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Tuesday, September 2, 2014

Moderation, Freedom, Democracy Versus Darkening Horizons?

First off I agree with the Police arresting those PPS vigilantes in Penang. The Police will also take action against the PAS' Amal Unit - made up of their Pemuda PAS.

Our country does not need any private armies or private security forces, voluntary or otherwise. Our Federal Constitution provides for only a Malaysian Army, Federal Police, Immigration and Customs. There is no provision for any sort of private security organisations to patrol the streets at their will. 

Adolph Hitler set up his private army called the Brownshirts. They later became the SS.

However there is a curious situation in the south of the peninsula. I hope the IGP will comment on that too.

There are other things happening in the county that are not so good.  Here is news from The Star :

Azmi Sharom 'shocked' over sedition charge

KUALA LUMPUR: Universiti Malaya law lecturer Azmi Sharom (pic) has denied allegations that he made seditious remarks pertaining to the 2009 Perak crisis, claiming that his statements were based on academic discourse.

"I was shocked to learn that I am being charged under the Sedition Act because of comments I made on the Perak crisis of 2009. My statements were based on established case law and democratic principles. They were given in my capacity as a law lecturer of 24 years standing," Azmi said after posting bail on Tuesday.

Here is a graphic from The Star:

An increasing number of Opposition politicians and pro  Opposition speakers are being charged under various criminal acts in the country. You can see the above report by The Star.

I fully agree that some of these people have been really silly with their comments. 

But these are just words. And look at their racial profile : 4 Malays, 2 Tamils, 1 Punjabi and 2 Chinese. Plus these folks are all on the same side. They are all Pakatan politicians, except Azmi Shahrom who is an undisguised Pakatan supporter.

It is not a crime to be a Pakatan supporter. No matter how much I disagree with these guys, we are a democracy. Freedom of speech, fredom of thought and expression should be guaranteed - no matter how stupid it is. 

And give them some slack lah - since when do these folks think before they speak? The mens rea (premeditated niat) is very lacking. Politicians shoot first then think later. 

A friend called (an UMNO guy and VVIP) and said that so many of these Sedition and other charges are a bit too much. 

Is it really necessary to charge so many of these people for just talking - no matter how silly they sounded? Plus, the Sedition Act is about to be abolished.  The Prime Minister said so. 
The Sedition Act is going to be replaced by a Harmony Act (which I strongly hope contains "anti racist" legislation as well. Kalau boleh bincanglah dengan public sekali).

This means that it is already accepted that the Sedition Act is way beyond shelf life already. Our country has matured and moved along. This is not 1948 or 1960.  So why charge people under the Sedition Act so late in the day - just before it is going to be abolished?

All the politicians are clowns. They are entertainers. I believe that nothing of what they say creates any real threat to the nation.

When Hadi did the amanat bullshit all those years ago, it created real problems in the country. Malays became divided, right into the masjids. Families became divided. Yet Dr Mahathir did not arrest Hadi or charge him in Court for sedition or disturbing the peace. Plus we had the ISA then. Nothing happened to Hadi Awang - despite him causing real havoc in the land. 

Compared to all that I feel what these jokers have said is quite tame, and lame.  

Somehow I feel that justice is not being served well here. 

Folks, this involves sedition and other touchy things, so please mind your comments.

Are we headed for a "Malay" Spring ?

Here is a fantastic piece of writing and analysis by V. Santhanam in the Rakyat Times. You can read the full article hereI have truncated the article for easy reading.

Unfortunately you cannot read such indepth analysis in the mainstream media, especially in the Malay Press like BH, Utusan or Harakah.

Please note that I have placed * at the beginning of some lines. Since this is Malaysia and everything is race, race and race the asterisks refer to race. I will comment more at the end.

Malaysian household debts at frightening levels
Tuesday, 02 September 2014 11:21
Written by V. Santhanam
*most scary issues facing the nation today is the rising household debt.

