Malaysia cuts spending in 2010

MALAYSIA'S government cut spending in its 2010 annual budget to rein in a ballooning deficit as it forecasts the economy will rebound to grow 2-3 per cent after a recession this year.

Prime Minister Najib Razak's speech to parliament on Friday will announce details of the budget, which is expected to include plans to revamp expensive fuel subsidies and measures to woo foreign investors including a 'second wave of privatization' of state run companies.

The Finance Ministry in a report said development spending will fall by 4.4 per cent to RM51.2 billion next year with spending to taper off following the completion of some major projects.

For the first time in years, the government's operating expenditure will be trimmed sharply by 13.7 per cent to RM138.3 billion following cuts to fuel subsidies, services spending and grants to statutory bodies, it said.

This will bring the federal government's budget to RM189.5 billion, down 11.3 per cent over 2009. With the reduced spending, it said the fiscal deficit is expected to narrow to 5.6 per cent of gross domestic product in 2010 from 7.4 per cent forecast for this year.

The government also narrowed its forecast for the contraction in the economy this year to 3 per cent following pump priming that included new spending of RM67 billion. It earlier expected the economy to shrink 4 to 5 per cent. – AP

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Yes, that is what was reported today. But what we should focus on is what it costs to run this country as opposed to what it costs to develop the country.

At the time of Merdeka, for every RM4 spent, RM1 went towards running cost and RM3 towards development. Today, for every RM4 spent, RM3 is for running cost and only RM1 goes towards development.

So, out of about RM200 billion spent, only about RM50 billion goes towards development as what the report above shows. In the past it would have been the other way around.

Tunku Abdul Rahman is said to be not that smart a leader compared to the leaders of today. Maybe. Maybe not. I am not too sure because I never interacted with him or worked for him. But at least he spent RM1 on the ‘machinery’ and RM3 on the people. Today, the ‘smarter’ leaders spend RM3 on the ‘machinery’ and only RM1 on the people.

So who is smarter?

Okay, you may argue that Malaysia did not see too much development in the early days of Merdeka so we are not quite comparing apples to apples. Again, that may be true. But imagine if this was a company and we spent RM150 billion on the running cost of the company and only RM50 on goods in trade? Would that not be lopsided?

We have a bloated civil service. More than a million civil servants (including the diplomatic service, security agencies, etc.) against a working population of 10 million people is just too much. That comes to about 13% or so.

I have in fact written about this many times before and even offered comparisons to other countries, which has a far lower ratio compared to Malaysia -- whether it is Indonesia or the United States.

Then there is the ‘evaporation rate’, which is again very high. From the Auditor-General’s report every year we know that there is a very high ‘evaporation rate’. So, from the RM200 billion we spend we only get about RM150 billion worth in return. RM50 billion just ‘evaporates’ into thin air.

This is the crux of the whole issue. RM200 billion means nothing if only RM30 billion goes to the people because of the high running cost and evaporation rate.

Petronas has earned an estimated RM1,000 billion over the last 35 years. The people in the oil industry say it is more like RM2,000 billion but I am prepared to give the government the benefit of the doubt and place it at RM1,000 billion.

What have we shown for that RM1,000 billion? Can we see RM1,000 billion worth of development? Add up everything the government has built over the last 35 years and see how much they all come to. You will be hard-pressed to account for even RM300 billion.

That should be what Malaysians talk about, not what AP reported above.

ThunderBird @ Subang Air Show 2009

Nicolas Cage suing former manager

The 45-year-old actor – who owes over $6 million in unpaid tax and has been forced to put several of his properties on the market - filed a lawsuit in Los Angeles, claiming Samuel Levin caused him huge financial losses by making bad investments.

The document states that over seven years Levin “placed Cage in numerous highly speculative and risky real estate investments, resulting in Cage suffering catastrophic losses”.

Cage – who is being sued over a $2 million credit deal - has also alleged Levin did not pay some taxes.

The ‘Face Off’ actor also claims Levin did not warn him that he was over-spending.

Legal papers state Levin “over-extended Cage’s line of credit with banks and financial institutions” and hid his “true financial condition prior to investments and assets being acquired by Cage”.

