HAPPY NEW YEAR 2009

FUN WITH DICK AND JANE

The year is 2000, and we are introduced to the Harper family. The family members are Dick Harper, who works for a company in Los Angeles called Globodyne. Jane Harper works at a local travel agency and is often stressed at work. They have a son named Billy, who speaks mostly Spanish, as he is good friends with the family's young Hispanic housekeeper, Blanca. They also have a dog, who liked to bark until he was fitted with a shock collar. Dick is 'promoted' to Vice-President of Communications by company CEO Jack McCallister and company CFO Frank Bascombe. He is also asked to appear on the show Money Life, where host Sam Samuels and then independent presidential candidate Ralph Nader dub him and all the company's employees as "perverters of the American dream" and claim that Globodyne helps the super rich get even wealthier. The company's stock is soon worthless, along with all the employees' pensions, which are in Globodyne's stock.

Dick arrives home to find an excited Jane, who informs him that she took his advice and quit her job in order to spend more time with Billy. Dick has to break the news over dinner, instantly alarming Jane. Dick tries to think positively, and tries for a few months to get a Vice Presidency at other corporations. After getting no job anywhere, Jane reveals that they'll end up declaring bankruptcy in couple of months due to having everything in Globodyne stock.

Dick still tries to look on the bright side; stating that their house is worth $600,000. Jane then informs him that, since the fall of Globodyne, the local property market crashed, and that if they were to sell their house, they would owe the bank $150,000. After coming to terms with the prospect of being poor, Dick applies for low paying, dead-end jobs. After being fired from all local businesses, (with Dick being mistakenly deported to the Mexican border because of his slurring from getting punched in the mouth by an "illegal alien" trying to catch a painting job) and finding out that they have 24 hours before being evicted from their home, he decides that it's time for the couple to turn to crime. Dick borrows Billy's surprisingly realistic squirt gun and decides to rob a local convenience store. He emerges and orders Jane to burn rubber, as he stole a slushy, much to Jane's amusement. After several failed attempts, they finally rob a head shop. Realizing that they get a thrill out of stealing, they make a profession out of this, going on nightly robbing sprees.

They climb their way up the crime ladder, becoming more professional with each passing night. Their last "job" is to rob a local bank by going undercover. All goes as planned, until another crime spree couple enters the bank, wearing Clinton masks and armed with shotguns. They are revealed to be former employees of Globodyne; Dick's jealous co-worker Oz and his wife Debbie. Dick and Jane escape, unharmed. They decide to stop their "profession" but it's revealed that Dick is about to be indicted for his role in Globodyne's demise (as most of the other employees of Globodyne has also reverted to criminal lifestyles as they have have), thus he starts drowning his sorrows at the local bar. While there, he and Jane encounter a drunk Frank Bascombe, who tells them that the crooked Jack McCallister signed off all of Globodyne's assets (totaling $400 Million), dumped the entire stock, and that he paid Bascombe $10,000,000 to keep his mouth shut (as it was McCallister's plan from the beginning because he felt burnt-out).

After Frank sobers up, they make a team and, through a devious and well put together plan, dupe Jack McCallister into reimbursing all of his former employees' pensions.

Although McCallister catches them in the act, Dick is able to still reimburse all of the former employees because he got McCallister's signature. Thus his wife, an art major, was able to forge his signature. The next day, Dick informs McCallister of the act as the press flock to him. The film ends with the wealthy Harper family driving along the highway and into the sunset, as another car drives up to them. In the car is another former Globodyne employee who tells Dick he's got a great new job at a company called Enron.

Cast
Jim Carrey as Richard "Dick" Harper
Téa Leoni as Jane Harper
Alec Baldwin as Jack McCallister
Richard Jenkins as Frank Bascombe
Angie Harmon as Veronica Cleeman
John Michael Higgins as Garth
Richard Burgi as Joe Cleeman
Carlos Jacott as Oz Peterson
Stephanie Weir as Deborah "Debbie" Peterson
Aaron Michael Drozin as Billy Harper
Gloria Garayua as Blanca

The Real Meaning Of HIJRAH

Hijrah, the time of the migration of Prophet Muhammad from Mekah to Medina 1,430 years ago and the beginning of the Islamic calendar. But what is Hijrah other than a public holiday when all can sleep late and need not get up at 7.00am or earlier to rush to office? To most, Hijrah is but another day to sleep late. To many, Hijrah is when Prophet Muhammad escaped the long arm of the law to seek refuge in Medina. To some, Hijrah is the commemoration of when the Islamic State of Medina came into being. To a handful, Hijrah is about ‘migrating’ from one ‘spiritual form’ to another.

Celebrating Hijrah in a festival-like atmosphere or with ceremony and events is just like celebrating your birthday with the blowing of candles or celebrating your wedding anniversary or Christmas Day, New Year’s Day, Merdeka Day, and whatnot. It is a hollow event, one full of rituals but absent of substance. The best ‘celebration’ would be a celebration in the heart and nothing can beat the rohani over jasmani.

Rohani comes from the word roh or spirit and jasmani would, of course, be the non-spirit, meaning physical. Physical minus spirit would be just like a prostitute having sex with you because of the money she is earning. She will certainly pretend to be enjoying it, with sighs and moans thrown in, but all she wants is for you to get it over and done with so that you will get out of her room and she can then service the next client.

We will march on the street and sing songs and fly flags and give speeches to celebrate Hijrah. Then we will go home and live our lives as usual with no change in attitude and mindset. Hijrah was nothing but a physical event. It was something we did. It was not something we felt.

Hijrah was about the Prophet’s migration. Today, it is a ritual we perform, symbolic of that migration. But have we been able to transform that symbolism into spirit? Are we acting out the symbolic Hijrah or are we practicing Hijrah in our hearts?

Hijrah is about change. It is about repentance. It is about transformation. It is about reforms. It is about renaissance. Hijrah is more than just about changing your place of abode to a new address.

If we are racist can we stop being racist? If we are corrupted can we stop being corrupted? If we are a wife-beater can we stop beating our wife? If we love sex with prostitutes can we stop visiting prostitutes? If we steal can we stop stealing? If we oppress people can we stop being an oppressor? If we are violent can we stop all the violence? If we _______ can we stop _______ (fill in the blanks with whatever may be your ‘sin’)?

That is the real meaning of Hijrah. It is about ending your old, wayward and evil ways and adopting a better lifestyle, attitude and mindset. It is not about marching on the street and singing songs and flying flags and giving speeches. Hijrah is about change. It is about repentance. It is about transformation. It is about reforms. It is about renaissance.

Muslims are good at talking and celebrating. But Muslims are yet to learn how to live the life of a good Muslim. And ‘good Muslim’ goes beyond praying, fasting, going to Mekah for the Haj, etc., and beyond shunning liquor, pork, gambling, extra-marital sex and whatnot. That merely makes you a ritualistic Muslim. Even prostitutes perform the rituals of sex without any real feeling. ‘Good Muslim’ begins when compassion, consideration, tolerance, sacrifice, and much more replace greed, lust, envy, jealousy, arrogance, pride, ego, and all those other ills that turn our hearts black.

A human being is born with a white heart, says Islam. No one is born with a black heart. But the heart turns black as the years pile up and as we get closer to our graves. Hijrah is about reversing the process and turning the heart back to white so that we can leave this world and return to our Maker with as white a heart as when we first came into this world.

That is the true meaning of Hijrah, Hijrah in heart, as opposed to symbolic Hijrah

Is Social Security a Ponzi Scheme?

In the aftermath of the Madoff implosion, quite a few people have pointed out the parallels between a Ponzi scheme and Social Security. Arnold Kling, whom I respect, has written:

I’ve been thinking that Madoff is a perfect analogy for the public sector. The government gives people money, which it expects to obtain by taking the money from people in the future. Even the Center on Budget Policy and Priorities, not known as a right-wing organization, sees the U.S. fiscal stance as unsustainable (pointer from Ezra Klein via Tyler Cowen)—in other words, a Ponzi scheme.

Other people have gone farther. Paul Mulshine of the New Jersey Star Ledger wrote a column entitled “The Ponzi scheme that Baby Boomers are waiting to cash in on.” And Jim Cramer has called Social Security the biggest Ponzi scheme in history.

Superficially, these critics have a point, and there is a parallel between Social Security and a Ponzi scheme. But on a fundamental level, they are very wrong, and it’s worth explaining why.

First, the parallel. Social Security taxes current workers to pay Social Security benefits for current retirees. In other words, the new entrants into the Social Security system, the young workers, pay off the previous entrants, the older workers. And despite the fact you have a Social Security “account”, there is no necessary link between what you paid into the system in taxes, and what you receive.

That’s very similar to the structure of a Ponzi scheme, where new investors pay off the original investors. As long as enough new ‘victims’ are brought into the scheme, it keeps growing and growing. But when the new investors runs out, the Ponzi collapses. Analogously, the slowdown in population growth puts pressure on Social Security finances.

But there is one enormous difference between Social Security and a Ponzi scheme: Technological change. Over the past century, new technologies have enabled the output of the country to grow much faster than its population. To be more precise, the U.S. population has more than tripled since the early 1900s, while the U.S. economic output has gone up by more than 20 times.

This long track record of technology-powered growth has enabled the enormous rise in living standards in the U.S. and other developed countries. In fact, this increase in productivity—output per worker—is the key fact which gives us our way of life today.

Assuming that technological progress continues over the next 70 years, and output productivity growth continues over the next 70 years, the finances of Social Security are relatively easy to fix. A fairly minor cut in benefits, combined with a relatively small increase in taxes, will bring the system back into balance again. (the latest Social Security report projects a 75-year deficit of $4.3 trillion. That sounds like a lot of money, but over 75 years it’s roughly $60 billion a year…not chicken feed, but not overwhelming).

