Dear all,
Tell your story here what will you do with this future in crisis.
Does it effect any of your lifestyle or even your business or even your daily activity?
How or what will you do to tackle these problems. As you know it's not only few developed countries but it effects all big countries from the big boys (US) thru to China.
Well if you ask me my motto is life must go on so there are no exit points in these situation, so we must keep on doing what we do best to be able to survive.
This is something that I quote in the past which is "surviving is harder than being a dead man".
So don't forget to keep your spirit up, don't give up on ay situation, well if you have strong religion of course pray will definitely help to keep you stronger and stronger everyday (Mind, body and spirit).
Be there for your family, be there for your wife, kids, parents.
Hope this writing and future answer will help whoever needs answer to go thru this world crisis situation.
Cheers
Full Version: Future in Crisis
i always think that whatever happen with the global world..would not affect us directly nor undirectly....i can't see the relation with global world with our daily "real" life..so i don;t care to what crisis the world facing now, i only care for me, my family and my neighborhood crisis (if any)..hehehe
so whatever happen in the future i think it is not for me to care....it is by GOD's hands
so whatever happen in the future i think it is not for me to care....it is by GOD's hands
Your're wrong.... Its does affect us. You see, yesterday there was computer exibition in town. I decide to buy new gaming laptop. But with increased exchange rate between USD & IDR, i cant afford buy it even thought there were a discount. 
That's right....musafir...you are right...it affect us...like what u said....I got job which I have to buy with US dollar....before which the rates 1US=Rp 9600 I could gain profit...maybe in the future if the rates of dollar 13000 I will lose the profit....
What is the effect the financial crisis currently affecting the US, Japan, Korea, China and the European Union can have to our country?
Firstly, you will notice that our Jakarta Stock Exchange Index had plummeted to an extent that most sought after stocks prior to the crisis would by now be considered as junk. Take Aburizal Bakrie's companies, for example. Their shares are worthless now. Why? It is partly due to foreign funds making an exit from Indonesia. Why do foreign funds make an exit? It is because they have no confidence in the general world economy. They would rather cash out their investments and remit the funds back to their nation of origin, which more often than not, in this case, either the US or the European Union countries, to avoid losses. In times of crisis, cash is king.
Secondly, you will find immediately the value of Rupiah against USD will plummet. Why? Because these foreign funds need to convert their investments which they unloaded from the Jakarta Stock Exchange to the original currency in which they first came in, ie. USD. When they sold off their investments, they receive the proceeds in Rupiah. With these bundles of Rupiah, they buy USD. Since their exit was rather abrupt, they will find that there is a shortage of USD in the market. Basic rule of economy, when supply cannot meet demand, the price increases. Since there is a short supply of USD to buy with the Rupiah they are holding, the price of USD vis-a-vis Rupiah will increase dramatically.
Thirdly, since all international trade is denominated in USD, you will find that imported stuffs will be more expensive in terms of Rupiah. Say, for example, iPod 8GB is being sold at USD250, it used to be Rp2,245,000 when USD1 was trading at Rp9,000. Now, USD1 is equivalent to Rp11,000. Thus the same iPod now costs Rp2,750,000, an increase of approximately Rp505,000, a substantial increase. One must remember that Indonesia is a net importer of petroleum and rice. It is just a matter of time before there will be another increase in the price of BBM (even though it was announced that come December 1st, there will be a reduction in BBM price) and worse, the increase in price of basic food necessities. A substantial sum of food products like infant formula milk are imported. Be prepared to see increase in their prices.
Fourthly, since all imported goods including food stuffs increase in price, there will be a chain reaction affecting other goods and services as well; they will increase too.
Fifthly, since price of basic necessities increase markedly, people will prioritise their purchases. Hence, they will eat less outside, cut down entertainment expenses, travel less, buy lesser and cheaper clothes, build smaller homes, all in the aim to trim down expenses to meet more expensive basic requirements. Expect also to see defaults in credit card repayments, car loans and other credits.
Sixthly, due to decrease in spending and higher default rate on credits, more companies involved in tradings, banks and financial institutions, real estate corporations will face severe slowdown in their business, which in turn, will lay-off workers to cut down on expenses. You will see a lot of unemployment and corporate failures.
And the chain reaction goes on and on....
The solution? Maybe I will share my views next time. I guess I must have put half of you guys and gals asleep by now...hahahahaha.
Firstly, you will notice that our Jakarta Stock Exchange Index had plummeted to an extent that most sought after stocks prior to the crisis would by now be considered as junk. Take Aburizal Bakrie's companies, for example. Their shares are worthless now. Why? It is partly due to foreign funds making an exit from Indonesia. Why do foreign funds make an exit? It is because they have no confidence in the general world economy. They would rather cash out their investments and remit the funds back to their nation of origin, which more often than not, in this case, either the US or the European Union countries, to avoid losses. In times of crisis, cash is king.
Secondly, you will find immediately the value of Rupiah against USD will plummet. Why? Because these foreign funds need to convert their investments which they unloaded from the Jakarta Stock Exchange to the original currency in which they first came in, ie. USD. When they sold off their investments, they receive the proceeds in Rupiah. With these bundles of Rupiah, they buy USD. Since their exit was rather abrupt, they will find that there is a shortage of USD in the market. Basic rule of economy, when supply cannot meet demand, the price increases. Since there is a short supply of USD to buy with the Rupiah they are holding, the price of USD vis-a-vis Rupiah will increase dramatically.
Thirdly, since all international trade is denominated in USD, you will find that imported stuffs will be more expensive in terms of Rupiah. Say, for example, iPod 8GB is being sold at USD250, it used to be Rp2,245,000 when USD1 was trading at Rp9,000. Now, USD1 is equivalent to Rp11,000. Thus the same iPod now costs Rp2,750,000, an increase of approximately Rp505,000, a substantial increase. One must remember that Indonesia is a net importer of petroleum and rice. It is just a matter of time before there will be another increase in the price of BBM (even though it was announced that come December 1st, there will be a reduction in BBM price) and worse, the increase in price of basic food necessities. A substantial sum of food products like infant formula milk are imported. Be prepared to see increase in their prices.