It is also suggested Levin over-charged Cage for his services.

Cage says he has had to sell items “at a significant loss” because of his financial problems.

Forbes.com has reported Cage earned $40 million last year. He claims he was unaware of his financial difficulties until he got a new business manager in 2008.

Levin has not commented on the claims.

Koh Lipe

1987's Black Monday Crash anniversary

ANNANDALE, Va. (MarketWatch) -- Investors younger than their early 40s, and who therefore were not yet out of college 22 years ago, will probably wonder why many old timers are making such a big deal out of the anniversary of the stock-market crash that occurred on this day in 1987 -- which also happened to be a Monday.

In addition, investors who focus on the number of Dow points lost that day -- 508 -- in contrast to the decline in terms of percent, will also wonder what the big deal is all about. After all, in last year's financial meltdown, there were a couple of days in which the Dow lost a lot more than "just" 508 points.

In fact, the Dow's drop on 1987's "Black Monday" was the biggest single-day percentage drop in U.S. stock market history -- nearly 23%, in fact. An equivalent percentage drop at today's loftier market levels would translate into a loss in one trading session of nearly 2,300 Dow points.

No wonder it was so traumatic, and why those who were active in the market that day still remember it so vividly.

Commemorating the 1987 Crash's anniversary is important not just to help market veterans face their trauma, however. It also contains valuable lessons for us as we nurse our still-fresh wounds from the recent financial meltdown.

Perhaps one of the more valuable lessons is that time does heal all wounds.

There will come a time, how many years into the future we don't yet know, when memories of the 2007-2009 bear market will be as distant and forgotten as is the case today for memories of the 1987 crash.

Arrest of Hedge Fund Chief Unsettles the Industry

For years, whenever anyone asked Raj Rajaratnam about the success of his hedge fund, the Galleon Group, he chalked it up to being hungrier than everyone else.

“It is pride, and I want to win,” Mr. Rajaratnam said in “The New Investment Superstars,” a book by Lois Peltz published in 2001. “After awhile, money is not the motivation. I want to win every time. Taking calculated risks gets my adrenaline pumping.”

Now prosecutors are claiming that Mr. Rajaratnam, 52, crossed the line into criminal activity.

At dawn on Friday, Mr. Rajaratnam was arrested at his expensive Manhattan home, charged with running the biggest insider trading scheme involving a hedge fund. He and five others are accused by the Justice Department and the Securities and Exchange Commission of relying on a vast network of company insiders and consultants to make more than $20 million in profit from 2006 to 2009.

Mr. Rajaratnam’s lawyer has said his client is innocent. He is free on $100 million bail and is expected to be in the office Monday to address Galleon employees.

In 2007, Mr. Rajaratnam’s name arose in connection with an inquiry into fund-raising for the Tamil Tigers, the Sri Lankan rebel group that was defeated in May after a quarter-century of violence.

News of Mr. Rajaratnam’s arrest has also shaken the secretive hedge fund world, in which intelligence on companies is often shared among Wall Street analysts, traders and other investors.

“The defendants operated in a cozy world of ‘you scratch my back, I’ll scratch your back,’ ” Preet Bharara, the United States attorney for the Southern District of New York, said on Friday. He added that the case should be a “wake-up call” for hedge fund managers who even think about insider trading.

Hedge funds often use lobbyists, investigators and other connected people to dig for information about a company or industry.

Most of the information is obtained legally. But the government’s use of wiretapping and confidential witnesses in the Galleon case raises questions about when investors can act on nonpublic information. The case also signals a new zeal by authorities to clamp down on Wall Street crime after failing to detect the $68 billion Ponzi scheme by Bernard L. Madoff.

At the center of this purported insider trading ring is Mr. Rajaratnam, who rose from a technology analyst to become a hedge fund billionaire.

Mr. Rajaratnam always remained close to his homeland, Sri Lanka, which was riven by fighting between its government and the Tamil Tigers, formally known as the Liberation Tigers of Tamil Eelam. The hedge fund manager often reached into his wallet for causes related to the country. When the island was struck by a tsunami in 2004 — he had been there at the time, but was inland — he organized a charity to raise money to rebuild homes.

