Dr M: Stop banks from making money out of thin air
By CHOI TUCK WO
LONDON: Tun Dr Mahathir Mohamad has called for a ban on the manipulation of “money to make money” to help resolve the global financial crisis.
The former Prime Minister said the main problem was that banks were empowered to create money out of thin air and lend money which they did not have.
He suggested that everyone should go back to producing goods and services although the profits would not be that massive.
“But the wealth from these activities will be real and the economy will be more sound,” he said in his talk at the “Leadership in Times of Crisis” seminar at the British Institute of Technology and E-Commerce here on Friday.
Dr Mahathir also expressed doubts of a recovery despite the US government talking of a trillion-dollar plan to save the economy.
He said there would come a time when the government would have to admit that the whole system had failed.
What was needed, he said, was a total write-off of the monies lost and the need to reduce the lavish lifestyles and per capita income in rich countries.
“The rich will have to sell their yachts and private planes as well as their holiday and palatial homes while the poor will become poorer,” he said.
If there is to be recovery, the world must accept that everyone – the rich and the poor – must take part in formulating a change in the system, he added.
Dr Mahathir said the most important reform was to ensure that money was created by governments and not by banks.
“Governments need to come back and supervise the banks. If the executives go beyond something, they’ll be punished,” he said.
He described as ridiculous the present system where executives were paid bonuses if they could show figures to their directors even if the banks lose money.
Describing the scenario as frightening, he said: “We have no control over money and we don’t know how much of it is in circulation.”
Dr Mahathir said when Malaysia was hit by currency speculators in 1997-1998, it was told that the trade in currencies was 20 times bigger than the total world trade.
“That’s a huge sum of money. But where does it come from?” he said, adding it was important to get rid of those who were playing tricks.
He also said government bailouts, which were effectively nationalisation, would not enable businesses to recover when the economy was in recession.
“We see governments furiously bailing out financial institutions and businesses but we have yet to see any results,” he added.
He also said the formulation of any new system must involve both the rich and poor countries as well as elements of Islamic banking principles. - THE STAR