Fourthly, since all imported goods including food stuffs increase in price, there will be a chain reaction affecting other goods and services as well; they will increase too.
Fifthly, since price of basic necessities increase markedly, people will prioritise their purchases. Hence, they will eat less outside, cut down entertainment expenses, travel less, buy lesser and cheaper clothes, build smaller homes, all in the aim to trim down expenses to meet more expensive basic requirements. Expect also to see defaults in credit card repayments, car loans and other credits.
Sixthly, due to decrease in spending and higher default rate on credits, more companies involved in tradings, banks and financial institutions, real estate corporations will face severe slowdown in their business, which in turn, will lay-off workers to cut down on expenses. You will see a lot of unemployment and corporate failures.
And the chain reaction goes on and on....
The solution? Maybe I will share my views next time. I guess I must have put half of you guys and gals asleep by now...hahahahaha.
So..bro Aznan..who is to blame with this condition? and who will feel the effect of this? do you thing just the upper class who can not buy their luxurious things or little family somewhere in gunung kidul,according to fifth point ?
@oxden, in a situation like this, everyone is affected, the rich and the poor alike. The insanely rich will somehow brace through the whole crisis unscathed though their net worth will somehow be reduced. It is the middle class and the lower rung of society that will feel the pain.
The fifth situation's example is just an exaggeration to illustrate the point clearly. Suppose we take the middle class as an example, perhaps they used to send their children to private schools, now with lesser disposable income, they may have to trim their expenses in order to sustain their lifestyle. Instead of buying their groceries from supermarkets and hypermarkets, perhaps they will have to change to normal wet markets to lessen the expenses. Instead of driving to work, they will use more public transportation.
Similarly, a family who lives in Gunung Kidul is also affected. They will find basic necessities like rice, sugar, kerosene, cooking oil, fish, condensed milk, biscuits, etc will increase in price. If they have their own paddy fields and grow their own vegetables, they may be able to cushion the impact, in so far as food is concerned. However, they still have to buy most of their needs to maintain their lifestyle, like cooking oil, kerosene etc, which ultimately will be more expensive than before. Despite the increase in expenses, their income will remain static or even lesser than before.
Who is to blame? Well, welcome to the realities of a globalised economy. That is the price of opening our markets to foreign investments. It is hard to point our finger on someone or anyone. I blame it on unimpeded and morally corrupt capitalist system of the world. The current crisis started in the US financial system suffering a meltdown due to their extravagance. The US, practising a holier than thou attitude, have refused to heed the advices given by economists around the world. Practising a liberal system, they assume market forces will correct and remedy any shortcomings in their financial system. Ultimately their own arrogance is bringing the world's economy into near collapse. What actually happened in the US? I can write a whole thesis on this. But the start of the problem is the sub-prime mortgage.
What is a sub-prime mortgage? It refers to loans given to persons whose credit worthiness is questionable. Suppose you give a loan to a person whose disposable income is Rp12jt to purchase a house, say, worth Rp2milyar, payable in 20 years. The monthly repayment is roughly Rp8,333jt per month, excluding interest. For ease of illustration, say the interest is Rp2jt per month. Normally, most financial institutions will require that the monthly repayment should not exceed 1/3 of the net disposable income, which in this example, should not be more than Rp4jt. However, the loan is nevertheless approved for this person because it is fully secured by a mortgage in the form of the house that he is purchasing. He will pay Rp10,333jt per month to the bank to service the loan. If he defaults in his repayment, the bank can foreclose and sell off the house to recover the outstanding repayment amount. This is what is called as sub-prime mortgage loan.
What happened in the US was that this sub-prime mortgage papers were then sold to other institutions as investment. If the borrower repays his loans promptly until full settlement, there will be a profit of Rp2jt per month multiplied by the loan tenure. The profit is Rp480jt. Say, Bank A gives out the loan to Achmad. Bank A then sells this loan to Bank B, say for Rp2,2milyar. Now Achmad has to pay to Bank B. Bank A already materialised its profit of Rp200jt (selling price of Rp2,2milyar minus Rp2milyar loan given to Achmad). Bank B will receive his profit (repayment of Rp2,480milyar minus acquisition cost of Rp2,2milyar) of Rp280jt at the end of the loan tenure. This kind of trading was the product of the ingenuity of Merryl Linch and other investment banks in the US who created this kind of trade.
However, Bank B's profit is depended on Achmad's ability to repay his loan. What if he doesn't? Then Bank B will have to foreclose Achmad's property mortgaged to them in order to recoup his repayment and profit. Normally, this will not cause any problem but if you multiply this instance by a million fold (official population of the US is around 360million), then it is a big mess. Say, 10% of the population are categorised in this kind of loans and 1/3 of them default, you are looking at 12million defaulters with 12 million assets to be foreclosed. Why so high a default rate? The consumer price index had increased multifolds due to the increase in the price of gasoline (petroleum price was USD45 per barrel in July 2007 and peaked around USD160 in July-August 2008). The cost of living in the US increased so much that these people couldn't afford to repay their loans. After all, in the beginning, their repayment sum almost ate up their entire disposable income.
Merryl Linch and the big boys investment bankers (Lehman Brothers, Morgan Stanley, Goldman Sachs etc) traded in these sub-prime mortgage loans amongst themselves. The money used to trade in these papers are from investors and lay persons who invested in their bonds. When these sub-prime mortgage loans turn bad, they suffered huge losses and the investors and lay persons who invested in the bonds suddenly realised that their bonds are no longer of value hence suffered tremendous losses. All the losses ate up not only their profits from other operations, but also the capitals of these investment bankers. Thus, most of them suffered cashflow problems and needed more capital to be pumped in to avoid total collapse. Since other bankers in the US, the EU and across Asia also invested in these bonds, they in turn also suffered the losses.