But here’s the rub. Ultimately our ability to make good on the “Ponzi-like” nature of Social Security depends on the continued march of technological progress—and in particular, innovation which boosts output and living standards. If we leave the younger generation a good legacy—a sound scientific and technological base, combined with an innovative and flexible economy and an educated workforce—then Social Security is not a Ponzi scheme. The economy grows, and there’s more than enough resources for everyone.

But if instead we—the current generation—invest in homes, flat-screen televisions and SUVs, then we don’t leave the next generation with the technological “seed corn” they need. If the technological progress slows, then Social Security does turn out to be Ponzi-like—with unfortunate consequences for everyone.

Two Economic Giants Addicted to Credit

NEW YORK, Dec 27 — In March 2005, a low-key Princeton University economist who had become a US Federal Reserve governor devised a novel theory to explain the growing tendency of Americans to borrow from foreigners, particularly the Chinese, to finance their heavy spending.
The problem, he said, was not that Americans spent too much, but that foreigners saved too much. The Chinese had piled up so much in excess savings that they lent money to the United States at low rates, underwriting American consumption.
This colossal credit cycle could not last forever, he said. But in a global economy, the transfer of Chinese money to America was a market phenomenon that would take years, even a decade, to work itself out. For now, he said, ''we probably have little choice except to be patient.''
Today, the dependence of the United States on Chinese money looks less benign. And the economist who proposed the theory, Ben Bernanke, is dealing with the consequences, having been promoted to chairman of the Federal Reserve in 2006, as these cross-border money flows reached stratospheric levels.

In the past decade, China has invested more than US$1 trillion (RM3.6 trillion), mostly earnings from manufacturing exports, in US government bonds and government-backed mortgage debt. That has lowered US interest rates and helped fuel a historic consumption binge and housing bubble.
China, some economists say, lulled American consumers, and their leaders, into complacency about their spendthrift ways.

In hindsight, many economists say, the United States should have recognised that borrowing from abroad for consumption and deficit spending at home was not a formula for economic success. Even as that weakness becomes more widely recognised, however, the United States is likely to be more addicted than ever to foreign creditors, seeking to have them finance record government spending to revive the broken US economy.

To be sure, there were few ready remedies. Some critics argue that the United States could have pushed Beijing harder to abandon its policy of keeping the value of its currency weak — a policy that made its exports less expensive and helped turn it into the world's leading manufacturing power. If China had allowed its currency to float according to market demand over the past decade, its export growth probably would have moderated. And it would not have acquired the same vast hoard of dollars to invest abroad.

Others say the Federal Reserve and the Treasury should have seen the Chinese lending for what it was: a giant stimulus to the US economy, not unlike interest rate cuts by the Federal Reserve. These critics say the Fed under Alan Greenspan contributed to the creation of the housing bubble by leaving interest rates too low for too long, even as Chinese investment further stoked an easy-money economy. The Fed should have cut interest rates less in the middle of this decade, they say, and started raising them sooner, to help reduce speculation in real estate.

Today, with the wreckage around him, Bernanke says he regrets that more was not done to regulate financial institutions and mortgage providers, which might have prevented the flood of investment, including that from China, from being so badly used. But the Federal Reserve's role in regulation is limited to banks. And stricter regulation by itself would not have been enough, he insists.

In Washington, China was treated as a threat by some people, but mostly because it lured away manufacturing jobs. Others argued that heavy Chinese lending to the United States was risky because Chinese leaders could decide to withdraw money at a moment's notice, creating a panicky run on the dollar.
Bernanke viewed such international investment flows through a different lens. He argued that the Chinese invested savings abroad because consumers in China did not have enough confidence to spend. Changing that situation would take years, he said, and did not amount to a pressing problem for the American side.

By itself, money from China is not a bad thing. As US officials like to note, it speaks to the attractiveness of the United States as a destination for foreign investment. In the 19th century, the United States built its railroads with capital borrowed from the British.

In the past decade, China arguably enabled an American boom. Low-cost Chinese goods have helped keep a lid on inflation, while the flood of Chinese investment has helped the government finance mortgages and a public debt of nearly US$11 trillion.

But Americans did not use the lower-cost money afforded by Chinese investment to build a 21st-century equivalent of the railroads.

Instead, the government engaged in a costly war in Iraq, and consumers used loose credit to buy sport utility vehicles and big houses. Banks and investors, eagerly seeking higher interest rates in this easy-money environment, created risky new securities like collateralised debt obligations.

The United States has been here before. In the 1980s, it ran heavy trade deficits with Japan, which recycled some of its trading profits into US government bonds.
At that time, the deficits were viewed as a grave threat to America's economic might. Action took the form of a 1985 agreement known as the Plaza Accord. The world's major economies intervened in currency markets to drive down the value of the dollar and drive up the Japanese yen.

The arrangement did slow the growth of the trade deficit for a time. But economists blamed the sharp revaluation of the yen for halting Japan's rapid growth. The lesson of the Plaza Accord was not lost on the Chinese, who at that time were just emerging as an export power.

China tied itself even more tightly to the United States than Japan had. In 1995, it devalued its currency and set a firm exchange rate of about 8.3 to the dollar, a level that remained fixed for a decade.

During the Asian financial crisis of 1997 and 1998, China clung firmly to its policy, winning praise from the administration of President Bill Clinton for helping to check the spiral of devaluation that was sweeping Asia. Its low wages attracted hundreds of billions of dollars in foreign investment.

By the early part of this decade, the United States was importing huge quantities of Chinese-made goods — toys, shoes, flat-screen televisions, auto parts — while selling much less to China in return.

It did so to protect its own interests. China kept its banks under tight state control and its currency on a short leash to ensure financial stability. It required companies and individuals to save, in the state-run banking system, most foreign currency — primarily dollars — that they earned from foreign trade and investment.

As foreign trade surged, this hoard of dollars became enormous. In 2000, China's reserves were less than US$200 billion; today they are about US$2 trillion.

Chinese leaders chose to park the bulk of that in safe securities backed by the US government, including Treasury bonds and the debt of the mortgage finance giants Fannie Mae and Freddie Mac, which had implicit government backing.

This not only allowed the United States to continue to finance its trade deficit, but, by creating greater demand for US securities, it also helped push interest rates below where they would otherwise have been. For years, the Chinese government was eager to buy US debt at yields many in the private sector felt were too low.

In the United States, more people worried about cheap Chinese goods than cheap Chinese loans. By 2003, the Chinese trade surplus with the United States was ballooning, and lawmakers in Congress were restive. Graham and Senator Charles Schumer, Democrat of New York, introduced a Bill threatening to impose a 27 per cent duty on Chinese goods.

At the People's Bank of China, the central bank, a consensus was also emerging in late 2004: China should break its tight link to the dollar, which would make Chinese exports more expensive.

Yu Yongding, a leading economic adviser, pressed the case. The US trade and budget deficits were not sustainable, he warned. China was wrong to keep its currency artificially depressed and depend too much on selling cheap goods.

Proponents of revaluation in China argued that the Chinese currency policies denied the fruits of prosperity to Chinese consumers. Beijing was investing their savings in low-yielding US government securities. And with a weak currency, they said, Chinese could not afford many imported goods.

But when Beijing finally acted to amend its currency policy in 2005, under heavy pressure from Congress and the White House, it moved cautiously. The yuan was allowed to climb only 2 per cent. The ruling Communist Party chose only incremental adjustments to its economic model after a decade of fast growth.

But US officials eased the pressure. They decided to put more emphasis on encouraging Chinese consumers to spend more of their savings, which they hoped would eventually bring the two economies into better balance. On a tour of China, John Snow, the US Treasury secretary at the time, even urged the Chinese to start using credit cards.

China kicked off its own campaign to encourage domestic consumption. But Chinese tend to save with the same zeal that, until recently, Americans spent. Shorn of the social safety net of the old Communist state, they stash away money to pay for hospital visits, housing or retirement. This accounts for the savings glut identified by Bernanke.

In late 2006, Paulson invited Bernanke to accompany him to Beijing. Bernanke used the occasion to deliver a blunt speech to the Chinese Academy of Social Sciences, in which he advised the Chinese to reorient their economy and revalue their currency.

At the last minute, however, Bernanke deleted a reference to the exchange rate's being an ''effective subsidy'' for Chinese exports, out of fear that it could be used as a pretext for a trade lawsuit against China.

For China, too, this crisis has been a time of reckoning. Americans are buying fewer Chinese DVD players and microwave ovens. Trade is collapsing, and thousands of workers are losing their jobs. Chinese leaders are terrified of social unrest.

Having allowed the yuan to rise a little after 2005, the Chinese government is now under intense pressure domestically to reverse course and depreciate it. China's fortunes remain tethered to those of the United States. And the reverse is equally true.

In a glassed-in room in a nondescript office building in Washington, the Treasury conducts nearly daily auctions of billions of dollars' worth of government bonds. For the past five years, China has been one of the most prolific bidders. It holds US$652 billion in Treasury debt, up from US$459 billion a year ago. Add in its Fannie Mae bonds and other holdings, and analysts figure China owns US$1 of every US$10 of America's public debt.

The Treasury is conducting more auctions than ever to finance its US$700 billion bailout of the banks. Still more will be needed to pay for the incoming Obama administration's stimulus package. The United States, economists say, will depend on the Chinese to keep buying that debt, perpetuating the American habit.

INTRODUCTION TO FOREX

Foreign Currency Exchange (Forex) Trading allows an investor to participate in profitable fluctuations of world currencies. Forex trading works by selecting pairs of currencies and then measuring profit or loss by the fluctuations of one one currency's market activity compared to the other. For example, fluctuations in the value of the $ U.S. Dollar are measured against another world currency such as the British Pound, Eurodollar, Japanese Yen etc. Being able to discern price trends in market activity is the essence of all profitable trading and this is what makes foreign currencies so exciting, currencies are the world's 'best trending' market. This gives Forex investors a profit making edge that is unavailable in most other markets.

