Holding Lee Kuan Yew accountable – Part 2

February 10, 2009
Singapore Democrats

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Chee Soon Juan

In Part I of this essay, I drew attention to the fact that Mr Lee Kuan Yew was negligent when he, in a speech he delivered in July 2007, called on Singaporeans to “maximise our opportunities in this golden period.” This happened at a time when the world’s economy was already teetering on the brink.

But some argue that Mr Lee is no longer the prime minister and hasn’t been one for nearly two decades. Why should he be the one to take the blame? Take a look at what he wrote in his memoir:

Singapore’s financial centre was considered over-regulated compared to Hong Kong’s. Critics wrote: “in Hong Kong, what is not expressly forbidden is permitted; in Singapore, what is not expressly permitted is forbidden”…Only after the MAS (Monetary Authority of Singapore) had demonstrated the strength of its system to weather the financial crisis of 1987 and 1997-98 did I feel confident enough to move closer to a position where what is not expressly forbidden is permitted.

Note the pronoun. It was he, not the cabinet, who allowed the financial system to become less regulated. Note also the period: It was post 1997. He was not the prime minister then, it was Mr Goh Chok Tong. Why was PM Goh not the one to decide which course our financial system should take?

But why is a speech Mr Lee made in 2007 even important in the present crisis?

If you were a Lehman Brothers’ investor back then and had heeded the MM’s advice, you would have ploughed even more money into buying the minibonds. (Some of the Town Councils obviously did.) If you were looking to buy a house, you would have paid top-dollar for the bubble property price. And if you were looking to start a business then, you would have borrowed heavily to capitalise on the boom.

And if you were Mr Lee or his daughter-in-law, Ho Ching, you would have placed tens of billions of dollars of our reserves in Western banks. Which is exactly what they did.

Banking on banks

The Government of Singapore Investment Corporation (GIC) and Temasek Holdings, led by Mr Lee and Madam Ho respectively, were merrily maximising their opportunities by bailing out European and American banks even as these companies were going bust due to corruption, greed, and bad management.

In the second half of 2007 Swiss bank UBS had written off US$33 billion due to bad debts and exposure to the US subprime crisis. Despite this meltdown, the GIC incredibly injected nearly US$10 billion into the bank in December that year. Four months later, UBS wrote down another US$19 billion.

Matters for the bank worsened in November 2008 when one of its senior officials, Raoul Weil, was indicted in the US for conspiring to help 20,000 wealthy Americans evade taxes amounting to an estimated US$20 billion. He was declared a fugitive by the US Government and has since stepped down from his post at the bank. The latest news is that the Swiss bank has posted a total loss of US$17 billion for 2008.

Despite what had happened at UBS, Mr Lee was still feeling bullish with our money and made another investment of US$6.9 billion in January 2008, this time in Citigroup. Within months, the US banking giant collapsed and had to be rescued with a bailout of more than US$300 billion from the US Government.

But Citi’s executives, as financially and morally bankrupt as they were, still found enough chutzpah to take receipt of an exclusive luxury jet worth US$45 million. They only reversed course after warnings emanated from the US Government about their profligacy. These are the kinds of people with whom MM Lee had entrusted our savings.

Not to be outdone, Temasek announced in July 2007 that it had invested $4.5 billion in Barclays Bank. That same year the bank announced a US$2.7 billion write-down.

John Thain

 John Thain

Temasek also started to invest in Merrill Lynch in December 2007. Madam Ho Ching gradually increased Temasek’s stake in Merrill until it reached
US$5 billion in 2008. The company, owned by the Ministry of Finance, said that it was buying in to Merrill because of its “great franchise, which has existed through many crises through a long period of time.”

In September 2008, the American company went bust and had to be taken over by Bank of America.

Temasek gave another reason for the investment: It “had great confidence in [Merrill’s CEO]
John Thain.” Four months after BoA’s takeover Mr Thain was forced to step down. The reason? He had not fully disclosed all of Merrill Lynch’s losses. Even in the firm’s dying months, Mr Thain had spent
US$1.2 million of company money to renovate his office – including US$87,000 for a rug, US$25,000 for a table, US$87,000 for guest chairs, US$35,000 for a commode and US$1,400 for a wastebasket.