What is the trigger point of all these? Those petroleum traders speculating on the world oil price. They were the ones who impoverised these borrowers by increasing the price of petroleum artificially through their speculations. With the increase in price, global prices for commodity and food increased many folds resulting the reduction in the net disposable income of borrowers illustrated above. There was no shortage of petroleum; the increase was purely due to speculation. So, if anyone is to be blamed, it is them.
The fifth situation's example is just an exaggeration to illustrate the point clearly. Suppose we take the middle class as an example, perhaps they used to send their children to private schools, now with lesser disposable income, they may have to trim their expenses in order to sustain their lifestyle. Instead of buying their groceries from supermarkets and hypermarkets, perhaps they will have to change to normal wet markets to lessen the expenses. Instead of driving to work, they will use more public transportation.
Similarly, a family who lives in Gunung Kidul is also affected. They will find basic necessities like rice, sugar, kerosene, cooking oil, fish, condensed milk, biscuits, etc will increase in price. If they have their own paddy fields and grow their own vegetables, they may be able to cushion the impact, in so far as food is concerned. However, they still have to buy most of their needs to maintain their lifestyle, like cooking oil, kerosene etc, which ultimately will be more expensive than before. Despite the increase in expenses, their income will remain static or even lesser than before.
Who is to blame? Well, welcome to the realities of a globalised economy. That is the price of opening our markets to foreign investments. It is hard to point our finger on someone or anyone. I blame it on unimpeded and morally corrupt capitalist system of the world. The current crisis started in the US financial system suffering a meltdown due to their extravagance. The US, practising a holier than thou attitude, have refused to heed the advices given by economists around the world. Practising a liberal system, they assume market forces will correct and remedy any shortcomings in their financial system. Ultimately their own arrogance is bringing the world's economy into near collapse. What actually happened in the US? I can write a whole thesis on this. But the start of the problem is the sub-prime mortgage.
What is a sub-prime mortgage? It refers to loans given to persons whose credit worthiness is questionable. Suppose you give a loan to a person whose disposable income is Rp12jt to purchase a house, say, worth Rp2milyar, payable in 20 years. The monthly repayment is roughly Rp8,333jt per month, excluding interest. For ease of illustration, say the interest is Rp2jt per month. Normally, most financial institutions will require that the monthly repayment should not exceed 1/3 of the net disposable income, which in this example, should not be more than Rp4jt. However, the loan is nevertheless approved for this person because it is fully secured by a mortgage in the form of the house that he is purchasing. He will pay Rp10,333jt per month to the bank to service the loan. If he defaults in his repayment, the bank can foreclose and sell off the house to recover the outstanding repayment amount. This is what is called as sub-prime mortgage loan.
What happened in the US was that this sub-prime mortgage papers were then sold to other institutions as investment. If the borrower repays his loans promptly until full settlement, there will be a profit of Rp2jt per month multiplied by the loan tenure. The profit is Rp480jt. Say, Bank A gives out the loan to Achmad. Bank A then sells this loan to Bank B, say for Rp2,2milyar. Now Achmad has to pay to Bank B. Bank A already materialised its profit of Rp200jt (selling price of Rp2,2milyar minus Rp2milyar loan given to Achmad). Bank B will receive his profit (repayment of Rp2,480milyar minus acquisition cost of Rp2,2milyar) of Rp280jt at the end of the loan tenure. This kind of trading was the product of the ingenuity of Merryl Linch and other investment banks in the US who created this kind of trade.
However, Bank B's profit is depended on Achmad's ability to repay his loan. What if he doesn't? Then Bank B will have to foreclose Achmad's property mortgaged to them in order to recoup his repayment and profit. Normally, this will not cause any problem but if you multiply this instance by a million fold (official population of the US is around 360million), then it is a big mess. Say, 10% of the population are categorised in this kind of loans and 1/3 of them default, you are looking at 12million defaulters with 12 million assets to be foreclosed. Why so high a default rate? The consumer price index had increased multifolds due to the increase in the price of gasoline (petroleum price was USD45 per barrel in July 2007 and peaked around USD160 in July-August 2008). The cost of living in the US increased so much that these people couldn't afford to repay their loans. After all, in the beginning, their repayment sum almost ate up their entire disposable income.
Merryl Linch and the big boys investment bankers (Lehman Brothers, Morgan Stanley, Goldman Sachs etc) traded in these sub-prime mortgage loans amongst themselves. The money used to trade in these papers are from investors and lay persons who invested in their bonds. When these sub-prime mortgage loans turn bad, they suffered huge losses and the investors and lay persons who invested in the bonds suddenly realised that their bonds are no longer of value hence suffered tremendous losses. All the losses ate up not only their profits from other operations, but also the capitals of these investment bankers. Thus, most of them suffered cashflow problems and needed more capital to be pumped in to avoid total collapse. Since other bankers in the US, the EU and across Asia also invested in these bonds, they in turn also suffered the losses.
What is the trigger point of all these? Those petroleum traders speculating on the world oil price. They were the ones who impoverised these borrowers by increasing the price of petroleum artificially through their speculations. With the increase in price, global prices for commodity and food increased many folds resulting the reduction in the net disposable income of borrowers illustrated above. There was no shortage of petroleum; the increase was purely due to speculation. So, if anyone is to be blamed, it is them.
how bout buying dollars now as much as u can
and sell it later on
and sell it later on
Thanks bro Aznan for such kinds of explanation and information, it's really broaden my knowledge related to this crisis. Moreover, from your side of view, can this country overcome this crisis? or our economics are going to fall down like 10 years before?
i still believe that market would work out on its own.
sure, any government can juice it up ...but to closest
earmark stretch that wont be quite effective.
