Contents

1. Global financial crisis (GFC) ....................................................................................................... 2

1.1 Overview ................................................................................................................................. 2
1.2 Causes and implication ........................................................................................................... 2
1.3 Solution ................................................................................................................................... 2
1.4 Lesson ..................................................................................................................................... 3
2. Malaysia political crisis ................................................................................................................ 4
2.1 Overview ................................................................................................................................. 4
2.2 Causes and implication ........................................................................................................... 4
2.3 Solution ................................................................................................................................... 4
2.4 Lesson ..................................................................................................................................... 5
3. References ...................................................................................................................................... 6

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1. Global financial crisis (GFC)
1.1 Overview
Malaysian economy experienced the two financial crises in less than twelve
years period. In 1998, Malaysia suffered the contraction in the growth of Gross
Domestic Products (GDP) due to the Asian financial crisis which originated from
Thailand, which has intensively affected the Malaysian Ringgit within days.
However, the present crisis which happened in the year of 2008, the Global Financial
Crisis (GFC) that affected the economic growth of the Malaysia. The main factor of
GFC was a high default rate in the United States subprime housing market.

1.2 Causes and implication

Cause

Housing asset bubbles

The global financial crisis (GFC) has triggered many of the Asian economies
one of its Malaysia where the impacts felt and that bursting of a speculative bubble
originated from the subprime housing market in the United States of America.

Implication

This crisis affected investor confidence. Hence, house prices in Malaysia have
been rising steadily. Supply of housing is unresponsive to meet the effective demand
due to the facts that long period of time is needed for new houses to be built. Besides
that, when new houses are built in the same area where existing houses are located,
they will be priced according to the market price of the latter. The price of existing
houses can be said as a determinant of the price for new houses that are being sold in
the market. When demand increases, there are not enough new houses, yet limited
supply of existing houses will push up the housing price.

1.3 Solution
Malaysia should take initiative to attract foreign investor from Korea and
china to buy Malaysia subprime asset. Malaysia should regulate housing policy for
foreign buyer like Singapore and Hong Kong. The requirement should include house
price $ 500,000 above. Plus, need to open fixed deposit account with amount RM
300,00 for who below 50 years old and RM 150,000 for those above 50 years old.

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1.4 Lesson
Malaysian policy makers should take bubbles phenomenon seriously.

This longer duration could be the effect of financial control imposed by the
Malaysian Government to cool down the volatile housing market. Malaysian policy
makers should take bubbles phenomenon seriously and try to identify the factors
driving the volatile situation and rally appropriate policies and measures to cushion
the economy measures to cushion the economy against the eventual collapse of the
latest bubble, which can induce a severe financial crisis.

Take action when detect any housing bubbles

Although there is a method that able to trace the starting and concluding date
for historical bubbles, its ability can only enable us to study the formation and
collapsing trend of bubbles. We can draw experiences from this study so as not to
repeat the same mistakes in future. Nevertheless, if detected a bubble which is still in
the booming or collapsing state at the point of time, then this serves as an early
warning to policy makers who can then design macro or financial legislations, for
example by restricting bank borrowings, raising interest rate and property gains tax, to
cool the property market so as to lengthen the collapsing periods. On the part of
researchers, they have to find out what are the fundamental macro and financial
variables which apply a greater impact on housing prices at that point of time.

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2. Malaysia political crisis
2.1 Overview
A government investment company, 1Malaysia Development Bhd known as
1MDB took shape in Malaysia in the year of 2009 under the former Prime Minister of
Malaysia, Najib Razak. 1MDB was initially supposed to attract foreign investment.
Several famous financiers and financial companies have been found and reported to
be part of the 1MDB. Other than that, Jho Low has been casted by the prosecutors of
United States as the central figure in the Malaysia’s 1MDB scandal. He has
embezzled almost US$ 4.5 billion from the state investment company. Malaysia
continues to suffer from the global perception of corruption which has worsened with
the scandal of 1MDB.

2.2 Causes and implication

Fraud and corruption

The former Prime Minister Dato’ Seri Najib received almost $ 700 million
which is from 1 MDB into his personal account. He also claimed that money was a
donation from Saudi Arabia royal family.

Implication

The Ringgit currency decline that made foreign investor lost of confidence
toward Malaysia market, so they pulled out from market which Malaysia market
bearish.

2.3 Solution
We as a Malaysian citizen need to care and understand about this critical issue
and also to open our eyes. From what actually happened, with no doubt that the
government handled by Barisan Nasional (BN) is heavily corrupted. Most of citizens
would not buy the lies of the government no more. Therefore, on 9 May 2018, where
GE14 happened last year, Barisan Nasional loses their rights to govern since Pakatan
Harapan wins the election. With the new government handled by Pakatan Harapan, at
least we can rest assured that the former government cannot make this 1MDB issue to
become even worse.
This issue weakens the Ringgit Malaysia for sure. For that reason, the
government must create a big move that can attract foreign investors and gain their

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trust again to invest back in Malaysia. If anything, both expansionary fiscal policy and
expansionary monetary policy also can be applied again just like the GFC issue to
reduce the inflation rate.

2.4 Lesson
Choosing the right leader and government is very important for Malaysia
1MDB shows how power and greed, tend to go together whether in government or
in business. With great power comes great responsibility. The Prime Minister should
not be the Finance Minister. If this happens, the power of the Prime Minister will be
too strong and uncontrollable when it is abused.

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3. References
https://www.slideshare.net/ismejiaxin0905/housing-bubble-in-malaysia-58790131

https://www.msn.com/en-my/money/topstories/clear-vision-for-the-economy-needed/ar-
BBUybd5

Empirical Analysis of House Price Bubble: A Case Study on Malaysia (Fong Kean
Yan, 2016)

https://www.ft.com/content/9ef69770-23d5-11e5-9c4e-a775d2b173ca

https://www.bloomberg.com/news/articles/2018-05-24/how-malaysia-s-1mdb-
scandal-shook-the-financial-world-quicktake

International Journal of Energy Economics and Policy; International Journal of

Energy Economics and Policy, (B. Bakhtyar 2017)
https://www.bis.org/publ/bppdf/bispap54p.pdf
http://kentridgecommon.com/1mdb-and-the-consequences-for-malaysia/
https://www.bloomberg.com/news/articles/2018-05-24/how-malaysia-s-1mdb-scandal-shook-
the-financial-world-quicktake