Madam Ho must have a rather liberal definition of “great confidence”. It obviously doesn’t include due diligence.

As a result of these escapades, it was revealed that Temasek is estimated to have lost 40 percent, or an equivalent of $74 billion, of its portfolio due to exposure to the finance industry. Madam Ho announced last week that she was stepping down — with no regrets — as its chief executive.

In the meantime,
Finance Minister Tharman Shanmugaratnam stuck his neck out and assured everyone that Temasek and the GIC had “assessed the proposals rigorously” before jumping in to make the investments, a statement he’ll probably live to regret making.

I wonder if these rigorous assessments included looking at how both banks invested their funds. The latest
revelation is that Citi, UBS, Merrill and Barclays had all invested in the Bernie Madoff scam. Mr Madoff ran the biggest Ponzi scheme in corporate history and duped his investors to part with nearly US$50 billion of their money. In fact UBS is being
sued in France by a wealth management company for its involvement in the Madoff madness.

All this was happening at a time when investment guru
Jim Rogers was warning that “I’m shorting investment banks on Wall Street…It grieves me to see what Singapore is doing. They are going to lose money.”

Investing in the banks was, of course, part of Mr Lee’s mega scheme to build Singapore up as a financial centre. Another part of the plan was to attract as many financial professionals to the country as possible: “We have drawn in many professionals, especially in financial services, which has expanded to its highest ever levels. Many financial institutions have moved their top people and their regional headquarters to Singapore to manage the wealth that is flowing from the Gulf oil states, the US, EU and Japan.”

Translation: We have become a tax haven. And as the super-rich do their utmost to evade taxes by moving their monies to our shores, taxmen from the US and EU will follow their trail. Is providing a haven for tax cheats and turning a blind eye to tax crimes this Government’s idea of sound economic strategy? What happens when the US and EU starts putting the squeeze on us? Are we really maximising our opportunities or merely masquerading our objectives?

Did you hear that boom?

“These initiatives have sparked off a boom in building around the Marina and Sentosa.” The MM was of course referring to the F1 Grand Prix that was held in Singapore last year and the controversial IR casinos that are being built.

Sheldon Adelson

Sheldon Adelson

The only boom we heard was the one in Las Vegas when the Sands Corporation imploded financially in 2008. Sands, headed by Mr Sheldon Adelson, was contracted to develop the Marina project. If Sands had gone bankrupt, Singapore’s Marina would have been left in the lurch. The Singapore authorities quickly got in touch with Mr Adelson and, shortly thereafter, the gaming mogul miraculously raised $2 billion — in a year gripped by financial crisis.

Analysts expect construction of Marina Sands to top
US$6 billion (initially budgeted at $3.85 billion). In contrast Sands Macao casino cost $265 million to build and recouped its costs in less than a year. But that was in the boom years in 2004. Experts estimate that Marina Sands will have to earn more than US$1 billion a year just to remain viable. And this has to occur in the midst of a protracted period of an economic bust. Was this what Mr Lee meant by “maximising our opportunities”?

What about the F1 Grand Prix? The Government pumped in about
$100 million to host the event in the hope that it would produce a kickback through increased tourism and sales. The result was that retail sales for September 2008 – the month that the race was held – dropped by 0.8 percent. The Singapore Retailers Association’s executive director Lau Chuen Wei said: ‘This is evidence that F1 did not bring with it the increase in business for the retail sector.”

The uplift

Mr Lee also enthused in 2007 that “The whole Asian region is getting a lift-up. Singapore is at the junction between the two giants, China and India. We are well placed to benefit…”

20 million of them

20 million of them

Let’s see, China is seeing its growth plummet to heart-stopping lows, companies are closing down by the thousands and, in the process, workers are being laid off in the millions — 20 at last count. The Beijing government is seriously nervous about widespread social unrest.

India’s economic expansion has come to a screeching halt. The country is reeling from double-digit inflation, foreign investment is drying up, the rupee is falling, and the stock market was down by as much as 40% last year.

