5/09/2015

1MDB – modus operandi of SWF




The way the 1MDB operates and the attacks on its integrity have become a great publicity case in Malaysia and a political football between those in power and those waiting to unseat those in power. Given the fact that both sides are quite equally matched in political influence and with significant support on the ground, the contenders are not going to get away easily or be thumped down without putting up a big fight.

In the rumour mills, there have been speculations as to how a fund like this would or could make money for the people behind the fund. And it is interesting to see the different processes involved and how money is being made. The first part is the source of fund. As a sovereign fund, the funding is easy if the people behind it could use all the political influence and power to get cheap fund without having to go through the due process of qualifications as a reliable and credible borrower. It is a case of just demand and the money will appear, OPM, or from govt linked organizations where there is no individual owners to talk about.

Such funds are not only easy to come by, the terms of repayment are just as fluid if not hazy. It can be on a continuous basis with no beginning and no ending, round tripping or refinancing and refinancing with the funds remaining in the SWF forever and unaccountable to anyone. With this part secure, there is money, plenty of money, unlimited supply of money.

The next big question is how to siphon the money out from the fund. Oh, I have skipped the investment part completely. Maybe I should touch on this, as suggested by some analysts as to how the SWF will invest the good money to make good returns. The trick is NOT to make money. Profitable investments are only good on paper but not worthwhile if the money cannot be taken out from the fund. So paper profits or cooking the books to show profits would do.

The best and easiest part is to lose money, the more the better. Any bad investment would mean the money in the fund can be drawn down, or lost, spent. With this model, investment becomes so easy and needs only a little bit of ingenuity. Find junk companies, boost up their share prices, inflate them as high as possible, buy high, very high. Then let the price falls and sell at the bottom. Junk companies can be created by proxies or cronies. Some junk companies can be a shell or fictitious, never mind. The intent is to lose money in order to get the money out from the SWF.

Just imagine if each investment in a junk or fictitious company would lead to a loss of $300m, how much could be pocketed if 10 such companies would to fail? Easily $3b and setting aside a few hundred millions for the cronies and proxies would be small change and everyone very happy.
The other important trick is to keep the accounts secret to allow the fund to write whatever profit or loss it so desired. In a way the fund can keep on running in perpetuity, with new money coming in and pocketed by announcing bad deals and big losses. Then top up with more of OPMs.

This is a very simple model of how to make SWFs make money for the people behind them, no transparency, no accountability, just get a few cronies to go through the motion of investing in loss making companies over and over again. No one will bother to check it out, no one will bother to complain and ask for accountability. 1 MDB was just unfortunate that it could not keep its activities under wrapped and was exposed prematurely. If not, it could be a golden goose that would lay unlimited golden eggs.

The genuine SWFs got to sweat to make money, to justify to shareholders, to govts and auditors, and be accountable for the profit and loss. It is not easy to make good and profitable investments. Not everyone is a Warren Buffett. But making ‘sure loss’ investment is a piece of cake. The small difficulty is how to make the loss as big as possible and still look genuine.

This is great fun, oops funs, to operate. No stress, no need to work too hard and money is coming in by money going out in loss making investments. Simply ingenious!

14 comments:

Anonymous said...

Wah! Now my eyes open big, big already!

Anonymous said...


Sorry, not following 1MDB case.

But, know that if a person is being pushed to the wall, the only way to survive is to fight back.

Be Careful! Be Careful!

Cheers.

Anonymous said...

That's why it is so important and even critical to be the incumbent govt, and not the opposition.

Hence opposition will try hard to win elections to topple the incumbent, or failing which, to even resort to large scale illegal protests or even riots to do so.

And of course no opposition leader, let alone the strongest one, unless he is a nut case, will ever admit publicly that his party is not ready to be govt, or worse, even praise the incumbent as competent.

But still there is an exception for the opposition in a certain country. And u know which country lah, tio bo? And that not only reflects badly on the type of opposition, but also on the type of citizens.

ℳatilah_Ƨingapura said...

The idea of SWF's is already a really bad one, and thus they are ALL bad. But some are worse than others.

The whole political economy is a series of emergent phenomenafrom the cuntry's CULTURE. That means from the way the people interact personally, to their political system and people in it, to the way they conduct day-to-day commerce. How POWER is distributed thru that society also matters. In mature Western Democracies, the power is FLAT, with concentrations at the top, which is to be expected. People at the BOTTOM have adequate "power" to get ahead---they have RIGHTS which are rigorously enforced not only by the state, but by the media and the community. (e.g. recent 'death by cops' of black guys---community and national/ international outrage)

In many "traditional" Asian societies power is also distributed, but a large portion of people at the BOTTOM and in the middle have NO POWER and are essentially SILENCED. Power is concentrated with the wealthy, the connected and the govt heads.

So it is to be expected in a place like Malaysia, that you'd get such CRIMINAL behaviour, plus the criminals still roaming free to enjoy their stolen booty. And no one can do or is willing to do a damn thing except make loud noises in the media.