Forex Trading is being called 'today's exciting new investment opportunity for the savvy investor'. The reason is that the Forex Trading Market only began to emerge in 1978, when worldwide currencies were allowed to 'float' according to supply and demand, 7 years after the Gold Standard was abandoned. Up until 1995 Forex Trading was only available to banks and large multinational corporations but today, thanks to the proliferation of the computer and a new era of internet-based communication technologies, this highly profitable market is open to everyone. The Forex Trading Market's growth has been unprecedented, explosive, and continues to be unequaled by any other trading market.

Unlike traditional trading which brings buyers and sellers together in a central location (trading floors) in Forex Trading there is no need for a centralized location. Forex is a market where worldwide traders conduct business by high-speed Internet connections with the Interbank Foreign Currency Exchange via Forex Clearinghouses (also called Forex Brokerage Firms). Forex has not only become the fastest growing trading market, but also the most profitable trading marketplace in the world.

Simply stated, Forex is the most profitable because it is the world's largest marketplace. The Foreign Currency market as a whole accounts for over 1.2 trillion dollars of trading per day (as determined by the fourth Central Bank Survey of Foreign Exchange and Derivatives Market Activity, 1998. This figure is understood to be significantly higher today). To put this into perspective, on any given day the Foreign Currency Exchange Market activity is vastly greater than the Stock Market. It is 75 times greater than the New York Stock Exchange where the average total daily value (using 1998 figures) of both foreign and domestic stocks is $16 billion, and much greater than the daily activity on the London Stock Exchange, with $11 billion.

Furthermore, in addition to being the world's largest and most profitable market, The Foreign Currency Exchange Market is the world's most powerful and persistent trading market regardless of negative economic indicators. This is because currencies 'trend' better than every other market due to their macro-economic nature. Unlike many commodities whose supply and demand fundamentals can literally change overnight (as we found in the sudden dot com 'market adjustment' and even more abruptly on September 11, 2001), currency fundamentals are much less random, and far more predictable. This is well illustrated in the way interest rates are changed gradually and only in small increments.

Other examples of fundamental predictability are illustrated by the following statistics. Of the $1.2 trillion day trading in Foreign Currency Exchange, 83% of spot foreign exchange activity and 95% of swap activity involves US Dollars. The Euro is the second most active currency at 37%. The Japanese Yen (24%) and the British Pound Sterling (10%) are ranked third and fourth. The Swiss Franc is 7%, and the Canadian and Australian Dollars account for 3%.

Spot Forex is the type of forex trade in which self-traders concentrate most of their investment activity for reasons that are self-explanatory. By definition, a Spot Forex transaction is a currency trade transaction that has a settlement (liquidation) within a maximum of 2 working days following the closing of the trade. Therefore Spot Forex allows the self-trader high liquidity. Another popular feature for well-advised Spot Forex self-traders is the strong profit potential from continual market fluctuations by buying a specific currency when it is weaker and selling it when it is stronger, and the continual pairing of strong currencies against weak ones. This potential for profit or loss is amplified by the effect of leverage. Leverage is a term that describes what can be achieved when a smaller amount of money controls a much larger amount of money. With regards to Forex Trading for example, a leverage-factor of 100 can allow the trader to hold a 100,000 US Dollar position with a modest 1,000 US Dollar margin deposit. Online Forex day trading focuses its investment activity largely on Spot Forex because of the 'risk manageability' of in-and-out trading plus the potential to generate excellent and highly liquid profits.

"Few financial industries generate as much excitement and profit as currency exchange. Traders around the world enter trades for weeks, days or split seconds, generating explosive moves or steady flows, and money changes hands quickly at a staggering daily average of a trillion US dollars. Forex profitability is legendary. George Soros of Quantum Fund realized a profit in excess of 1 billion dollars for a couple of days work in September 1992. Hans Hufschmid of Soloman Brothers, Inc. netted $28 million for 1993. Even by Wall Street standards, these numbers are heartstoppers".*

Despite its high trading volume and its fundamental role in the world, the Forex Market is rarely in the media limelight because its method of trading transaction is less visible than the Floor of a Stock Exchange. However, trading on the Foreign Currency Exchange Market is today surging into the public awareness, as flocks of internet traders are attracted by the market's inherent profitability and risk manageability. Add to this the absence of geographic or temporal boundaries and vibrantly active Forex market is open to all players.

World’s richest man cuts off granddaughter

NEW YORK, Dec 23 — When your grandfather is the world's richest man, you'd hardly expect to have to worry about paying the bills.

Yet Nicole Buffett, the dreadlocked granddaughter of the famously frugal Nebraska billionaire Warren Buffett, has no cable television or health insurance.

The 32-year-old abstract painter was adopted by Buffett's youngest son, Peter, who married Nicole's mum when she was just four years of age.

In a Marie Claire interview, Nicole said she has been financially cut off by her grandfather and lives on the money she makes selling her paintings.

Her famous surname helped her earn some of the US$40,000 (RM144,000) from sales of her paintings sold from a hippie enclave of Berkeley, outside San Francisco.

She said: “For most people, your life is largely determined by the wealth you were or weren't born into. But our family was supposed to be a meritocracy.”

The 78-year-old Buffett, who still lives in the Omaha suburban home he bought for US$31,500 in 1958 and self-drives an American-made car, believes in holding on to the values he grew up with.

He does not believe in rewarding those he calls “members of the lucky sperm club”.

Dubbed the “Oracle of Omaha”, Buffett had reportedly said: “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.”

Earlier this year, he toppled Microsoft's Bill Gates as the world's richest man with an estimated US$62 billion net worth, according to Forbes magazine.

Yet as the world's savviest investor who served as an adviser to Barack Obama during the presidential campaign and was touted as a possible Treasury secretary, Buffett paid himself only US$100,000 in salary in 2006.

Nicole's troubles with her grandfather began when she broke the family code to speak about life as a Buffett.

She appeared in a documentary made by Jamie Johnson, an heir to the Johnson and Johnson fortune, about wealth, entitled “The One Percent”.

When asked how her grandfather would react to seeing her, she had said: “I definitely fear judgment. Money is the spoke in my grandfather's wheel of life.”

To worsen matters, while on a talk show to plug the documentary, Nicole said: “It would be nice to be involved with creating things for others with that money and to be involved in it. I feel completely excluded from it.”

On hindsight, she admitted her remarks sounded brusque, but Buffett had already taken offence.

A month later, he sent her a letter in which he said, among other things: “People will react to you based on that 'fact' (of having a famous surname) rather than who you are or what you have accomplished.

“I have not emotionally or legally adopted you as a grandchild, nor have the rest of my family adopted you as a niece or a cousin.”

Said a distressed Nicole: “He signed the letter 'Warren'. I have a card from him just a year earlier that's signed 'Grandpa'.”

Since their falling out, she said her grandfather does send sizeable Christmas cheques despite his no-freebies rule.

Though she dreams of a reconciliation, it is not likely. Still, she will never stop being a Buffett.

She added: “I will always be self-reliant. Grandpa taught me that, and it has set the tone for my life.” — The New Paper

Top 10 global businesss stories of 2008

NEW YORK: With the speed of a supermarket thriller, Wall Street was upended and remade in 2008.

First, investment bank Bear Stearns teetered near collapse, then was sold in a shotgun deal to JPMorgan Chase & Co. in a deal that valued each of Bear's shares at US$10 - roughly the same price as a New York movie ticket.

The shares had traded at $154 the year before.

Then Lehman Brothers filed for bankruptcy in September.

The failure of the firm, which had roots going back to the Civil War, shook investors around the globe.

They've yet to recover.

After Lehman's filing, New York traders started their work days at 3 a.m., when European markets opened.

Financial chiefs were summoned to compulsory weekend meetings at the New York Fed, where they ordered takeout and dickered over the fate of the nation's largest banks.

Rumors spread. No investment bank could be trusted as sound, no stock could be assumed safe.

In a year heavy with financial news, Wall Street's woes were voted the top business story by U.S. newspaper and broadcast editors surveyed by The Associated Press.

The continued real estate troubles were a close second, followed by the $700 billion bailout and the global recession.

1. WALL STREET TURMOIL

The decline in U.S. home prices and the increase in foreclosures devalued the mortgage securities that had been essential to Wall Street's money machine. Before housing crashed, the banks sold the securities and reaped fees.

After housing crashed, banks held the securities and watched their values plummet. Debt markets, also essential to Wall Street, froze. Lehman's bankruptcy brought daily rumors that another bank was tottering - many of which proved true. Washington Mutual Inc., with $307 billion in assets, collapsed in September, the largest bank failure in U.S. history.

Merrill Lynch sought shelter after its stock plunged, agreeing to be taken over by Bank of America Corp. Wachovia Corp. agreed to be bought by Wells Fargo & Co.

Investment banks Goldman Sachs Group Inc. and Morgan Stanley transformed themselves into commercial banks overnight.

The U.S. government loaned $150 billion to insurer American International Group Inc.

It also took over mortgage giants Fannie Mae and Freddie Mac. In late November, the government propped up Citigroup Inc., agreeing to shoulder hundreds of billions in possible losses and plowing $20 billion into the company.

2. INTENSIFYING REAL ESTATE WOES

By almost any measure, the housing market got worse in 2008, its third year of decline. Home prices continued to fall.

Foreclosures hit new highs. Housing starts hit an all-time low in November, as home builders who couldn't compete with foreclosure sales virtually stopped building.

"We have seen no improvement over the past month in terms of sales conditions for new homes,'' David Crowe, chief economist of

The National Association of Home Builders, said in December. "In fact, certain factors have gotten progressively worse, not the least of which is the job market.''

3. CONGRESS PASSES $700 BILLION RESCUE

Treasury Secretary Henry Paulson first asked Congress to pass a two-page proposal authorizing the financial industry bailout.