*To make ends meet, many families own two credit cards

household debt risen by 12.7% since 2008 because of owning two credit cards

many individuals have debt >RM20,000, apart from housing, car & recurring expenses

*average pay of RM4,000, individual has no savings 

Under normal circumstances, household debt is not something unnatural.

demands of the increasing cost of living finds them maxed out to the limit.

*little savings, one crisis or missed cheque away from dropping out of middle class

What gets households into such high debts in the first place?
*high rate of household indebtedness is because of easy credit 

 *combination of greed from both financial institutions and consumers.

Debt to GDP ratio widening

Are banks guilty of fulfilling their spending needs?

Malaysia's household debt-to-GDP ratio 83% as at March 2013

140% debt-to-household-income ratio,  means the amount owed is 1.4 times income. 
what is the tipping point that will send an economy over the edge to instability?

higher ratio, more likely borrower default risk.

Household debt risen 12.7% since 2008, GDP only grown less than half of that.

GDP growth 5.1% in 2012 vs household debt growth of 12%
*unsustainable if debt growth is faster than GDP growth.

liquidity in banking institutions increases loans they can make 

*if take-home pay used to pay debts, little money goes into economy, making it stagnant.

Household Sector Saving and Expenditure

*when debts overshadow savings, retirees unable to care for themselves.

*This is worrying for those earning less than RM 3000 a month.

*Bank Negara '11 & '12 Reports,
*borrowings in this group 4.4 to 9.6 times their annual income 

*compared to 2.3 to 3.3 times for upper-middle and high-income groups

*large number civil servants who borrow from NBFIs (non-banking financial institutions)

EPF's numbers themselves are less than encouraging 

2012  85.2% of EPF contributors had  
GDP growth, income growth, debt growth requires delicate balance to preserve sustainable debt – and everything.
debt growth is losing badly

banks eventually in trouble, similar to American sub-prime mortgage situation

Battling Household debts

So what is being done?

If income unable to catch up debt, does not bode well for consumer or economy

Bank Negara Report 2012, "banks have little to worry about.."

amount of possible losses banks would have to bear RM6.1billion.

even if default doubles, well within capital buffers of banks >RM80 billion at end-2012

fear of economically-linked moral decay: less financial responsibility.

greater regulatory steps have been taken by BNM to try and curb debt.

Bank Negara implementing measures to rein spiralling debt in 2011. 

Unfortunately these measures not had desired impact on minimising debt.

Household Sector
  • In 2011 min. income for credit cards moved to RM24,000 from RM18,000.
  • vehicle loans nine years 
  • institutions given power to assess borrowers debt-service ratios 
  • some banks followed suggested rate of 30% gross income of borrower
  • others allow loan repayment up to 50% of borrower's income
  • 60% is considered absolute maximum for debt repayment
Are the steps for each sector enough to reduce household debt?

Will impact be far-reaching enough, and what are repercussions for regular Malaysians?

not very rosy picture all round.

My views : OK that was the gist. The asterisk * means these issues impact the Malays and bumiputras much more than the non bumis. In Malaysia it is always race ok. (So would you like to read the list again??)

The problem began much earlier when some Ministers and those entrusted with advising the gomen decided that 'since our export markets are suffering poor economic growth, we should encourage domestic consumption as the engine for our growth". This began during the time of Abdullah Badawi. Under Najib, I dont think anyone in gomen even thinks about such things.

So to spur domestic consumption, the idea was to create easy credit so that people could borrow money for consumption. That was when the banks started handing out credit cards at every street corner. 

(To digress a little,  before I forget the latest victims in mismanaging our financial system are the Money Changers.  There is now a tier system for Money Changers. Really strange, never before heard of folks have suddenly been made "franchise holders" and all money changers now have to be placed under the umbrella of these franchise holders, some of whom are foreigners from the same Arab countries someone keeps visiting. 

The franchise holders (or wholesalers) earn buta money from the money changers for service charges, use of computer software etc. It is causing havoc in the industry. As usual there is no value added.)

