As posted by Dr. Mahathir Mohamad at Che Det on January 14, 2013
1. The world is Eurocentric. We trust Europe and Europeans almost unreservedly. The standards are set by them and we follow these standards unquestioningly.
2. Thus banking! The so-called conventional banking system was invented by the Europeans. Today the whole world accepts and practices this banking system.
3. Lately the Islamic banking (no interest) system has been introduced. But it is no match for the Western initiated “conventional” banking system.
4. But we now know that the current financial crisis affecting the West is due to the Western banking system or more precisely its abuse. That it can be abused means that it is not the perfect system it is made out to be.
5. We have heard about sub-prime lending, leveraging, derivatives, securitisation, bundling and insuring etc etc.
6. Now it is the turn of the LIBOR – the London Interbank Offer Rate – the rate of interests which banks may be guided by.
7. We thought the rates were fixed in heaven and no one should question them. But now we read that a number of European banks had fixed the rates so they can increase their profits. And this is considered to be wrong, to be price fixing.
8. The banks involved are the big ones, the ones which cannot be allowed to fail, the ones which are supposed to be honest. They were cheating.
9. The press reports that they were fined. By whom? By the United States of America. And they have paid the fines to America.
10. The question is, is it only America which suffered and lost money due to the fixing of the LIBOR by the major banks of Europe. Do these banks lend money only to America? I don’t think so. The UBS (Union Bank of Switzerland) lent money to Europeans and Asian countries as well.
11. If America lost money through the operation of the LIBOR surely other countries which borrowed money from the banks which fixed the rates must also lose money. But these other countries have not been paid by any of the banks which fixed the rates together with UBS. Why is America privileged when other countries are not-compensated? Why aren’t the other countries instituting legal action to find these banks guilty and fixing the fines that they must pay.
12. We in Malaysia, I believe are also guided in fixing interest rates by LIBOR. But I don’t think our banks participated in fixing the rates. Our banks may or may not have benefited from being guided by LIBOR. But they are not guilty. The borrowers have no claim on them.
13. Banking is a shadowy business. People do not really know what they are doing. We accept that the loans they give out help to create wealth. Certainly the amount of money in circulation is very much bigger than the money issued by the Government.
14. The banks’ rights to create and lend money are obviously necessary if the economy is to grow and wealth generated. But power corrupts and the right to create money is a very important power conferred on the banks. But banks need not be too secretive. We need to know the limits of their power. It is the unlimited power that banks exercise that lead to the sub-prime loans and the consequent financial crisis in America and Europe.
15. When banks abuse their power the public and the nations have to pay a high price. In the case of America and Europe four years have passed and we still don’t see the light at the end of the tunnel.
16. If we are to avoid a recurrence of the crisis; if Malaysia wants to remain free of a similar crisis we need to know more about the rules of banking and the limits of their privilege.
17. I am writing this as a layman. I know my knowledge about banking and finance is negligible. But I feel the need to express the opinion of the ordinary man who may have to pay a high price while banks abuse the power vested with them.