These two countries desperately need fresh flows of capital and investments, without which businesses cannot continue to stay afloat, let alone service their debts. Collectively, China’s companies have about US$2.4 trillion in debt repayments to consider.

And where are the funds going to come from? According to the MM, “There is high liquidity in the money supply of the US, EU and oil-producing countries. This accounts for the large in-flow of foreign money that has benefited the regional stock exchanges.” He could not have been more wrong. The following year the
Institute of International Finance reported that the net capital flows from industrialised countries to emerging economies would trickle to a low of US$160 billion – plunging from the US$840 billion in 2007.

En bloc blocked


Over the last few years, a frenzy took over the property market. Seemingly rational people vandalised cars and property because they couldn’t get their fellow homeowners to sign the collective agreements to sell their estates to developers who were willing to pay hundreds of millions of dollars for the en bloc purchases. Neighbour took neighbour to court and disputes erupted all over.

This prompted Mr Lee to comment in 2007 that “Demand for high end office and residential accommodation has increased. Many home owners who sold their condos in en bloc sales have received windfall gains. Some of them in turn are buying upper end HDB executive and 5-room flats, pushing up their values.”

The bubble was dramatically inflated but everyone was too busy enbloc-ing to notice it. Then came 2008. The fourth quarter of last year saw property prices drop by a margin that was the
biggest in a decade. More than 10,000 houses and apartments had to be sold under a deferred mortgage plan where buyers were allowed to postpone their loan payments until the properties were completed.

The frenzied rush to sell the condominiums vanished. Owners hoping to attract enbloc buyers had to reduce sale prices by as much as
40 percent in some cases. Developers who had hoped to re-develop their acquisitions are now stuck with their purchases because there is no demand for new homes. A senior manager at the ERA, a realty company, said: “These holding costs are tremendous, because projects like these, some of them are worth a few hundred million to maybe close to a billion dollars. So they would just have to perhaps rent them out to collect as much as they can in terms of rental.” Some of the rental are going for as low as
50 percent of the usual rate.

“There was a big surge in demand for offices 10 or 11 months ago,” explained CapitaLand
Chief Executive Liew Mun Leong, “but it suddenly stops and falls off a cliff.”

No regrets


Now that the predictions that Mr Lee made in 2007 have gone up in smoke — and together with it many billions of dollars — what does the MM do?

First, roll out the Vintage Lee Act: Wag the finger at Singaporeans. “So this generation may believe that Singapore and Singaporeans will automatically go up the escalator every year. This is not so,” Mr Lee told his audience at a Lunar New Year dinner last week. He forgot that he was the one who gushed that the golden period could go on for years.

Second, lay the blame on others: “People and systems tend to be carried away by exuberance. Investors get greedy and rush in to buy, believing that prices will only go up. When prices collapse, investors find they have lost huge sums.” Of course, these are other people and other investors. Not him and his ministers who just got caught up in the system because “it is in the nature of the free markets of the western world that our economy is plugged into.”

In 2007, it was he and his “competent and experienced team of ministers” who adopted “domestic policies to encourage growth.” In 2009, it is the banks who “have lost confidence in themselves, in their fellow banks and other financial institutions, and even in their customers.”

Third, pretend that there is no poverty in the country. “But nobody will be destitute, depending on soup kitchens or begging in the streets. Everyone has a home…” Mr Lee said to his audience, who were either too polite or too subservient to tell him to take a drive outside the Istana to HDB void decks.

Fourth, play the you-don’t-know-how-lucky-you-are gambit. “My generation of Singaporeans will never forget the 1960s and early ‘70s…” he started off and then waxed nostalgic about
Konfrontasi and shanty huts. It’s another way of telling Singaporeans how good his party is.

In fact Mr Lee talked about everything regarding the present crisis except his role and the role of his ministers in the debacle. No mistakes were admitted, no errors conceded. If he had any tinge of regret about that “golden period” remark, he showed no sign of it.

In an age where accountability has become the touchstone of good government, the PAP continues to march remorselessly forward.


Read Lee Kuan Yew’s speech on 7 Jul 07 here.

Read Lee Kuan Yew’s speech on 6 Feb 09 here