Then some idiot came up with the idea of NINE YEAR car loans. This was to make monthly instalments smaller and make the Kancils and Protons easier to purchase. The fact is few cars remain "new" for six years. If you are buying local cars, after three years they start rattling. After five years your repair bills are high. That is when you want to trade in your car.

That is also when you find out that because you took out a NINE YEAR car loan, the amount you still owe the bank is much more than the trade-in value or second-hand value of your car. Meaning, if you sold your car or traded in your car, you must top up money to pay off your NINE YEAR car loan. So people (usually Malays) end up owning cars for nine years and paying higher repair bills.

Can the gomen pleeeeeeease wake up and put a stop to these NINE YEAR car loans.

OK here is more on the race, race, race part. The past few weeks have been worrying at our shop. Many people are walking in to sell their old gold jewellery for cash. One day we had more people selling their old gold than buying new jewellery from us.  These are almost all Malays (and some Indians). 

Just now a guy walked in with his wife's jewellery. After asking how much he would get he called the wife on his phone. The he did not sell the item.  I could see that there were many thoughts on his mind. May Allah look kindly upon all our people and guide us in the right path.

It is quite normal for people to 'trade-in' old jewellery in exchange for new jewellery. But nowadays many folks are selling off their old gold for cash. I am telling you, there is a serious cashflow crunch in the country. And this seems to affect one group* more than the others.

And yes * people are falling out of the middle class. They are becoming part of the urban poor.  At this pace there will be an increase in the urban to rural migration. Migration of educated people who could not keep up with the ever higher costs of living in the urban environments.

Did you know that (despite the oversupply situation) the prices of new apartments in KL are above RM600 psf?  Even 2nd tier old apartments are going for RM500 psf. Inside KL, 1000sf apartments cost RM600,000 or more. How many Malays can afford to buy these homes?

Even Chinese are having difficulty. But buyers are mostly Chinese or foreigners (Chinese from mainland China, HK and Singapore).

Look at that pie chart above. Most of the non banking housing loans (Treasury, development financial institutions etc) are absorbed by Malays. Even the banking sector loans too have sizeable numbers of Malays.

There are huge structural issues in the country that are making people poor. Did you know that the import and distribution of raw coffee beans in the country is controlled? Only a few companies are "licensed". They dont really do much. Just "pegang lesen" saja. This adds costs to the product. Higher cost of living.

Now the Money Changers have an extra layer of 'franchise holders' who make buta money for no value added. All this adds to the costs - which will be passed to you the consumer.

Cars are so damn expensive in the country. Folks here is some news. The APs for recond cars will be abolished. Listen carefully. Does this mean the import of recond cars will also be abolished? Nope. So how? Some selected companies, possibly owned by the same AP holders, will be "licensed" to import recond cars. Depa juga. Its back to square one.

There will be a tipping point. When will this tipping point come? Maybe when Marie Antoinette does not have enough cake to spare ?

For Bank Negara : Why Property Will Not Pull Down China GDP

...and how Bank Negara should assist in our property market

China real-estate: A bubble bursting?

China's property market accounts for roughly 15% of (GDP) 

directly affects other sectors such as banking and construction.

Beijing imposed restrictions over the past five years. 

measures now appear to be having an impact.

talk about a bubble in Chinese property is not something to be too concerned about.

to own a home is important in Chinese culture and our tradition

Underlying confidence expressed by residents will aid a recovery

"The risks and exposure to property don't look the same as in the U.S. sub-prime, Japan," 

Chinese households have relatively low levels of household debt is another reason why not to be too pessimistic about the housing market. 

(IMF) ranked China the fourth lowest in terms of household debt levels among 11 Asian countries at around 12 percent of GDP.

requirements for large down payments, Chinese mortgage debt is low as a percentage of house value. 