That plan went down in flames. His next try, which passed after much bipartisan arm-twisting, was more detailed. But the terms kept changing. Paulson first said the Treasury would buy troubled assets from financial institutions, then, he said it wouldn't.

Instead, the Treasury used most of the first round of bailout money to invest directly in banks and lenders.

Within two months, Treasury had allocated the first $350 billion to banks, insurers and automakers. In late December, Paulson asked Congress for the second half.

As credit markets remained weak, some lawmakers said they'd been misled, while others argued some of the money should be used to avoid foreclosures.

"We've been lied to,'' Rep. David Scott, a Georgia Democrat, said in December. "We've been bamboozled.''

4. WORLD ECONOMIES BATTERED

It seemed no nation was immune to the economic woes, as even Mongolia saw runs on its banks. Argentina nationalized pension funds. Icelanders saw their three main banks and their currency collapse.

Japan and much of Europe fell into recession. China's exports plunged in November by the largest amount in seven years.

As oil traded below $40 a barrel, exporters Russia, Venezuela and Iran suffered.

5. OIL PRICES SURGE, THEN SLUMP

Oil's meteoric rise to $147 a barrel in July changed America's habits. Mass transit ridership saw its largest quarterly increase in 25 years. Highway driving fell by almost 5 percent. Traffic deaths fell. Truckers went bankrupt.

Then, the global financial crisis sent oil prices plummeting; they fell by more than half from the beginning of October to the end of November, raising questions about whether Americans' habits would reverse as quickly as they'd been established.

6. STOCKS PLUNGE GLOBALLY

As nervousness spread in September and credit markets froze, stocks plunged everywhere from Hong Kong to Mexico.

Russian authorities closed Moscow's stock market for days at a time to contain the panic. The broadest measure of U.S. stocks, the Wilshire 5000, is down more than $7 trillion for the year. Diversification stopped working - no market was spared, no asset class went untouched.

7. DETROIT THREE BAILOUT

By November, U.S. automakers' sales had dropped about 16 percent for the year. General Motors Corp. and Chrysler LLC pleaded for loans from Washington, while Ford Motor Co. said it didn't need a government line of credit, but it would nonetheless take one.

The Senate quashed a bailout passed by the House, but the Bush administration, saying it would be irresponsible to let the industry die, offered it $17.4 billion in rescue loans.

8. FOOD PRICES SOAR AS COMMODITIES SPIKE

As prices for corn, fuel and grains soared through the summer, American shoppers grappled with substantial food inflation for the first time in 17 years.

The U.S. Department of Agriculture forecast food prices would rise 5 to 6 percent for the year, compared with an average 2.5 percent annual rise for the prior 15 years.

The rate of increase slowed in October and November, but food prices didn't fall the way gas prices did.

9. MADOFF PYRAMID SCAM

How Bernard Madoff earned steady returns of 7 percent to 9 percent a year in good markets and bad was a Wall Street mystery for almost 20 years.

In December, Madoff said the returns were fiction and his investment company was a scam, according to federal investigators.

As much as $50 billion may have evaporated in the scheme, which could be the largest Ponzi scam in history.

10. MONEY MARKET FUND RESERVE PRIMARY BREAKS THE BUCK.

After Lehman filed for bankruptcy, the money market Reserve Primary Fund, which had invested heavily in Lehman debt, "broke the buck,'' with its assets falling to 97 cents for every dollar invested.

It was the first time this happened in the money market industry in 14 years.

Investors across the country - who had seen money market funds as being safe as cash - fled for the exits.

Reserve alone saw $40 billion in redemption orders on Monday and Tuesday the week Lehman filed.

As the year ended, Reserve was still liquidating its funds

I Like To Move It

George Bush bails out America's carmakers temporarily

IN THE run up to George Bush’s announcement on Friday December 19th that he would bail out Detroit’s beleaguered carmakers rumours abounded that perhaps something more drastic was in the offing. Maybe the president would insist on an orderly transition into chapter-11 bankruptcy protection for Chrysler and General Motors—Ford, though also in dire trouble, is in slightly better shape. In the event he elected to do the minimum required to keep the cash-guzzlers on the road. Allowing the American car industry to collapse at the end of his presidency would have amounted to a bail-out for Barack Obama, the president-elect.

A bail-out bill that had swept through the House of Representatives failed to pass in the Senate on December 11th. So Mr Bush instead has had to raid the $700 billion Troubled Asset Relief Programme (TARP), set up to bail-out Wall Street's banks and other financial institutions. GM and Chrysler will get $13.4 billion in emergency loans with another $4 billion to come in February. Without the cash the pair might have collapsed by the end of the year. The terms of the loan could allow the government to become big shareholders.

Mr Bush made it clear that the special circumstances of the credit crisis and economic downturn won the car firms this lifeline. Ordinarily they would have been allowed to fail as a just punishment for the bad management and business practices that had got them into their atrocious state. The carmaker were deemed too big to fail—but only for the moment. “In the midst of a financial crisis and a recession allowing the US auto industry to collapse is not a responsible course of action” reckoned Mr Bush. He also accepted that bankruptcy was not an option. Customers would balk at buying cars from companies that had gone bust.

The loans should keep GM and Chrysler in business until the end of March. By then the decision about how important it is that they survive will fall to Mr Obama. Perhaps they will be in the midst of a potentially successful restructuring by then. But, more likely, the loans will merely allow the American car industry to limp on until the conditions are more favourable for its demise. Although the loans come with a strict set of conditions the chances of restructuring in a short space of time are not high. Although the car industry has in the past shrunk itself and wrung concession from its unions as its market share has dwindled these efforts have usually amounted to doing too little too late.

A deal with the United Auto Workers (UAW) a year ago to transfer health-care liabilities to a union-run fund and to reduce the pay and benefits of newly hired workers to rates similar to those at the transplants by 2010 was a step in the right direction. But the bail-out bill foundered in the Senate after the UAW declined to take wage cuts in 2009, preferring to see out the remainder of the current contract, which expires in 2011. Mr Bush’s bail-out deal requires the car companies to strike a new deal with the UAW that will make their workers competitve with those of he transplant factories in America of foreign car companies. But wage cuts, which the UAW have so far seemed disinclined to accept, are surely a necessity if America’s car companies are to have any chance of survival. The UAW have slammed this bail-out for the harsh conditions it imposes on workers

The carmakers will also have to strike deals with creditors to turn debt into equity. Creditor might be persuaded to go along with this plan by the threat of bankruptcy. Much depends on whether creditors believe that Mr Obama is prepared to allow this to happen. So far he has given no indication about how long he might be prepared to prop up Detroit’s carmakers, though he called the bail-out a necessary step and implored the car firms not to “squander” this opportunity to restructure. But one thing is certain—it is now his problem. Mr Bush has waved the carmakers goodbye and pointed them in the direction of Mr Obama’s White House.

The Economist

1,500 in Sarawak to lose jobs with closing of Western Digital plant

1,500 in Sarawak to lose jobs with closing of Western Digital plant
KUCHING, Dec 20 — The decision by Western Digital, the world's second-largest hard-disk drive manufacturer, to close its Sarawak plant in the Samajaya Jaya Free Industrial Zone (SJFIZ) here due to the global economic meltdown will affect 1,500 workers, state Assistant Minister for Industrial Development Datuk Daud Abdul Rahman said today.

He said officials from the company, formerly known as Komag USA (M) Sdn Bhd, had confirmed that the United States-based investor, was not only retrenching all its workers but also closing down its operation here as it was no longer economically viable.

"It is sad that the state government was not informed of the abrupt decision in advance (until my ministry decided to call Western Digital officials for a meeting today) because we are sympathetic to the plight of the workers, who were only being given a last-minute notice through a video conferencing with the chief executive officer last week," he told a media conference here.

Earlier he met with Western Digital Media (Malaysia) Sdn Bhd senior director Keong Chan and its human resources director Saiful Bahri Sopar at his office in Petra Jaya here.

He said the affected workers, all locals, including 500 engineers and technicians accounted for 10 per cent of the 15,000 workers in the electronics industry at SJFIZ.

Following the discussion, the state government had requested that the company downsize its operation in stages until March besides providing alternative employment opportunities for those willing to move to its plants in Johor, Kuala Lumpur or Penang, Daud said.

He said Western Digital's “fast” decision to close down its Sarawak plant, which produced 30 million units of hard-disk drives per quarter, was due to the 50 per cent drop in global demand, making it the company's first operation in the country to be affected by the current economic situation.

"We are very disappointed because the state government has spent billions of ringgit, in terms of providing infrastructure and cheap land as well as facilities, including water supply to the company because we thought that they will stay here permanently," he said.

"Of course that is their decision economically. As a listed company on the New York Stock Exchange, they want to see their company make dollars and cents but at same time they must consider the contribution of their workers from each country which contributed to the rise in their stock market shares or profits," he said, adding that laying off workers should not be the first option.

He hoped that it would not have a domino effect and requested other companies to refer to the state government first of their plans to close down their plants to enable the welfare of the workers to be looked after, including re-training them.

"The government, through his ministry, wants to assist the affected workers and I will talk to company CEOs in the coming weeks to see if they can be absorbed into alternative jobs, such as the hospitality industry," he said.

However, he said, Western Digital had given an assurance that all its workers who had lost their jobs would be given retrenchment benefits or be given the option to work in its plants in the peninsular.

He said the company planned to sell its plant here, which first started operation 13 years, while another one in Thailand was expected to be closed soon.

According to a news report, Western Digital Corp planned to cut 2,500 jobs or five per cent of the workforce and halt most of its production after orders slowed.