Let US learn its mistakes, so that the rest of the world will not take its burden. Somebody on the table needs to change
its affluent behavior;consumerism, and it should be the
States, not us. this is my opinion.
however, the fact is that right now, everyone is actually and
literally bailing out American problem,...such that the
paradigm is once again,never overturned; If US economy
going good, then so the rest of the world. Unless each
government started to strengthen out its inclusive economy
protection, then ...we shouldnt worry much bout
our quality of life. So sad, that the fact is otherwise.
To my optimism, though..I believe with so much shitty work
in the global economy, Indo would survive just like she did
in the 1999. We should be able to say.:"Been there, done
that "...
Hearing that Mr.Bush has actually called SBY for such advice on the economic matter before an international talk, has
given us quite a solemn confidence of our capability to
struggle and withstand this crisis. So....rest in peace, we'd
make it just fine. THough that would also mean I wont be
eating pizza on Friday but dining out at the closest "warung
tegal".
sure, any government can juice it up ...but to closest
earmark stretch that wont be quite effective.
Let US learn its mistakes, so that the rest of the world will not take its burden. Somebody on the table needs to change
its affluent behavior;consumerism, and it should be the
States, not us. this is my opinion.
however, the fact is that right now, everyone is actually and
literally bailing out American problem,...such that the
paradigm is once again,never overturned; If US economy
going good, then so the rest of the world. Unless each
government started to strengthen out its inclusive economy
protection, then ...we shouldnt worry much bout
our quality of life. So sad, that the fact is otherwise.
To my optimism, though..I believe with so much shitty work
in the global economy, Indo would survive just like she did
in the 1999. We should be able to say.:"Been there, done
that "...
Hearing that Mr.Bush has actually called SBY for such advice on the economic matter before an international talk, has
given us quite a solemn confidence of our capability to
struggle and withstand this crisis. So....rest in peace, we'd
make it just fine. THough that would also mean I wont be
eating pizza on Friday but dining out at the closest "warung
tegal".
So we now stand in the side of the cliff because we follow the western style..yah whatever the goverment is going to do but Its better if they stand in their own feet and do not let our economy jump to bottom level like we did it before. Im 100 % agree with bro JOJOx statement in last sentence, spend our money to move little local economy. Bravo warung tegal...bravo warung AMIGOS (agak minggir got sedikit).
My Motto : "Don't ever let this life fish the hell out of you and get away easy"
Life was never meant to be easy. It's a hell of a ride through a bumpy road. But hey, we've survived all the stones thrown at us up until now. So the question is : What is out there that can hurt us tomorrow? The answer is "Nothing". Nothing's gonna hurt us if we can just call it another stone jumping out of nowhere to hit us. Future Crisis is no different than any other problems we've faced so far because living in Indonesia has taught us to feel comfortable in a situation that would make others kneel down. And in that context, if you'd apply my motto, then there's nothing to be afraid of.
Life was never meant to be easy. It's a hell of a ride through a bumpy road. But hey, we've survived all the stones thrown at us up until now. So the question is : What is out there that can hurt us tomorrow? The answer is "Nothing". Nothing's gonna hurt us if we can just call it another stone jumping out of nowhere to hit us. Future Crisis is no different than any other problems we've faced so far because living in Indonesia has taught us to feel comfortable in a situation that would make others kneel down. And in that context, if you'd apply my motto, then there's nothing to be afraid of.
@oxden & @jojox, I think Indonesia will do just fine. The period of recovery and the pain inflicted will depend very much how our Government handles the problem faced. I cannot help but reiterate that rationale in the bailouts currently seen in the US. We have to understand certain salient facts surrounding the US:
Firstly, it is the largest economy in the world, after Japan, China and the EU. Being the largest, they have numerous trading partners all over the world. It is also the largest trading partner for Indonesia and the rest of the Southeast Asian community. Any indication of problem in the US will affect us directly. When the people in the US spend less, they will import less. If they import less, less of our products and produces will be exported and hence we will receive less income. In turn, we will have more products and produces unsold and hence the prices will drop (for local made ones only) as supply exceeds demand. We will also lose our foreign exchange income in that the Rupiah will decline in value as world currencies are valued based on their trading income.
Secondly, it is their own Government that is bailing out the corporations facing bankruptcy. The US Government is not seeking help from us or from other countries in the process of bailing out. Indonesia is not asked to help in any way in this process and hence will not be directly affected in any way.
Thirdly, in a globalised economy, when the largest trading partner is nearing collapse, all other partners will similarly be affected. Its like a body, if you have a toothache, not only will it hinders you from enjoying your food, it will also affect other parts of your body leaving you feeling lethargic etc.
Is the bailout necessary? I humbly think so. There are just certain corporations which cannot be allowed to fail. Take Lehman Brothers case as an example. Logically, its failure shouldn't affect us in any way. Unfortunately, the globalised economy is such that everything is intertwined with each other. The failure of Lehman Brothers had in the beginning led to the collapse of investment bankers dealing with them and caused so much losses to other banks holding their investment papers and securities. Then, it caused a panic amongst investors and depositors in other banks and financial institutions resulting in them withdrawing their investments and deposits thus leading a cashflow problems for those corporations involved. Having less cash in hand, non-essential loans are halted, essential loans are reduced in dramatic fashion resulting a dire shortage of funds for economic activities and international trade etc. Due to financial restrictions, the banks and financial institutions seek to unwind their investments and deposits in other parts of the world and causing near collapse of the country's economy in which they invested. Take Indonesia for example. The Jakarta Stock Exchange had dwindled in value wiping trillions of Rupiah in share value from the market due to exodus of foreign investors. Aburizal Bakrie's net worth of almost USD4billion (mostly in shareholding in listed companies) had diminished to USD800million (based on Forbes' latest estimate) due to the decline of PT Bumi Resources.