In 2004, he also helped raise $120,000 to buy dogs to detect land mines littered throughout Sri Lanka.

Yet his giving was not without controversy. In 2005 and 2006, the charity he created, Tsunami Relief, gave $1.5 million to the Tamil Rehabilitation Organization, a group officially dedicated to helping victims of the fighting. But prosecutors have since charged the Tamil charity with aiding the rebel group, and its nonprofit status has been suspended.

A criminal complaint filed in Brooklyn federal court in 2007 described an “Individual B” who donated $2 million to the terrorist group in 2000 and 2004. People briefed on the matter confirmed a report by The Wall Street Journal that Individual B was Mr. Rajaratnam, who was never charged. Several defendants in that case have pleaded guilty to raising money for the Tigers.

A lawyer for Mr. Rajaratnam, James Walden of Gibson, Dunn & Crutcher, said in a statement that his client was not a Tiger supporter and that the money had been spent on “rebuilding thousands of homes for Tamils, Sinhalese and Muslims without discrimination.”

Within the hedge fund industry, Mr. Rajaratnam was long known for his expansive contacts within the technology sector.

People close to the company describe the pressure within Galleon as intense, with Mr. Rajaratnam demanding long hours and highly detailed research reports.

By the time he was arrested, Mr. Rajaratnam had cemented his position as a member of New York’s financial elite. Forbes estimated his net worth this year at $1.3 billion, earning him a spot on its list of richest people in the world. He donated more than $30,000 to Barack Obama, Hillary Rodham Clinton and the Democratic Party in 2008.

And he sat on multiple charity boards, including those of the Harlem Children’s Zone and the American India Foundation.

Mr. Rajaratnam built his fortune from the ground up: born in Sri Lanka, he was sent away for schooling, including at the Wharton School at the University of Pennsylvania. He became a technology analyst at the investment bank Needham & Company, rising through the ranks to become president. In 1992, he began a hedge fund for Needham clients, many of whom were technology executives themselves.

Mr. Rajaratnam left the firm in 1997, but took the fund and called it Galleon, after the Spanish empire’s ships used to ferry gold and spices from the New World.

Several of Galleon’s employees had an engineering background, like him. Many outside analysts envied the extensive research reports their counterparts at Galleon produced, culled from regulatory filings, checkups on supply chains and sources within the companies they covered. At its peak, the firm managed $7 billion in assets, but that figure has since fallen to about $3.7 billion.

The firm made no secret that its investors included technology executives. Among them was Anil Kumar, a McKinsey director who did consulting work for Advanced Micro Devices and was charged in the scheme. Another defendant, Rajiv Goel, is an Intel executive who is accused of leaking information about the chip maker’s earnings and an investment in Clearwire.

Prosecutors also say that a Galleon executive on the board of PeopleSupport, an outsourcing company, regularly tipped off Mr. Rajaratnam about merger negotiations with a subsidiary of Essar Group of India. Regulatory filings by PeopleSupport last year identified the director as Krish Panu, a former technology executive. He was not charged on Friday.

Galleon has previously been accused of wrongdoing by regulators. In 2005, it paid more than $2 million to settle an S.E.C. lawsuit claiming it had conducted an illegal form of short-selling.

Employees face 'shockingly higher' health costs

NEW YORK (CNNMoney.com) -- It's open enrollment time at work. Prepare yourself. Starting in 2010, your employer is making sure that when it comes to paying for your health care, you're going to be sharing much more of the burden.

"The headline is greater cost sharing," said Tom Billet, senior consultant with human resources consultancy Watson Wyatt. "That means higher [employee] contributions, higher deductibles, or both," he said.

In 2010, employers are "putting everything on the table," implementing benefit changes aimed at making workers more aware of the actual cost of services," said Paul Fronstin, director of the health research program at the Employee Benefit Research Institute (EBRI), a public policy research group.

Barry Schilmeister, health care consultant with Mercer, a global firm specializing in employee benefits, agrees.

"Most people are shielded from the true cost of care because all they pay when they go to the doctor is a $15 to $20 co-pay," he said. "To me the catch phrase in 2010 will be 'Taking responsibility.' "

Consumer advocates, however, aren't thrilled with these declarations.