Sales in the current quarter were also projected to be US$1.8 billion (RM6.3 billion), less than the US$2.03 billion or more predicted on Oct 23. — Bernama

Penang factories take a longer break as demand slumps

GEORGETOWN, Dec 19 — Penang’s industrial areas will turn into ghost towns between Dec 22 and Jan 5 as factories shut down longer for the year-end holidays amid falling demand from major markets that are already in recession. Some manufacturers have also sent back foreign workers as their contracts lapse.

But industry insiders say Penang’s multinational manufacturers, particularly in the electronics sector, face a bleak 2009 as demand dries up for components and accessories. They expect further job cuts even as the companies mull over shortening work weeks or closing production lines.

Penang Chief Minister Lim Guan Eng acknowledged the gloom but is confident that the island state, which produces 30 per cent of Malaysia’s exports, can withstand the grim economic outlook.

“I am confident that Penang is resilient to weather the economic crisis,” Lim told The Malaysian Insider.

Lim, who has asked the Federal Government for RM500 million to retrain retrenched Penang workers, said the state government is working to head off any employment crisis. It is understood that Deputy Prime Minister and Finance Minister Datuk Seri Najib Abdul Razak is looking into providing some funds for Penang.

“Penang people have the expertise, the energy and entrepreneurial spirit to overcome the economic crisis and the state government is already working on pro-growth, pro-jobs and pro-poor policies for the state," said Lim, who’s Democratic Action Party (DAP) and allies in the Pakatan Rakyat (PR) electoral pact took power in the March 8 general elections.

The DAP secretary-general said Penang has attracted RM8 billion thus far in investments for 2008 against RM4.7 billion last year, adding the state could have taken in RM10 billion in investments if there was no economic downturn.

Despite the rising investments, Penang businessmen are bracing for hard times. Manpower suppliers say one multinational had just sent back nearly 400 workers or 10 percent of their workforce when their contracts lapsed. “The MNC has another 100 foreign workers and they are expected to leave once their contracts expire too,” one labour consultant told The Malaysian Insider.

He added some companies are thinking of reducing work days to retain their staff and avoid retrenchment.

“Retrenchment is the last option as some don’t have the funds to pay severance packages,” he explained.

A senior executive at a multinational electronic maker said the situation will get worse in 2009.

“There is just no demand for anything electronics. We will have to let the workers go and close production lines very soon,” said the executive, who declined to be named.

While no Penang-based manufacturer has yet to officially retrench staff, hard drive maker Western Digital Corp has announced plans to cut 2,500 jobs or about five per cent of its global work force, including some 1,500 jobs in one plant in Kuching, Sarawak. Western Digital, which first set up in Malaysia in 1973, has another plant in Sungei Way, Selangor and employs a total of 7,000 workers in the country.

Western Digital said demand for the current quarter is “significantly below” what it expected when it issued revenue guidance in October. The company now expects fiscal second-quarter sales of US$1.7 billion to US$1.8 billion (RM6 billion to RM6.4 billion), with a “consequent reduction in operating results.” Its prior sales outlook was US$2.03 billion to US$2.15 billion. Analysts, on average, are expecting sales of US$1.98 billion, according to a poll by Thomson Reuters.

Western Digital will also stop its manufacturing operations from Dec. 20 through Jan. 1, reduce manufacturing hours by 20 per cent through employee attrition and trim its use of temporary workers and overtime shifts.

Lim is grateful that Penang-based companies have not announced any job cuts but is under no illusion about 2009. “We will have to face it and therefore it’s imperative we get funds to retrain those retrenched,” he said.

Government lends graduates a helping hand

PUTRAJAYA, Dec 17 — Graduates who apply for business loans in future may no longer need to provide guarantors or collaterals as the government plans to do away with it, Entrepreneur and Cooperatives Development Minister Datuk Noh Omar said.

Noh said he had called for a study on the matter following a discussion at the two-day business financing seminar in Johor Baharu over the weekend.

“At the moment, we have the micro credit, a loan facility which does not require guarantors or collaterals but it is only for loans below RM50,000.

“We now want to see how we can help graduates who want to take loans exceeding that amount. We are aware that it is not easy to provide guarantors or collaterals,” he told reporters after attending the signing of an agreement between his ministry and the Higher Education Ministry today.

Also present was Higher Education Minister Datuk Seri Mohamed Khaled Nordin.

Noh said the facility would be extended to graduates who had been blacklisted for failing to pay their study loans.

He said a new scheme would also be introduced for those interested in embarking into franchise business where they would be required to undergo training as required by the franchisors.

They would be provided with a monthly allowance and would be assured of loans upon completing their training.

“But if they drop out of the course, they will have to pay whatever the amount the ministry has given them, either in the form of aid or loan,” he said.

Meanwhile, Noh said, the cabinet had given the nod for the setting up of another university under the Majlis Amanah Rakyat, called the Malaysia-Japan University (Maju).

The first intake would be in July next year at its campus at the Mara Professional College in Beranang, Selangor, with the Japanese government providing the learning equipment and lecturers.

He said for a start, the university, which had been in the pipeline since 2001, would have a faculty, the Technological Engineering Faculty, which would fully adopt the Japanese curriculum.

He said the ministry was also planning to upgrade the German-Malaysian Institute, which only offers diploma courses at the moment, into a university next year. — Bernama

Japan’s burgeoning class: Working poor

TOKYO, Oct 26 — In one of the world’s wealthiest nations, Junpei Murasawa is a poor man.

He skips meals to make ends meet. A bachelor, he lives in a tiny apartment in Tokyo, sharing a kitchen, toilet and shower with nine neighbours. He doesn’t have health insurance because he can’t afford the premiums.

The 29-year-old labourer is one of a burgeoning class in Japan — the working poor. The number of Japanese earning less than US$19,610 (RM68,635) a year surged 40 per cent from 2002 to 2006, the latest data available, the government says. They now number more than 10 million.

In a country that boasts the world’s longest-living population, where young women with Louis Vuitton bags crowd the sidewalks, Murasawa’s is a voice of hopelessness and despair — a voice increasingly heard in Japan.

“Everyday I live in deep anxiety,” said the soft-spoken temporary worker, currently making US$882 a month by bagging purchases at a home improvement centre. “When I think about my future, I get sleepless at night.”

The plight of such workers is likely to worsen as the current global financial crisis ripples through the Japanese economy. At the bottom of the economic food chain, Murasawa and his cohorts will be the first to suffer.

The growth of the working poor — not seen in such numbers since Japan surged to wealth in the 1980s — has been a shock to a country that once prided itself on being a bastion of economic equality.

“It is unprecedented to see such a widening income gap in Japan,” said Yoshio Sasajima, economist at Meiji Gakuin University in Tokyo. “Our society is definitely becoming a class society.”

The seeds of changes now wrenching Japanese society were planted in the burst of the so-called “bubble economy” in the early 1990s.

As the Tokyo stock market tumbled, evaporating vast stores of wealth, corporations restructured by laying off workers. In the 2000s, that was followed by a round of free market reforms that widened the disparity between haves and have-nots.

A key to the growth of the working poor has been the explosion in temporary employment agencies, which allow corporations to take on labour without having to pay benefits — and then unload workers at will.

As part of market reforms, the government made it easier in 2004 for manufacturers to hire such labourers, whose number has since increased 40 per cent, hitting 1.33 million in 2007. About 40 per cent of temps are aged 25 to 34.

“Instead of hiring costly, full-time employees, companies are bringing in cheaper, part-time workers as part of their cost-cutting efforts,” said Yasuyuki Iida, an economist at Komazawa University in Tokyo.

Another factor feeding the trend is the emergence of so-called “freeters” — 20- and 30-somethings who have opted for low-paying jobs in services such as convenience stores rather than chasing the material benefits of corporate work.

The spike in the number of the working poor is already taking a toll on Japanese society.

More people are putting off marriage because of tight finances, exacerbating a declining fertility rate. Part-time workers unable to afford rent sleep in 24-hour Internet cafes to escape the streets. Some have stopped going to the doctor because they can’t afford it.

Murasawa is typical of the new class.

He rarely eats breakfast or lunch, and says his usual dinner is a bowl of instant noodles that he picks up — with the rest of his diet of cheap fast foods — at the local US$1 shop.

Rent for his 64 square-foot, one-room apartment in Tokyo costs US$343 a month.

Despite his poverty, Murasawa doesn’t qualify for government welfare payments — he makes too much. Japan doles out help only to single people living in Tokyo who make less than US$833 a month.

Murasawa grew up poor in rural Yamaguchi prefecture, 480 miles west of Tokyo, where his parents ran a small vegetable shop. After graduating from high school, he didn’t have enough money to go to university, so he began working at the store.

Bored with that life, Murasawa came to Tokyo two years ago in hope of landing a well-paying job. What he found instead was subsistence on a series of short-term labour contracts.

“Sometimes I ask myself what I’m living for,” Murasawa said. To make ends meet, he’s given up dining out, drinking, smoking, going to the movies or buying CDs, clothes and magazines.

“I’ve stopped being hopeful for the future. I’ve already given up getting married because I have no money to do so. Getting married is like a fairytale to me. It is utterly unrealistic,” he said.

That hopelessness is spreading to pop culture.

The surprise runaway best-selling book of the year, for instance, is a Marxist novel written in 1929. “The Crab Factory Ship,” by communist Takiji Kobayashi, chronicles hellish labour conditions of ship workers under a sadistic captain. The author was tortured to death by police in a Tokyo prison at age 29 in 1933.

The book has sold more than 500,000 copies since the beginning of the year, after the book’s publisher, Shinchosha, linked the plight of the crab ship workers to that of the working poor in modern Japan in its advertising campaigns.

“The book must have struck a chord with the young working poor who feel that their lives are not getting any better no matter how hard they work,” said Tsutomu Sasaki, a senior manager of Shinchosha. He estimated 30 per cent of the book’s readers are men in their 20s.

Not everybody who drops into poverty stays there.

For 10 months in 2006, Sanae Yamaguchi lived off a series of low-paying, short-term labour contracts.