What happens in a bailout? Well, the US Treasury will pump in more USD into those ailing companies. These could be in the form of soft loans repayable in the future or in the form of investment whereby preferred shares or bonds are issued. Why is it necessary? It is necessary to keep the company afloat and replenish their cashflow to generate new businesses and carry on existing ones. But the most important aspect of the bailout is to boost confidence in the market and the economy. The most basic rule of economy is that it will grow when money changes hand, remember? People will not spend if there is no confidence. If they do not spend, nobody will earn and in turn the non-earners will not spend either. Thus, the economic activities are thus disrupted.
So for now, my advice is that we should earn as much as we can and keep the cash instead of spending it luxuries. We should keep the extra cash in banks and financial institutions (preferably in those deposits guaranteed by the Government) so that the cash will be used in a more productive way. It will not help if you keep your cash at home. Buy homegrown products and those made in Indonesia. Curtail expenditure on imported goods. Use less BBM and electricity, if you can, to avoid unnecessary indirect expenditure to the Government which is also cash-strapped. Travel domestically during the upcoming holidays. Invite foreign friends to come holiday in Indonesia to gain foreign currencies exchange. Cut down on operating and overhead expenses especially for business operators. That also means those planning for company trips should restrict themselves to only necessary ones.
A glimpse into the future: we will see the economy bottoming sometime in February before seeing slight recovery in June. The stock market will start its recovery and six months afterward the real economy will show a glimpse of improvement. By end of next year, we will see a better Indonesia, Insya Allah.
Firstly, it is the largest economy in the world, after Japan, China and the EU. Being the largest, they have numerous trading partners all over the world. It is also the largest trading partner for Indonesia and the rest of the Southeast Asian community. Any indication of problem in the US will affect us directly. When the people in the US spend less, they will import less. If they import less, less of our products and produces will be exported and hence we will receive less income. In turn, we will have more products and produces unsold and hence the prices will drop (for local made ones only) as supply exceeds demand. We will also lose our foreign exchange income in that the Rupiah will decline in value as world currencies are valued based on their trading income.
Secondly, it is their own Government that is bailing out the corporations facing bankruptcy. The US Government is not seeking help from us or from other countries in the process of bailing out. Indonesia is not asked to help in any way in this process and hence will not be directly affected in any way.
Thirdly, in a globalised economy, when the largest trading partner is nearing collapse, all other partners will similarly be affected. Its like a body, if you have a toothache, not only will it hinders you from enjoying your food, it will also affect other parts of your body leaving you feeling lethargic etc.
Is the bailout necessary? I humbly think so. There are just certain corporations which cannot be allowed to fail. Take Lehman Brothers case as an example. Logically, its failure shouldn't affect us in any way. Unfortunately, the globalised economy is such that everything is intertwined with each other. The failure of Lehman Brothers had in the beginning led to the collapse of investment bankers dealing with them and caused so much losses to other banks holding their investment papers and securities. Then, it caused a panic amongst investors and depositors in other banks and financial institutions resulting in them withdrawing their investments and deposits thus leading a cashflow problems for those corporations involved. Having less cash in hand, non-essential loans are halted, essential loans are reduced in dramatic fashion resulting a dire shortage of funds for economic activities and international trade etc. Due to financial restrictions, the banks and financial institutions seek to unwind their investments and deposits in other parts of the world and causing near collapse of the country's economy in which they invested. Take Indonesia for example. The Jakarta Stock Exchange had dwindled in value wiping trillions of Rupiah in share value from the market due to exodus of foreign investors. Aburizal Bakrie's net worth of almost USD4billion (mostly in shareholding in listed companies) had diminished to USD800million (based on Forbes' latest estimate) due to the decline of PT Bumi Resources.
What happens in a bailout? Well, the US Treasury will pump in more USD into those ailing companies. These could be in the form of soft loans repayable in the future or in the form of investment whereby preferred shares or bonds are issued. Why is it necessary? It is necessary to keep the company afloat and replenish their cashflow to generate new businesses and carry on existing ones. But the most important aspect of the bailout is to boost confidence in the market and the economy. The most basic rule of economy is that it will grow when money changes hand, remember? People will not spend if there is no confidence. If they do not spend, nobody will earn and in turn the non-earners will not spend either. Thus, the economic activities are thus disrupted.
So for now, my advice is that we should earn as much as we can and keep the cash instead of spending it luxuries. We should keep the extra cash in banks and financial institutions (preferably in those deposits guaranteed by the Government) so that the cash will be used in a more productive way. It will not help if you keep your cash at home. Buy homegrown products and those made in Indonesia. Curtail expenditure on imported goods. Use less BBM and electricity, if you can, to avoid unnecessary indirect expenditure to the Government which is also cash-strapped. Travel domestically during the upcoming holidays. Invite foreign friends to come holiday in Indonesia to gain foreign currencies exchange. Cut down on operating and overhead expenses especially for business operators. That also means those planning for company trips should restrict themselves to only necessary ones.
A glimpse into the future: we will see the economy bottoming sometime in February before seeing slight recovery in June. The stock market will start its recovery and six months afterward the real economy will show a glimpse of improvement. By end of next year, we will see a better Indonesia, Insya Allah.
@oxden & @jojox, I think Indonesia will do just fine. The period of recovery and the pain inflicted will depend very much how our Government handles the problem faced. I cannot help but reiterate that rationale in the bailouts currently seen in the US. We have to understand certain salient facts surrounding the US:
Firstly, it is the largest economy in the world, after Japan, China and the EU. Being the largest, they have numerous trading partners all over the world. It is also the largest trading partner for Indonesia and the rest of the Southeast Asian community. Any indication of problem in the US will affect us directly. When the people in the US spend less, they will import less. If they import less, less of our products and produces will be exported and hence we will receive less income. In turn, we will have more products and produces unsold and hence the prices will drop (for local made ones only) as supply exceeds demand. We will also lose our foreign exchange income in that the Rupiah will decline in value as world currencies are valued based on their trading income.