The risk to reward metric is off the charts in this saga. Dunno how many 100 million "vanishes" and all you get is noise. No one pays.

Damn good deal lah.

Anonymous said...

Piggy's Wealth Fund.

Uncle Red Bean Respector said...

Red Bean, my most respected Uncle in Cyberspace,

The process of siphoning (I rather call a spat a spat, and that is "cheating") described by you is too tedious.

Someone has already found an easier way out.

They simply "Write Off" 8 or 10 billion dollars as "Administrative Charges" every year, since 2008, I believe.

Yew asked, "What the hell is this 'Administrative Charges' animal"?

Sir, I think it must be an Angel sent from Heaven.

If you pray hard enough, God will send you an angel and she will help you to invest and lose as much money as possible. But after some time, she may also become the target of rumours or curses.

Then the ingenuity comes in - "Why not just simply write it off?"

"Boss, Sir, no ... sorry, My Lord, Anyway who has the power or even audacity to check on us?"

"But .. but ... what about Transparency ... er ..?"

"What transparency are you talking about? You want me to walk around naked?"

"Er ... People may also want you to account for your actions ..."

"What accountability are you grumbling about? Hey, My Lord, your slaves are to account to you, not not you to them, Sir. Do you understand?"

"Ya, you are right. I better tell the slaves"


Turning to His, Facebook page of His computer in front of him, The Emperor wrote:

"Slaves of my Land, Wake up! Don't ever question or ask me for transparency and accountability! Do you understand?

If you dare to try, I will sue you until you go bankrupt.

Or if you dare to write a blog to expose me about the OPM that I have been using, I will not only sue you but also charge you for many offences that I can easily come out with.

Or if you dare to produce a video to criticize and make fun of me openly, I will fix you and slap you right in front of everybody! Do you understand? Do you get it?"

All the sheepish slaves and cronies, in a chorus, replied to the Almighty Emperor,

"YES, Mee LORD!"

"Yes, you said? Ok, then you are my good slaves and cronies. Now I will let you live for a few more years ..... Ha ha ha ha ..."

In the Kingdom of Fools, everyone is so happy; so contented, so clueless about anything and everything .... they just wanted to live a simple life on and on and on ....

Uncle Red Bean, do you like the Hollywood Drama Story I just painted?

patriot said...

1MDB maybe just a copycat that have learnt the Modus Operandi from the Neighbour.
Btw, hanky panky Businesses are nothing new, they are the creative results of the Human Species.

Sinkies may like to refrain from talking about dirty businesses of others countries.
It is best that Sinkies keep their own house in order and not laugh at others, especially when own house is messy.
in may areas.

patriot

Anonymous said...

Sinkie house used to be clean. Now so many fake foreigners, not dirty also cannot, learning how to cheat like fake foreigners.

Uncle Red Been Respector said...


Spat = A cloth or leather gaiter covering the shoe upper and the ankle and fastening under the shoe with a strap: e.g.

The waiter wore spats as part of his uniform.

(A cover-up so that others cannot see your shoes.)

Spat as opposed to spade.

Chua Chin Leng aka redbean said...

Hi Uncle, your story also like fiction but very real.

Anonymous said...

Despite 1MDB, I think Najib will still survive as PM.

Because as the incumbent PM, he operated from a position of strength and therefore has tremendous advantages over his rivals to remain as PM.

On the other hand, just look at Anwar. He is in opposition and look what happened to him?

ULTRON THE DESTROYER said...

The danger of having a single political party in power for far too long (two terms of 4-5 years should be just right) is so obvious in so many Asian and Asean countries. Yet the common people, although knowing this for a long time, just cannot do anything. Politicians in power always make use of the whole government machinery to serve their selfish interest and exploit the system (devised by them) for maximum political advantage.

The corrupted mind will always remain corrupted if not worst. The highly intelligent corrupted or twisted mind are the worst of all, because they are cunning enough to make use of the Parliament to come out with laws to safeguard themselves and to their ulterior motives.

Worst still is when suppression and oppression have gone unchallenged or challenged but failed again and again, and the majority of the people resigned to the fate of being the sheeple and slaves to serve and serve the Corrupted Power, that eventually become more and more bold and daring and greedy, thereby exposing themselves without knowing that they are not wearing any clothes.

Until one day, a small boy comes by and pointed out naively and loudly that the EMPEROR is so HORRIBLY UGLY AND NAKED.

Anonymous said...

And the EMPEROR obliges the small boy by proving that he (the small boy) is RIGHT after all.


Hahahahahaha ......


And the whole world watches, yet nothing much can be done .....

Anonymous said...

rb your analogy reminds me of the 1968 mel brooks comedy the producers. the producer (zero mostel) with the help of his accountant (gene wilder) sold 25000% of the play to investors. they made sure the play was going to be a big flop, so that they don't have to pay back the investors. but the play turned out to be a big hit.