“I was so miserable during that period because I always had to worry about money,” the 26-year-old said.

After graduating college, she got a full-time job as an accountant at a wholesaler of electronic products in 2005 in Osaka, western Japan. But 10 months later, she was let go. Like Murasawa, Yamaguchi came to Tokyo in early 2006 in search of a better job.

But she was only able to find temporary jobs, mostly as a clerk, living in a tiny apartment where she shared a kitchen, toilet and shower with 20 neighbours in the outskirts of Tokyo.

She earned around US$980 a month, and paid US$441 for rent. Yamaguchi said she had to give up on having a TV set to save on electricity.

To her, the temporary employment route was a poverty trap.

“If you are a temp worker, you’re always getting laid off, which means you don’t acquire any professional skills,” she said.

Yamaguchi finally emerged from her troubles in early 2007, landing a solid full-time job as an accountant at a medical company in Tokyo. She refused to divulge her current salary, but said she can now dine out with her friends, buy clothes and cosmetics and live in her own apartment with a shower, toilet and kitchen.

But that old insecurity has stayed with her.

“Even though I have a good job now, I’m always worried that I could slip back to poverty anytime,” Yamaguchi said. “There is no job security in Japan anymore.” — AP

Being well connected goes a long way in Malaysia

The Sarawak State Government gave two road construction contracts worth a combined $M79.86 million ($A32.59 million) to the Malaysian company CMS Group last week. Last month, it gave CMS an even bigger contract, worth at least $M1332 million over 15 years, to maintain all of Sarawak's roads. The group's most recent annual report says it is the largest and fastest-growing conglomerate in the state.

As well it might. It is, you might say, well connected. CMS Group chairman is Sulaiman Abdul Rahman Taib. His younger brother Mahmud Abu Bekir Taib is deputy chairman. Their father is Abdul Taib Mahmud. He is the Chief Minister of Sarawak and has been since 1981.

The Chief Minister's brother Onn bin Mahmud also sits on the board of CMS. Not only is Abdul Taib Mahmud Chief Minister, he's also the Resource Management and Planning Minister. That means he's also the Forestry Minister. And that's lucky because another brother, Mohd Tufail bin Mahmud, is co-owner of Sanyan Group, one of Sarawak's biggest timber companies. Sanyan Group recently completed the 22-storey Wisma Sanyan in the Sarawak town of Sibu. There is an office space glut in Sibu but, fortunately, the Sarawak Government took up eight floors.

One of Abdul Taib's biggest supporters is the Deputy Chief Minister and Finance Minister George Chan. Chan's daughter is married to Abdul Taib's son Sulaiman Abdul Rahman.

Sarawak is one of the richest states in Malaysia. It earns about $M6 billion a year from timber and timber products. It earns that again from crude oil, and double that from natural gas. It is one of the world's major pepper exporters too. Even this earns almost $M200 million annually.

CMS Group originally was a monopoly cement producer established to feed the building boom then under way in both states. In 1989, the Sabah Government sold its stake and the Sarawak Government decided that the company should list on the Kuala Lumpur Stock Exchange. Abdul Taib's family emerged as its controlling shareholders.

The cement company was transformed into a conglomerate as a result of a host of government contracts.

CMS now encompasses more than 40 subsidiaries that operate in banking, securities and derivatives, cement and construction materials, steel, construction and road maintenance, property development, and services. Other recent government contracts include CMS's appointment in mid-1997 as joint developer of a $US1.5 billion ($A2.4 billion) low-cost housing project in Kuching.

In 2001, Malaysia's Federal Government awarded CMS a $M581 million contract to build a 178 kilometre road in the state. In January this year, CMS was given a five-year contract to supply roofing materials to a state-owned company for the construction of almost 11,000 low-cost housing units. CMS also has a $M150 million government contract to ease tidal flooding along the Sarawak River, a $M47 million government contract to upgrade a local airport, and other contracts to build hospitals.


"Abdul Taib's party forms a core component of Prime Minister Mahathir's ruling coalition."
Abdul Taib has a special place in Malaysian politics. His party is a component of Prime Minister Mahathir's ruling coalition and, come election time, Abdul Taib consistently delivers all or most of Sarawak's seats in the national Parliament to Mahathir's coalition.

In 2001, the Federal Government allowed CMS Group's banking unit Bank Utama to acquire RHB Bank to become one of Malaysia's 10 core banks. A past chairman of Bank Utama is Mahathir's Agriculture Minister, Effendi Norwawi. He also serves as vice-president of Abdul Taib's United Sarawak Bumiputera Party.

Last year, CMS missed out on a contract to build Sarawak's $M9 billion Bakun Dam. But it was not a total miss. The main component of any large dam is concrete, for which CMS has a near monopoly in Sarawak.

The Age , May 15 2003

RBS Became The Latest Wall Street Fraud Victim

RBS said this morning that should the value of Madoff's funds fall to zero, its potential loss will amount to about £400m.

It follows the revelation last week that the former chairman of the Nasdaq stock market had been arrested and charged with fraud - in what could become the biggest-ever case of its kind. Mr Madoff ran a hedge fund which allegedly racked up $50bn (£33.5bn) of fraudulent losses.

Here is list of the banks and financial institutions affected so far:

Access International Advisors said some of its funds were invested with Bernard Madoff. The New York-based investment frim said it was working with counsel to assess the situation, describing it as "a shocking development".
Spain's Banco Santander, which owns Abbey and Alliance and Leicester, said its hedge fund unit invested €2.33bn (£2bn) of client funds with Bernard Madoff.
The Geneva-based Banque Benedict Hentsch Fairfield Partners SA said its exposure is 56m Swiss francs (£32m) of client assets.
Boston philanthropist Carl Shapiro’s charitable foundation - $145m (source Boston Globe).
Bramdean Alternatives Ltd - 9.5pc of its assets, according to a company statement.
BNP Paribas, France's biggest listed bank, said it could face a potential €350m (£313) loss from an exposure to Bernard Madoff's investment activities.
EIM Group - $230m (£153m) (source Reuters, citing Le Temps Newspaper).
Elise Wiesal Foundation for Humanity - undertermined ( source Wall Street Journal).
Fairfield Greenwich Group - $7.5bn, according to a company statement.
Fix Asset Management - $400m (£266m), according to a company statement.
GMAC chairman Jacob Ezra Merkin's Ascot Partners - Most of its $1.8bn (£1.2bn) of assets (Wall Street Journal).
Harel Insurance Investments and Financial Services - $14.2m (£9.5m), according to a company statement.
HSBC is reported by the Financial Times to have a potential exposure of about $1bn (£688m) in loans provided to clients who invested about $500m of their own money in the venture.
Julian J. Levitt Foundation - $6m (£4m) (source Washington Post).
Kingate Management Ltd - $3.5bn (£2.3bn) (source Bloomberg).
Korea Life Insurance - $50m (£33m) (source Yonhap news).
Korea Teachers' Pension - $9.1m (£6m), according to a company statement.
Man Group said that its institutional fund of funds business RMF has approximately $360m (£239m) invested in two funds that are directly or indirectly sub-advised by Madoff Securities and for which Madoff Securities acts as broker/dealer executing the investment strategy.
Madoff Family Foundation - $19m (£13m) - (source Washington Post).
Maxam Capital Management - $280m (£186m) - (source Wall Street Journal).
Neue Privat Bank, a Zurich-based bank, said its clients may lose as much as $5m (£3m) invested in the fund linked to Bernard Madoff. The money was invested through Nomura Bank International, Neue Privat Bank said in a release.
New York Met's owner Fred Wilpon's Sterling Equities - undertermined, according to a company statement.
Nomura Holdings, Japan's largest brokerage, said it has 27.5 billion yen ($302 million) at risk linked to Bernard Madoff's investment funds
Norman Braman, former owner of the Philadelphia Eagles Football Team - undertermined (source Wall Street Journal).
North Shore-Long Island Jewish Health System - $5m (£3.3m), according to a company statement.
Notz, Stucki & Cie - undertermined (source Reuters, citing Le Temps newspaper)
Pioneer Alternative Investments - almost all of its $280m (£187m) of assets (source Bloomberg).
Robert I. Lappin Charitable Foundation - $8m (£5.3m) (source Washington Post).
Royal Bank of Scotland said it had exposure through trading and collateralised lending to funds of hedge funds invested with Bernard L Madoff Investment Securities.If as a result of the alleged fraud the value of the assets of these hedge funds is nil, RBS's potential loss could amount to approximately £400m.
Reichmuth and Co’s Reichmuth Matterhorn fund - $330m (£221m) (source letter to clients).
Societe Generale - less than €10m, according to a company statement.
Tremont Capital Management - undertermined (source Wall Street Journal).
Yeshiva University - undetermined (Source - Washington Post

The Wall Street Ponzi Scheme Revealed

NEW YORK, Dec 14 - Investors who put their fortunes in the hands of arrested New York money manager Bernard Madoff are waiting to hear how much of their stake is left.

The roster of potential victims in what prosecutors said was a US$50 billion (RM180 billion) Ponzi scheme has grown exponentially longer in the past few days.

Madoff, 70, said in regulatory filings that he only had around 25 clients, but it has become apparent that the list of people who lost money may number in the hundreds or even thousands.

Among those who have acknowledged potential losses so far: Former Philadelphia Eagles owner Norman Braman, New York Mets owner Fred Wilpon and J. Ezra Merkin, the chairman of GMAC Financial Services.

A charity in Massachusetts that supports Jewish programs, the Robert I. Lappin Charitable Foundation, said it had invested its entire US$8 million endowment with Madoff.

The organisation's executive director said she doesn't expect it to survive.

Other institutions that believed they had lost millions included The North Shore-Long Island Jewish Health System and the Texas-based Julian J. Levitt Foundation.

