Abu Dhabi : Governments worldwide that are reeling from the aftershocks of the global financial crisis should admit that their present monetary, financial and banking systems are faulty and open to abuse and manipulation and must therefore be reviewed and modified or abolished to prevent abuse, former Prime Minister of Malaysia Dr Mahathir Mohammad said here in a lecture.

Speaking at the Emirates Centre for Strategic Studies and Research (ECSSR), Mahathir said: "The way forward is to restore the role of governments in overseeing and regulating the markets."

He said that governments of countries which are experiencing the crisis seem to have learnt no lessons.

"The evidence seems to indicate that they are in denial. They still refuse to believe that this is a systemic failure. There is also a reluctance to admit that the free market should not be too free, that the markets are incapable of regulating themselves, that the governments should resume their roles of overseeing and regulating the market," said Mahathir.

Huge losses

He said leveraging contributed towards the bursting of the financial bubble.

"True, leveraging can give huge returns to the investors, the hedge funds as well as currency traders, but when losses are incurred, the magnitude of the losses would also be very big, as big as the extent of the leverage."

Mahathir said the lack of transparency is another factor which leads to abuses remaining hidden until it is too late.

He added that the idea that certain banks are too big to be allowed to fail has also led to abuses and imprudent lending.

"The banks were also financing hedge funds and their derivatives. They lent 20 to 30 times the funds invested with the hedge funds, but when their investments failed, the losses were also 20 to 30 times as big," said Mahathir.

"The financial market must seek government approval before introducing new get rich quick schemes and products," said Mahathir. "We have to accept that restrictions of financial markets will slow down economic growth as represented by GDP [gross domestic product] and per capita income, but the lower growth would represent real wealth of a country."