Importance of Information & Knowledge in Leadership

Importance of Information & Knowledge in Leadership


The excerpt below is taken from YABhg Tun Dr Mahathir Mohamad's Closing Keynote Address during the PLF CEO Forum 2014.

So if you ask me about leadership and crisis management, I cannot advice you to become a doctor because it is a bit too late. But I should advice you to learn about the methods of the doctors, they go through a very a set of procedures which leads their ability to recognize and diagnose the problem. After that, comes the treatment that has been given but that of course is another problem. In the crisis in 1997 and 1998, I had great difficulty in understanding it because I had knew very little about finance and banking. I was shock to find that bankers actually lend money which they don’t have. Any banker here who wants to deny that? Well, once they lend money, it becomes their assets. How nice, you have nothing and you lend nothing and it became your assets. I think if anybody wants to do business, banking is the best business that you can do. Not everybody does this and I’m not blaming them, I think they have a need to create money or else, if we depend upon the money issued by the government. There is just not enough of it.

So somebody has to create money, in here, it may be the central bank. But the bank themselves in a way, create money, because when they lend you money, it is money that is frequently they don’t possess. Of course they do possess some money, the capital invested in the bank, the deposits in the bank and others assets, but the amount that people want to borrow from a bank often exceed the amount of the money that the bank has. So the bank has to create money, you know this is a very powerful instrument. How much money that you can create? I read one book who said it can be ten times the amount of money that is deposited with the bank. Just imagine, somebody lends you 1 million dollars and you can lend 10 billion and that is a good business. But that is the way things are and we need that money. But when bank felt like why should they stick to ten times, why not eleven times, why not twenty times, and so they created a new term for lending and they call it “leveraging”. “Leveraging” is about lending money that you don’t have basically, see that is the advantages of the bank. So once it is known that they can actually lend unlimited amount, practically unlimited amount of money, then the Hedge Fund move in, to take the advantages. The currency traders also move in to take advantages of this ability to borrow almost unlimited sums of money from the banks. This was what I’ve learnt. You can refute what I said, but that time I learnt and I believe that was the way things were. Because how would they have so much Ringgit to sell in which before, they don’t seem to have. Then I had discovered that they didn’t have any Ringgit. What they did was to borrow Ringgit from the banks in order to buy or to sell and the banks can lend money, a lot of money to them because the banks can create money. And so the currency traders and the Hedge Funds at their call can have almost any amount of money.

Now the idea is this, that if somebody deposits 1 million dollars with you, you can then lend 10 million but 20 million would be better, 30 million would be even better, it will be 30 times more. So if you have 10 million or you have 1 million, you want to invest directly, your capital is only one million but if you invest through Hedge Fund, or with the currency traders by the banks, then that one million now becomes 30 million. Obviously if you invest 30 million, you will going to get 30 times more the profit or the dividends than if you invest 1 million. That is why people invest through Hedge Fund and the currency traders. They were able to have a lot of money with which to play. When you have a lot of money to play, and you know how the market behaves, when you buy a share repeatedly the value goes up and when you sell repeatedly the value goes down. Obviously if you keep on buying, you push it up and then you dump the shares, you can make a lot of money. It is because now you have a share that is highly valued and when you dump the share somebody else will have to carry the burden of shares which have become depreciated. The men who use the Hedge Fund stand to gain a lot and of course they divide the spoils between the Hedge Funds and the investor.

That was how they was working and that informed me or make clear to me that the amount of money they have is fairly nothing and they were creating money to buy or to sell the Ringgit. They didn’t have a Cent, you know money today comes to you in many forms, they can come to you as a cheque. When you borrow money, a million dollars or 10 million dollars from a bank, they don’t give you cash 1 million or 10 million. It would be difficult for you to carry out from the bank and you could be robbed. They only enter the figure as the money has been lent to you which you can draw whenever you like. So no cash involved and then when you pay somebody you also write a cheque, no cash involved and the cheque goes to the bank and the bank now does not pay out with real money, the bank merely write down to your credit or your account that now you’ve been paid, in so much money.

Actually cash is not necessary, you can write cheques and today of course you have credit cards, and all kind of new money which is not a produce or printed by the government. So money today takes many forms and allows itself to be manipulated. So the currency traders risk money in this way. They’d depressed our currency by selling it repeatedly and then when it is low enough they will then start buying the currency and the currency will appreciate and they make money after the appreciations. It is a very simple system of impoverishing other country. So I learnt about this and I was very annoyed and very angry I would have punch Mr. Soros in the nose if I had caught him, but I did say nasty things about him because it is unfair to do this to a country that is just coming up. We were just coming up and when they devalued our currency by 50 percent we became half, we became poorer to that amount. If we have a million, that million is worth in term of purchasing power only Five Hundred Thousand Ringgit or Dollar or whatever. They were improvising us and I thought it was grossly unfair. Now, I need to understand completely the mechanism. If you’re dealing a crisis you must have a full of knowledge on the mechanism that led to the crisis.

So I read a lot and I tried to understand it. And when you are faced with a sick person, you want to restore him, to help him. How do you do it? Of course you need to give him medicines, you need to chop them sometimes, remove one leg or the other, its nasty things but you have to do it in order to manage the crisis. So how do we manage this financial crisis? We thought that they were selling and buying our Ringgit. Obviously if they cannot sell or buy our Ringgit, they cannot play around with it. How do we stop them? Well a way to stop is of course fortunately for us the central bank in Malaysia is very powerful. It can direct the banks operating in Malaysia that no transaction should be carried out where the money that is deposited or withdrawn is not for something legal. If it is merely in order to depress the price of the Ringgit or to increase the value of the Ringgit, they should not accept this transfer of the account from the seller to the buyer. Once you stop there, they couldn’t play around with the money. So you can see the process, you have to know what else the economy or the finances and understanding it, you then can think of the medicine or a way to reverse the process. If it is because they are selling the money, then we stop them from selling the money. If they are buying the money, we stop them from buying. Once we do that, their disease was practically cured.

To read the full transcript of the CEO Forum 2014, click here.

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