Secondly, it is their own Government that is bailing out the corporations facing bankruptcy. The US Government is not seeking help from us or from other countries in the process of bailing out. Indonesia is not asked to help in any way in this process and hence will not be directly affected in any way.
Thirdly, in a globalised economy, when the largest trading partner is nearing collapse, all other partners will similarly be affected. Its like a body, if you have a toothache, not only will it hinders you from enjoying your food, it will also affect other parts of your body leaving you feeling lethargic etc.
Is the bailout necessary? I humbly think so. There are just certain corporations which cannot be allowed to fail. Take Lehman Brothers case as an example. Logically, its failure shouldn't affect us in any way. Unfortunately, the globalised economy is such that everything is intertwined with each other. The failure of Lehman Brothers had in the beginning led to the collapse of investment bankers dealing with them and caused so much losses to other banks holding their investment papers and securities. Then, it caused a panic amongst investors and depositors in other banks and financial institutions resulting in them withdrawing their investments and deposits thus leading a cashflow problems for those corporations involved. Having less cash in hand, non-essential loans are halted, essential loans are reduced in dramatic fashion resulting a dire shortage of funds for economic activities and international trade etc. Due to financial restrictions, the banks and financial institutions seek to unwind their investments and deposits in other parts of the world and causing near collapse of the country's economy in which they invested. Take Indonesia for example. The Jakarta Stock Exchange had dwindled in value wiping trillions of Rupiah in share value from the market due to exodus of foreign investors. Aburizal Bakrie's net worth of almost USD4billion (mostly in shareholding in listed companies) had diminished to USD800million (based on Forbes' latest estimate) due to the decline of PT Bumi Resources.
What happens in a bailout? Well, the US Treasury will pump in more USD into those ailing companies. These could be in the form of soft loans repayable in the future or in the form of investment whereby preferred shares or bonds are issued. Why is it necessary? It is necessary to keep the company afloat and replenish their cashflow to generate new businesses and carry on existing ones. But the most important aspect of the bailout is to boost confidence in the market and the economy. The most basic rule of economy is that it will grow when money changes hand, remember? People will not spend if there is no confidence. If they do not spend, nobody will earn and in turn the non-earners will not spend either. Thus, the economic activities are thus disrupted.
So for now, my advice is that we should earn as much as we can and keep the cash instead of spending it luxuries. We should keep the extra cash in banks and financial institutions (preferably in those deposits guaranteed by the Government) so that the cash will be used in a more productive way. It will not help if you keep your cash at home. Buy homegrown products and those made in Indonesia. Curtail expenditure on imported goods. Use less BBM and electricity, if you can, to avoid unnecessary indirect expenditure to the Government which is also cash-strapped. Travel domestically during the upcoming holidays. Invite foreign friends to come holiday in Indonesia to gain foreign currencies exchange. Cut down on operating and overhead expenses especially for business operators. That also means those planning for company trips should restrict themselves to only necessary ones.
A glimpse into the future: we will see the economy bottoming sometime in February before seeing slight recovery in June. The stock market will start its recovery and six months afterward the real economy will show a glimpse of improvement. By end of next year, we will see a better Indonesia, Insya Allah.
Firstly, it is the largest economy in the world, after Japan, China and the EU. Being the largest, they have numerous trading partners all over the world. It is also the largest trading partner for Indonesia and the rest of the Southeast Asian community. Any indication of problem in the US will affect us directly. When the people in the US spend less, they will import less. If they import less, less of our products and produces will be exported and hence we will receive less income. In turn, we will have more products and produces unsold and hence the prices will drop (for local made ones only) as supply exceeds demand. We will also lose our foreign exchange income in that the Rupiah will decline in value as world currencies are valued based on their trading income.
Secondly, it is their own Government that is bailing out the corporations facing bankruptcy. The US Government is not seeking help from us or from other countries in the process of bailing out. Indonesia is not asked to help in any way in this process and hence will not be directly affected in any way.
Thirdly, in a globalised economy, when the largest trading partner is nearing collapse, all other partners will similarly be affected. Its like a body, if you have a toothache, not only will it hinders you from enjoying your food, it will also affect other parts of your body leaving you feeling lethargic etc.
Is the bailout necessary? I humbly think so. There are just certain corporations which cannot be allowed to fail. Take Lehman Brothers case as an example. Logically, its failure shouldn't affect us in any way. Unfortunately, the globalised economy is such that everything is intertwined with each other. The failure of Lehman Brothers had in the beginning led to the collapse of investment bankers dealing with them and caused so much losses to other banks holding their investment papers and securities. Then, it caused a panic amongst investors and depositors in other banks and financial institutions resulting in them withdrawing their investments and deposits thus leading a cashflow problems for those corporations involved. Having less cash in hand, non-essential loans are halted, essential loans are reduced in dramatic fashion resulting a dire shortage of funds for economic activities and international trade etc. Due to financial restrictions, the banks and financial institutions seek to unwind their investments and deposits in other parts of the world and causing near collapse of the country's economy in which they invested. Take Indonesia for example. The Jakarta Stock Exchange had dwindled in value wiping trillions of Rupiah in share value from the market due to exodus of foreign investors. Aburizal Bakrie's net worth of almost USD4billion (mostly in shareholding in listed companies) had diminished to USD800million (based on Forbes' latest estimate) due to the decline of PT Bumi Resources.
What happens in a bailout? Well, the US Treasury will pump in more USD into those ailing companies. These could be in the form of soft loans repayable in the future or in the form of investment whereby preferred shares or bonds are issued. Why is it necessary? It is necessary to keep the company afloat and replenish their cashflow to generate new businesses and carry on existing ones. But the most important aspect of the bailout is to boost confidence in the market and the economy. The most basic rule of economy is that it will grow when money changes hand, remember? People will not spend if there is no confidence. If they do not spend, nobody will earn and in turn the non-earners will not spend either. Thus, the economic activities are thus disrupted.