Additionally, Chinese state banks hold mortgages on balance sheets rather than sell them into the market as collateralized mortgage obligations"

downturn [in China's property market] is unlike the situation in the U.S. that led to the Great Financial Crisis, and is unlikely to cause a crash in Chinese or international financial markets
"The good news for China is that it has produced more than it consumed for years. As a result, if its own output falls, it can afford to consume more than it produces,"

"If the economy falters, consumption and living standards do not have to falter too. 

China can run a trade deficit. This can provide a cushion while it undertakes what would otherwise be a wrenching adjustment to its economy."
  1. liquidity may have to be eased to help property developers. 
  2. local governments have eased restrictions on home purchases 
  3. state-backed banks have upped lending to the sector
My views : No two countries are the same. China has very low household debt. Downpayments are large for house buying in China. (Car buying is usually for cash). Therefore the proportion of the loan as opposed to the value of the house is smaller.  Monthly instalments are lower. The default risk by housing loan borrowers is therefore lower. Chinese also like to buy and keep property. It is their tradition.

Chinese banks do not securitise their housing loans (in the form of bonds, sukuk etc) and sell the bonds in the secondary market. There is less secondary sale of house mortgages. So their banks get involved less in such risky activities.

In contrast in the US, housing mortages were packaged as bonds and resold in the secondary market. Then based on these bonds, the derivatives boys would sell derivatives products between the interest payment streams and the principal repayment streams.  If there was a property crash, the house buyers, the housing banks, the bond buyers and the derivatives boys would all get hit.  

Anyway there is an oversupply in the Chinese property market.  The Chinese are helping to clear the backlog of unsold houses by :
  1. liquidity may have to be eased to help property developers. 
  2. local governments have eased restrictions on home purchases 
  3. state-backed banks have upped lending to the sector
In the Malaysian context, I disagree with 1. above.  Do not increase lending for the developers. (By the way I also design, build and sell bungalow houses. So I am also a developer).

There is an overhang developing in the propety market in Malaysia.  Singapore is also facing an oversupply situation. As a result, Iskandar, Medini, Danga Bay and properties in south Johor are facing an oversupply situation.

Bank Negara has already pulled the handbrakes on interest rates (which have gone up by a quarter per cent). Bank lending for housing loans have also been tightened. It is more difficult to get a housing loan now. This is a blanket, knee jerk type reaction to addressing a property oversupply situation.

May I suggest something slightly different.

1. Reduce the number of new project launches. To clear the present oversupply (in houses, condos, apartments, office buildings, shopping malls and shop houses) in Malaysia, especially in Johor and the Klang Valley the developers have to be made to slow down new project launches.  This is to cut down the supply of new projects being launched.  Tighten bank lending for property developers especially bridging loans. 

Get the developers to pump in more of their own money first. More of their own equity. Then if sales slow and the projects stalls, the developer will not have as much bank debt breathing down his neck. His cashflow will still be able to pay his contractors, suppliers, workers, cement trucks etc.  This need not be forever. Say for the next 18 months.

2. The next step is to clear the backlog of unsold properties.  On the buyers side, help housebuyers buy houses, condos, shophouses etc faster  to reduce the supply overhang. Now is NOT the time to tighten END FINANCING. Lend more to housebuyers to clear the backlog of unsold properties.

Reduce red tape - like the approval process for bumi units etc. It takes too long and costs a lot of opportunity costs (which Islamic banking does not recognise).

Remove the poorly thought 30% RPGT - which increases the sale price of houses (because  you must sell at a higher price to recoup your money - which tends to push house prices higher). Without RPGT, home owners will sell their houses at cheaper prices. It will have a downward pressure on house prices.  This will clear the backlog of unsold properties even faster.  This need not be forever. Say for the next 18 months.

Do whatever is necesssary to speed up the backlog of unsold houses.

Like China, the property sector contributes a big chunk to our GDP. Plus it is inevitably tied to our financial sector.  If the property sector slows down, not just the construction, cement, architects, S&P lawyers all feel the effect but the financial sector will also feel the crunch.

I hope Bank Negara is listening.