Hedge funds and other investment groups looked like big losers too. The Fairfield Greenwich Group said it had some US$7.5 billion in investments linked to Madoff. A private Swiss bank, Banque Benedict Hentsch Fairfield Partners SA, said it had US$47.5 million worth of client assets at risk.

The losses may have extended far beyond the coffers of the wealthy and powerful.

The town of Fairfield, Conn., said it placed nearly 15 percent of its retiree pension fund with Madoff. Officials were scrambling to determine how much of the US$42 million remained.

Harry Susman, an attorney in Houston, said he represents a group of clients who had unknowingly become entangled in the scandal by investing in a hedge fund managed by Merkin, which then put almost all of its US$1.8 billion in capital in Madoff's hands.

"They had no idea they had exposure," Susman said. He said his clients were now dumbfounded as to how the fund came to invest all of its holdings with just one man, especially since concerns had been circulating for years about Madoff's operations.

For decades, Madoff had dual reputations among investors. Many wealthy New Yorkers and Floridians considered him a reliable investment whiz. Others, more skeptical, had questioned whether his returns were real, pointing to the firm's secrecy and lack of a big-name auditor.

But when he met privately with a family member at his firm earlier this month, something clearly was amiss.

First, federal authorities say the 70-year-old Madoff surprised the unidentified family member by saying he wanted to pass out hefty annual bonuses two months earlier than usual, court papers said.

Then, when challenged on the idea, he said he "wasn't sure he would be able to hold it together" if they continued the discussion at the office, and invited him to his apartment.

It was the beginning of a stunning meltdown for the former Nasdaq stock market chairman.

Madoff himself described his investment business as an unsophisticated "Ponzi scheme," according to investigators who interviewed him.

Perhaps more startling than the loss was that it apparently caught regulators and investigators off guard, only coming to light last week when Madoff's own family turned him in.

The core of the scheme - taking investments from one client to pay returns to another - "has been around since the beginning of time," said Marc Powers, a former Securities and Exchange Commission enforcement chief and head of the securities practice at Baker Hostetler.

The firm somehow pulled off the fraud despite being subject to examination by the SEC, Powers added. "You wonder how these things escaped the normally careful review of these regulatory organizations."

The latest dose of bad news in the world of finance has left Madoff's clients "panicked," said Stephen A. Weiss, a lawyer for several dozen investors. "These people are sorrowful. These people are angry. And many are now destitute."

The wave of ill will - fuel for inevitable lawsuits - was aimed at a man who had cultivated an image as a straight-shooter with a personal touch.

The day after his arrest, his company's Web site still boasted that "in an era of faceless organizations ... Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door."

It went on to say "Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark."

Madoff's resume was the stuff of Wall Street legend: He founded his company in 1960 with US$5,000 he earned in part working as a lifeguard on Long Island beaches while putting himself through Hofstra University Law School.

It eventually became one of five broker-dealers that spearheaded the formation of the Nasdaq Stock Market, where he served as a member of the board of governors in the 1980s and as chairman of the board of directors in the early '90s.

By 2001, Madoff's firm was one of the three top market makers in Nasdaq stocks and the third-largest firm matching buyers and sellers of securities on the New York Stock Exchange, according to Baron's.

Investigators say Madoff's crime originated in a separate and secretive investment-advising business.

Madoff apparently kept the loss a secret even from his two sons and other family members who work at the firm until he and two of them retreated to his apartment occupying the entire 12th floor of an Upper East Side building on Dec. 9, according the complaint drawn up by an arresting FBI agent.

"It's all just one big lie," he told his family. He confided he had blown the money in what was "basically, a giant Ponzi scheme," the complaint added.

Several attorneys representing investors, however, have questioned how he could have acted alone, given the size of the alleged fraud and vast holdings of his firm.

According to the court complaint, Madoff told his family he expected to end up behind bars, but wanted to execute his own version of a bailout package by doling out US$200 to US$300 million he had left to family, friends and employees. After the meeting, a lawyer for the family contacted regulators, who alerted the federal prosecutors and the FBI.

Madoff was in a bathrobe when two FBI agents arrived at his door unannounced at 8:30 a.m. on Dec. 11. He invited them in, then confessed after being asked "if there's an innocent explanation," the complaint said.

Responded Madoff: "There is no innocent explanation." - AP

Pensioners head for lifetime of debt

The amount of debt owed by Britain's pensioners has risen by more than a quarter in the past year, research has found.


Pensioners are now burdened by an increasing amount of loan and credit card debts, a new study has indicated Mortgages, loans and credit card debts owed by those in retirement now total £72.3 billion – a rise of 28 per cent on last year.

Scottish Widows, the pension provider which carried out the study, said the findings showed that retirees are heading for a "lifetime of debt" instead of one of financial comfort.

The increase in total debt was mostly explained by a surge in the number of retirees with a outstanding mortgage, rising from 1.1 million last year to 1.4 million in 2008. One in six retired homeowners now has a mortgage, while one in 13 has dependent children.

Among those with debts, the average amount owed has increased. For those with mortgages, the average outstanding debt rose by 10 per cent year-on-year to £42,000, while short-term debts such as credit card balances rose 13.5 per cent to £6,732.

The increase in pensioner debt comes despite a slight drop in credit card debt among working-age Britons, underlining fears that dependency on financial support no longer declines with age. It also follows David Cameron's pledge to reward savers, calling them the "forgotten victims" of the economic slowdown.

Vince Cable, the Liberal Democrat Treasury spokesman, said: "These figures make for depressing reading. Many pensioners on fixed incomes are clearly struggling to pay back their debts and deal with sky high energy bills.

"Following the credit boom of the last few years, there is a danger that many people now face a lifetime of debt. We may be facing a situation where large numbers of pensioners with high debt service costs and low incomes find themselves falling deeper into poverty, with no way out."

Gordon Lishman, director general of Age Concern, said: "Increased living costs have hit many older people hard and could have contributed to higher debt levels among pensioners. Our recent research has shown higher bills have pushed one in ten of the poorest pensioners into debt. There are also high levels of unsecured debt – such as credit cards – among some approaching retirement."

He added: "Millions of pensioners are missing out on their share of up to £5 billion of Government money which is unclaimed each year, which could make a huge difference to their weekly income."

Vicky Redwood, an economist with Capital Economics, said: "Falling interest rates have not helped savers but they haven't done much to help older borrowers either – reduced lending has made it harder to get equity release loans to cover the costs of retirement."

The Scottish Widows research is based on new figures from a sample of more than 6,000 adults whose finances were analysed for the firm's annual pensions report.

Ian Naismith, head of pensions market development at the firm, said: "It is very worrying that year on year rather than reducing, the levels of debt are growing for retirees. Retirement is a time when people should be enjoying life rather than struggling to pay off debt."

He added: "The situation doesn't look any better for pre-retirees – at a time when they should be putting all their money away for retirement they are having to concentrate on paying off debt."

The Consumer Credit Counselling Service said pensioners who contact its helpline owe an average of nearly £30,000 on unsecured loans; similar to the amount owed by those in the 40 to 59 age group.

By comparison, those seeking help in the 18 to 24 age group owe £10,000 on average, while those in the 25 to 39 age group owe £22,000.

Earlier this year another study found that about 30 per cent of homeowners over the age of 70 are still paying off their mortgage, with the average outstanding sum in the region of £45,000.

Meanwhile, record numbers of pensioners are working beyond retirement age, according to the Office for National Statistics. Nearly 1.3 million women over 60 and men over 65 are still working.


* Help the Aged estimate that 2.5 million pensioners live in poverty

Nine million of Britain's 11 million pensioners rely on savings for some part of their regular income, according to the National Pensioners Convention campaign group

One in eight retired homeowners has a mortgage debt of between £50,000 and £100,000, according to Scottish Widows

£4.6bn in benefits are unclaimed by older people every year, according to Age Concern

The average savings rate has dropped by 1.5 percentage points in the last three months alone and by 2 percentage points in the past year, according to Moneyfacts

A pensioner who pays income tax at the basic rate with £10,000 in savings will have seen their annual income nearly halve from £381.60 in December last year to £197.64 this month, according to Moneyfacts

Failure Is Not An Option

Yet I still hear that common assertion from the new wide-eyed entrepreneur: “Failure is not an option!” So what do you do if you’ve decided that failure is not an option? Do you commit suicide when you end up among the majority of start-ups that crash? A small percentage of entrepreneurs actually take this grim avenue. I wouldn’t recommend it. I think a wise entrepreneur needs to have plenty of options, including failure.

There are a gazillion stories of failed entrepreneurs who came back from a disastrous failure only to dust off the battered suit and try another business launch, then finding stunning success. The most-often repeated story of failure followed by more persistence is Thomas Edison’s tale of 2,000 failed attempts at creating an effective light bulb that preceded his success. I’m sure his family was convinced he suffered from an obsessive-compulsive disorder. In our contemporary world, his loved ones would certainly push him into therapy.

A successful business of often preceded by failure, sometimes serial failure. So when I hear the phrase, “failure is not an option,” I wonder what will happen if the business collapses, especially since many of the reasons a business crumbles are out of the hands of the entrepreneur. Let’s get Taoist for a moment. You do everything you can think of to make your business succeed. You open a small restaurant in lower Manhattan in August, 2001. Then, 9/11 comes along. You’re gone. Or suppose you launched a bronze statue business in Baghdad last fall? What can you say about failure under those circumstances? That failure’s not an option?

The “failure is not an option” crowd insists that if you allow failure into your consciousness you doom yourself to it. I think this is the same bunch who visits you in the hospital after you break your leg and ask, “What is it you that you needed from this experience?” Some new entrepreneurs seem to believe that reality is little more than the projection of will. Thus, if they commit to the belief that “failure is not an option,” they will not fail. That’s like standing in the middle of Baghdad chanting “ I am safe, I am safe” instead of ducking behind a strong bunker.