So for now, my advice is that we should earn as much as we can and keep the cash instead of spending it luxuries. We should keep the extra cash in banks and financial institutions (preferably in those deposits guaranteed by the Government) so that the cash will be used in a more productive way. It will not help if you keep your cash at home. Buy homegrown products and those made in Indonesia. Curtail expenditure on imported goods. Use less BBM and electricity, if you can, to avoid unnecessary indirect expenditure to the Government which is also cash-strapped. Travel domestically during the upcoming holidays. Invite foreign friends to come holiday in Indonesia to gain foreign currencies exchange. Cut down on operating and overhead expenses especially for business operators. That also means those planning for company trips should restrict themselves to only necessary ones.
A glimpse into the future: we will see the economy bottoming sometime in February before seeing slight recovery in June. The stock market will start its recovery and six months afterward the real economy will show a glimpse of improvement. By end of next year, we will see a better Indonesia, Insya Allah.
now this is where you all miss my point 
global crisis change my world? no, why?
think this! US rate to Rupiah, our government always have an option for solve that kind of problem, but they don't!
computer prices going up?, think, the computer seller does not bought their stock when the rate is up, they had bought it looong time before that, so it is a non-sense when they told you that their computer is going up along with dollar, it's only their trick!
gasoline problem?...look man, the government rise it's price but lowered it again, that's a bull****, it's their game to cover their expenses on loan and etc...
all prices is high? again this is an old trick of trader/marketer.....
that is why I let the GOD to decide what to do, we can not change that, it is politic/economic game...not ours...that is why I said the crisis does not and will no affect my "real" life, because all of that is not real it is just a game....
you all want to take action? or solve the problem? revolution! is the word...but i certainly not preferred that
global crisis change my world? no, why?
think this! US rate to Rupiah, our government always have an option for solve that kind of problem, but they don't!
computer prices going up?, think, the computer seller does not bought their stock when the rate is up, they had bought it looong time before that, so it is a non-sense when they told you that their computer is going up along with dollar, it's only their trick!
gasoline problem?...look man, the government rise it's price but lowered it again, that's a bull****, it's their game to cover their expenses on loan and etc...
all prices is high? again this is an old trick of trader/marketer.....
that is why I let the GOD to decide what to do, we can not change that, it is politic/economic game...not ours...that is why I said the crisis does not and will no affect my "real" life, because all of that is not real
it is just a game....you all want to take action? or solve the problem? revolution! is the word...but i certainly not preferred that
well, let's just take it plain and simple.
for us, who reside in working-class society -which are also partly responsible for this global chaos-, we should just do our best in completing our job as a worker. in that case, we will also support the company which is our employer. while doing that, bear in min that if we do work our ass off for the company, it will greatly rewards us with better insurance of not getting fired. so, it works in mutual relationship: we getting what we're supposed to earn, and the company, getting what it's supposed to gain from our work.
for us, who strives our best in bussiness, we should be more creative in facing this global chaos. either by remanufacturing certain goods, or lowering production costs with maximum quality control, or whatever.
all in all, i guess what i wanted to say was that we should just do our own part in our fields of work, without losing even a bit of hope that this economic crisis will soon be over.
i guess that is what we have to do as human beings.
cheers!
for us, who reside in working-class society -which are also partly responsible for this global chaos-, we should just do our best in completing our job as a worker. in that case, we will also support the company which is our employer. while doing that, bear in min that if we do work our ass off for the company, it will greatly rewards us with better insurance of not getting fired. so, it works in mutual relationship: we getting what we're supposed to earn, and the company, getting what it's supposed to gain from our work.
for us, who strives our best in bussiness, we should be more creative in facing this global chaos. either by remanufacturing certain goods, or lowering production costs with maximum quality control, or whatever.
all in all, i guess what i wanted to say was that we should just do our own part in our fields of work, without losing even a bit of hope that this economic crisis will soon be over.
i guess that is what we have to do as human beings.
cheers!
i agree that everything has effect
even the small one...
even the small one...
An interesting and insightful artricle I came across the other day that might be refreshing and enlightening regarding the subject matter:
Source: http://www.nortonrose.com/news/inthepress/...aspx?lang=en-gb
The financial institutions landscape has changed forever says the fourth global crisis survey by Norton Rose
11 May 2009
69% think the financial institutions landscape has changed forever
68% think better regulation could have prevented the global crisis
61% believe global regulation of financial institutions is not practical
52% say tighter regulation will impede a recovery
68% believe risk management should be given increased resources but only 47% thought financial services would actually make the necessary investment
83% agree more focus on remuneration is required as part of risk management
75% say state intervention in financial institutions has been effective
84% feel not enough is being done to rid the banking system of toxic assets
66% expect financial institutions to significantly reduce products and services
The Fourth in our series of surveys tracking market sentiment in relation to the Global Financial Crisis examined a theme of “Financial institutions in the future”. Norton Rose LLP surveyed 197 respondents comprising financial institutions and other mainstream corporate entities between 6 -15 April 2009. The online survey was designed to canvass the views of financial services professionals on the impact of the latest phase of the global financial crisis, following the G20 in April 09, on the future for financial institutions.
James Bateson, head of Financial Institutions at Norton Rose LLP commented:
“We are entering a new phase in relation to the Global Financial Crisis. A more thoughtful approach is emerging as politicians and regulators seek to rebuild the financial system for the future. Whilst it is clear from our results that there is a commonly held view that regulation could have prevented the global financial crisis (66%) there is an interesting paradox in that effective global regulation is viewed as not practical (61%) and a majority of respondents believe tighter regulation could impede a recovery (52%). The issue that must be must be addressed is whether it was a failure of the regulation itself or the failure to effectively enforce. This is key to understanding how regulation should work in the future and ensuring it does not impede the recovery.”