"We recognize that this is a hard economy," said Cheryl Fish-Parcham, deputy director of health policy with Families USA, a health care consumer advocacy group.

"We know that medical debt is growing. We know that [employer-based] coverage is thinning," said Fish-Parcham. "This is a really difficult environment for everyone. That's why we're all looking forward to health reform."

Here's what to expect
So how are employers tweaking health care benefits options in 2010? Here's the rundown:

Higher out-of-pocket costs. "Employers and employees will face shockingly higher [health care] costs," warned Helen Darling, president of the National Business Group on Health, whose members include Fortune 500 companies such as American Express (AXP, Fortune 500), Coca-Cola (KO, Fortune 500) and IBM (IBM, Fortune 500).

Companies are raising deductibles, co-payments and employee out-of-pocket limits. "In better economic times, employers are better able to shoulder the [health care cost] burden. Not as much now," said Billet, who estimates that costs could increase between 10 to 20% for insured workers.

Besides the economy, Billet said other underlying factors driving up health care costs include aging of the population, greater use of technology in health care and government cost-shifting.

"Medicare and Medicaid typically pays providers less than the actual cost of care," he said, adding that providers make up the difference by raising their rates to their insured clients.

Co-pay to co-insurance. Darling said companies have been shifting over the past five years from a co-pay, a flat dollar fee ranging between $10 and $35 that employees pay at each doctor visit, to a to co-insurance model.

With co-insurance, employees pay a percentage of the total medical expense. Experts say co-insurance rates are typically split 80-20 or 70-30 between the health plan and the insured worker.

"By changing to co-insurance, people are more aware of costs and the hope is that they'll be more careful about how they spend their [health care] dollars," said Schilmeister.

Billet, whose corporate clients include Time Warner (TWX, Fortune 500), the parent company of CNNMoney.com, said co-insurance used to be the norm prior to the advent of health management organizations (HMO). "So it's almost like a back to the future," he said. Time Warner is shifting from a co-pay to a co-insurance model next year.

Fewer options. Big companies are reconfiguring their options, reducing the number of HMOs and offering them only in specific geographic areas, or cutting back on the number of health plans, said Billet. "If a company previously offered a high, medium and low-cost option, now many companies are eliminating the higher-price ones," he said.

"I don't think there's a groundswell of this happening, but employers are looking to save money wherever they can," said Schilmeister. "You can expect that if your company offered two similar HMOs, they will drop the more expensive one."

He added that many consumers may be forced to switch doctors as a result of the consolidation of health plans.

EBRI's Fronstin offered a different perspective. "Fewer options may be a good thing," he said. "Sometimes people get overwhelmed by too many choices and in the process they don't make the best choices for themselves."

Consumer-directed health plans. About 20% of large employers offer consumer-directed health plans (CDHP), up sharply from 14% last year, according to Mercer.

These plans, which couple catastrophic illness coverage with employee-funded health savings accounts (HSA) or health reimbursement accounts (HRA), are 20% less expensive than traditional preferred provider organizations (PPOs) and HMOs, said Schilmeister. CDHPs usually have much lower premiums, although the deductibles are higher than other options. Some employers do help workers with the high deductibles by contributing money into their HSAs.

Still, Schilmeister said CDHPs probably make more sense for a healthy worker who doesn't utilize medical care frequently. Otherwise they can be expensive for employees.

"Be careful with these," said Fish-Parcham. "If employers aren't funding your HSA, it can become a huge problem especially for lower-income workers."

Closer scrutiny of dependent coverage. Experts say you should expect companies to impose a "surcharge" on your premiums if you have a working spouse who has access to other health care coverage. "Virtually all big companies are doing eligibility audits now," said Darling.

Incentives to stay healthy. A healthy worker is a less expensive investment for an employer. So expect to see incentives such as lower premiums or even gift cards if you take a health assessment test or join a weight loss or smoking cessation program.

Families USA's Fish-Parcham said she likes incentives designed to keep workers healthy provided that those incentives are not tied to employees' health plans.

"We're very concerned that employers are imposing higher premiums on people based on their health condition that may be outside of their control," she said.