that incompetent people often lack the ability to recognize their own incompetence. They suffer from illusory superiority, which means that not only do they reach erroneous conclusions, but they hold fast to them with great self-confidence. Their incompetence robs them to realize it, and so they rate their abilities as above average.

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‘The eye doesn’t see what the mind doesn’t know’

Oil Story: speculation

This shall be the first of many postings in my ‘oil story’ series.

Oil, or rather the concept of it (ie: energy) has been my passion over the years. The human’s insatiable need to consume it, necessitates the need to produce more of it, hence establishes a whole system whereby careers, people, technology and even economies are modelled out of the oil cycle.

Oil is one of the reason war is waged. Oil is THE reason Economic Hit Men penetrates countries. Oil makes the world go round.

To juxtapose all this, is to talk about it. Gossiping about movie stars causes their ratings to soar/dip. The same can be said of gossiping about oil. Or, in other words, speculate about oil.

I have often been skeptical of claims that speculation was central to oil’s price rise, because from where I see it, the central tenet to speculative price rise -physical hoarding of oil inventory from market- was simply not there.

However, recent reports show that we have bloated oil inventories. Huge amounts of oil is contained in conventional storage and in offshore tankers. Despite all these, prices continue to climb steadily. Therefore:

I can assume that indeed, speculation has been driving oil prices up.

The signs are clear that large-scale speculation of oil is clearly visible and won’t let up. I remember talking to a senior manager in Shell Refinery (Asia Pacific) that the fair price of oil is about USD 40/- per barrel. Last time I checked, P of crude oil is hedged at USD 72.10 on June 30th, 2009.

Speculate all you want, price of oil rise steadily irrespective of the inventory levels we have.

What nonsense.

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‘The eye doesn’t see what the mind doesn’t know’