Businesses are launched and they fail or succeed in a world that truly seems impervious to the projection of willfulness no matter how intensely focused that determination may be. Yet this same world is not impervious to repeated attempts to get it right. The world is especially pliable for those determined to succeed no matter how many failures it takes, given a willingness to learn from each failure.

I’ve often suspected the slogan, “failure is not an option,” reveals a rigidity that is incompatible with the continual growth and adaptation that is essential to a successful entrepreneur. For the restaurateur in lower Manhattan who finds that 9/11 has destroyed the dining traffic, why not run inexpensive lunches to the rescue workers and on-lookers at Ground Zero? For the Baghdad statue maker, surely there’s some reconstruction work coming up.

The U.S. bankruptcy laws were wisely devised with the understanding that our society is served when failed entrepreneurs are given another chance. Failure, even serial failure, can be the first stage of a very successful journey. Those who place power in the idea of failure is not an option, may see their business collapse without allowing themselves the deep lessons that come from a business disaster. Success often comes to those willing to keep coming back, albeit a little bit smarter each time.

How To Get Rich In Malaysia

If you have ever wondered how to get rich in Malaysia – fabulously rich and very quickly at that – here’s a model that you might want to look at very closely. Not easy to do but if you do have a couple of projects in the bag, it will set you up for several lifetimes.

First you need connections – strong ones, the higher the better and if it goes right up to the top all the better. You need this because you need to convince the powers that be that your projects are good.

But you might ask if your projects are so good, why do you need connections? Why don’t you just go out and execute? Good questions, those. Here’s the answer - you need the state to give you something to do the deal that will help the nation.

Still can’t figure it out? See, it’s like this. You want to help the country, right? The country needs say a port. But you can’t build a port just like that. You need land to build a port. You tell the state or federal government you need land – cheap land, preferably free to build the port.

Or to take another example, you want to help the country by building a power plant. But look, you need land too and not only that you need the power to be sold. So you want an agreement – an iron-clad one to sell the power to Tenaga Nasional and to pass through all costs.

You see, that’s your reward as an entrepreneur – you get someone else to build the power plant, they guarantee the performance of the plant and someone else guarantees to buy your power and pay for all your costs. Nice deal? You bet. Billionaires have been made that way.

Or you may want to start an air hub. If you are persuasive enough, you can even convince the government to compulsorily acquire the land and sell it to you cheap. Once you have cheap land, lucrative contracts and concession agreements, the sky’s the limit.

Let’s take it a step further. If you want to realise the value of all of these things that you have and still keep control of them, it’s nice to have a listed company into which you can inject them. Inject one asset for shares and you gain control of the company.

And then inject others over the years for cash, taking the money out of the company. Who says you can’t have your cake and eat it too?

Do it right and get a flow of assets to inject in (you can do anything with discounted cash flow valuations – just change the discount rate, and presto, the value changes!), and you get a tidy flow of profits and cash into your personal accounts over the years. I mean a really tidy flow.

Just how much can you make this way, you ask? Why don’t you take a guess first? Did you say RM500mil? Guess again. RM1bil? How about five times that and you may be getting into the right order of magnitude.

One Tan Sri Syed Mokhtar Albukhary actually made some RM4.5bil that way - actually more because he still controls the listed company. (
MMC’s latest RM1.7bil deal irks investors7) We are not saying he is the only one, which makes your chances of joining the ranks better – if you are connected to high places that is.

But then again, if things change – and that’s still a big ‘if’ – you might not find it so easy anymore.

Inspirational & Motivational Video

Iceland : The First Victim Of Global Financial Crisis

What a difference a year makes. Only last November, Iceland's status as one of the most successful economies in the West was underlined when it was judged the best place to live in the world.

Iceland had ousted Norway from the head of the UN's league table of 177 countries that compared per-capita income, education, health care and life expectancy – which, at 80.55 years for males, was third highest in the world.

This was only one in a string of glowing assessments of a country (population 313,000) which had pulled off a modern-day economic miracle. No wonder they are also said to be the happiest people on the planet. The inhabitants of this newly discovered Utopia, with its much-admired free health and education systems, bought the most books, owned most mobile telephones per head, and included the highest proportion of working women in the world.

Iceland had also presided over the fastest expansion of a banking system anywhere in the world. Little did anyone know that the expansion once so admired would go on to saddle the country with liabilities in excess of $100 billion – liabilities that now dwarf its gross domestic product of $14 billion.

Iceland overreached itself in spectacular fashion, and the party is coming to a messy end.

Yesterday, trading in the shares of six major financial institutions was suspended as the government sought to avert meltdown.

Sigurdur Einarsson, Chairman, Kaupthing Bank, warned against people being too alarmist.

"Over the years we have built a strong and well-diversified bank. We have some of the strongest capital ratios in the European bank sector. We've got good asset quality and a highly diversified loan portfolio.

Kaupthing has and continues to manage its business prudently and, with our strong fundamentals, we are naturally concerned when we hear malicious rumours and sensationalism about Kaupthing being reflected irresponsibly. We ask people to look at the facts, not rumour and inuendo."

Meanwhile, Icelandic interest rates have been catapulted to 15.5 per cent, peaks not seen in Britain since Black Wednesday, in an attempt to rein in inflation. The krona's freefall on the international currency markets is surpassed only by the catastrophic failure of Zimbabwean currency.

One of the country's three banks, Glitnir, has been nationalised; another wants money from its customers. Foreign currency is running out as international banks refuse pleas to lend money.

No longer smiling, office workers hurry home wondering out loud if they will have jobs to go to by the end of the week. Car showrooms are deserted. Estate agents are closing early. There are few takers for the thousands of unsold houses on their books. An unexpected cold spell is keeping many people inside their homes, another reason why the shops, many of which have discount sales, are quiet.

The speed with which Iceland rose and then fell to earth has bewildered not just the islanders but also Geir Haarde, the Prime Minister who has spent the past four days locked away with his advisers in Reykjavik. He emerged on Monday to announce new powers for the country's financial regulator:

"We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy. The legislation is necessary to avoid that fate."

The dramatic change in Iceland, from the poor relation of Europe to one of its wealthiest and apparently most successful, and now back again, dates from the mid-1990s with the privatisation of the banks and the founding of the country's Stock Exchange.

The free market reforms unleashed a new generation of thrusting, young businessmen, many of whom picked up their banking trade in the United States. They were determined that their country would no longer have to rely on fishing for its principal source of wealth; they loathed the international perception of Iceland as a parochial nation of farmers and fishermen who could not hold their own on the world business stage.

They had learnt at school all about the last Cod War with Britain, in 1976, when Iceland unilaterally extended its territorial waters, desperate to increase the financial yield from its trawler fleet. So, in keeping with the traditions of their Viking ancestors, the new army of corporate raiders went overseas to seek their fortune.

Kaupthing, one of the three banks at centre of the debt crisis, is not even in the top 100 of the world's biggest banks. But its influence on the British economy is out of all proportion to its 124th ranking. In five years it has underwritten more than £3 billion in debt to help finance British deals.

This is why the bankruptcy is not only adding to the turmoil on London Stock Exchange – which at one point yesterday lost eight per cent of its value – but also sending ripples through the British High Street. Baugur, the Icelandic investment house, has amassed large stakes in retailers including Hamleys, House of Fraser, Oasis, Debenhams and Iceland the frozen food store. Question marks hang over their future.

Kaupthing lent the money to Baugur to finance its investment in Arcadia back in 2001, which it then sold on to the British billionaire Philip Green. It also snapped up the UK merchant bank Singer & Friedlander for £547 million in 2005 – a company which has helped bankroll some of Britain's best known entrepreneurs, such as Gordon Ramsay. It also advised the sportswear tycoon Mike Ashley on his troubled £134 million purchase of Newcastle United football club. Kaupthing was also a big investor in the London property market, which has become another millstone round the bank's neck.

The Icelandic bankers were able to raise billions for their expansion from the booming new Stock Market in Reykjavik and because of Iceland's extraordinary well-funded pension system.

For decades one of the poorest countries in Europe, Iceland could finally celebrate as the average family's wealth grew by 45 per cent in five years. GDP accelerated at between four to six per cent a year and the wealth was invested in property that, in turn, fuelled an unsustainable boom in house prices. In the good times, credit companies sprang up offering 100 per cent loans, many in foreign currency such as Japanese yen or Swiss francs. But with the krona in freefall, some loans have doubled in size and thousands are defaulting.

Some did counsel caution. In 2004, Bjorn Gudmundsson, an economist with Landsbanki, said: "We think the economy will cool rapidly in 2007. Much of the investment in infrastructure will come to an end then." But the dealmakers thought the good times would last for ever. In the same year that Gudmundsson sounded his warning, Icelandic investors spent £895 million on shares in British companies alone.

It was almost inevitable that when the international credit crisis unleashed the worst financial tsunami the world had seen since 1929, there was little that Iceland, which disbanded its armed forces 700 years ago, could do to repel the shock waves. Iceland has guaranteed all its savers deposits, but could not extend this guarantee to the hundreds of thousands of British savers who have invested money in their internet savings banks.

The mood of crisis was heightened further when the Government suspended all public service broadcasting, a measure usually reserved for volcano warnings. The chairman of the opposition left-green party, Steingrimur Sigfusson, has called for a coalition government to lead Iceland through its financial emergency.

The trade unions, meanwhile, are pressing for Iceland to begin talks about becoming part of
the European Union, which the government has been reluctant to join for years. The pension funds have now also agreed to help the Government by selling assets.

It took a while, though, for the penny to drop. As recently as this spring, when questions were being asked about the economy, the country was in denial.

Dagur Eggertsson, a former mayor of Reykjavik, said: "Someone called it 'bumblebee economics' because it is hard to figure out how it flies, but it does, and very nicely, too." The bumblebee, though, like the billionaires who thought they could buy up the British high street, is no longer flying high.