69% think the financial institutions landscape has changed forever
Nearly 70% of respondents agree that the financial institutions landscape has changed for forever but surprisingly 30% disagreed. In view of the sweeping changes to regulation being considered as well as the damage wrought to individual institutions during the crisis it is difficult for many to imagine that things will ever be the same again.
68% think better regulation could have prevented the global crisis
Many attribute the severity of the global financial crisis to a failure in regulation. There is a general sentiment that tougher regulation is required to prevent the problems of the past from reoccurring and that a greater degree of international cooperation is necessary. But there is concern that a one-size-fits all approach fails to acknowledge the different geographical and market segmental impact of the crisis.
61% believe global regulation of financial institutions is not practical
It is highly unlikely that, as scholars of the financial world have pointed out, a stable financial system, an integrated financial system and national financial autonomy are all compatible.
52% said tighter regulation will impede a recovery
Although the US and UK governments in particular are asking the banks to lend more, the regulators are demanding that they manage their risks better - the corollary of which is “deleveraging” and less lending.
68% believe risk management should be given increased resources but only 47% thought financial services would actually make the necessary investment
Respondents broadly agree that more authority and resources (68%) should be given to risk management functions in financial institutions. Unfortunately only a minority (47%) believe they will be given the resources.
83% agree more focus on remuneration is required as part of risk management
Respondents overwhelmingly agree that financial institutions should be more focused on their remuneration structures as part of their risk management strategies. Previous Norton Rose surveys have revealed that many finance professionals acknowledge the need for changes, but these latest responses suggest opinion has moved even further. In February 2008, nearly 42% said there should be a move towards long term incentives while 40% came out against such a move.
75% of respondents say that state intervention in financial institutions and markets has been effective
It can only be surmised the 25% of respondents who answered “no” to the question are concerned about the quality and nature of state intervention rather than about whether intervention was necessary at all.
84% feel not enough is being done to rid the banking system of toxic assets
Respondents in overwhelming numbers said that not enough is being dome to rid the banking system of toxic assets.
66% expect financial institutions to reduce significantly the range of products and services they offer
There is a general consensus that financial institutions will need to change in order to be in the best shape to compete as the global economy recovers. Most respondents think it is likely (51.8%) or highly likely (14.2%) that financial institutions will cut back the range of products they offer.
Report available on request. More information can be found at here.
For further information please contact:
Sean Twomey: http://www.nortonrose.com/people/sz/person...aspx?lang=en-gb
Nicole Sharp: http://www.nortonrose.com/people/sz/person...aspx?lang=en-gb
Editors note
Norton Rose LLP is a constituent part of Norton Rose Group, a leading international legal practice offering a full business law services from offices across Europe, the Middle East and Asia.
Knowing how our clients’ businesses work and understanding what drives their industries is fundamental to us. Our lawyers share industry knowledge and sector expertise across borders, enabling us to support our clients anywhere in the world. We are strong in corporate finance, financial institutions, energy and infrastructure, transport, and technology.
Norton Rose Group comprises Norton Rose LLP and its affiliates. We have over 1000 lawyers operating from offices in Abu Dhabi, Amsterdam, Athens, Bahrain, Bangkok, Beijing, Brussels, Dubai, Frankfurt, Hong Kong, Jakarta*, London, Milan, Moscow, Munich, Paris, Piraeus, Prague, Riyadh*, Rome, Shanghai, Singapore, Tokyo and Warsaw.
* associate office
Source: http://www.nortonrose.com/news/inthepress/...aspx?lang=en-gb
The financial institutions landscape has changed forever says the fourth global crisis survey by Norton Rose
11 May 2009
69% think the financial institutions landscape has changed forever 68% think better regulation could have prevented the global crisis 61% believe global regulation of financial institutions is not practical 52% say tighter regulation will impede a recovery 68% believe risk management should be given increased resources but only 47% thought financial services would actually make the necessary investment 83% agree more focus on remuneration is required as part of risk management 75% say state intervention in financial institutions has been effective 84% feel not enough is being done to rid the banking system of toxic assets 66% expect financial institutions to significantly reduce products and servicesThe Fourth in our series of surveys tracking market sentiment in relation to the Global Financial Crisis examined a theme of “Financial institutions in the future”. Norton Rose LLP surveyed 197 respondents comprising financial institutions and other mainstream corporate entities between 6 -15 April 2009. The online survey was designed to canvass the views of financial services professionals on the impact of the latest phase of the global financial crisis, following the G20 in April 09, on the future for financial institutions.
James Bateson, head of Financial Institutions at Norton Rose LLP commented:
“We are entering a new phase in relation to the Global Financial Crisis. A more thoughtful approach is emerging as politicians and regulators seek to rebuild the financial system for the future. Whilst it is clear from our results that there is a commonly held view that regulation could have prevented the global financial crisis (66%) there is an interesting paradox in that effective global regulation is viewed as not practical (61%) and a majority of respondents believe tighter regulation could impede a recovery (52%). The issue that must be must be addressed is whether it was a failure of the regulation itself or the failure to effectively enforce. This is key to understanding how regulation should work in the future and ensuring it does not impede the recovery.”
69% think the financial institutions landscape has changed forever
Nearly 70% of respondents agree that the financial institutions landscape has changed for forever but surprisingly 30% disagreed. In view of the sweeping changes to regulation being considered as well as the damage wrought to individual institutions during the crisis it is difficult for many to imagine that things will ever be the same again.
68% think better regulation could have prevented the global crisis
Many attribute the severity of the global financial crisis to a failure in regulation. There is a general sentiment that tougher regulation is required to prevent the problems of the past from reoccurring and that a greater degree of international cooperation is necessary. But there is concern that a one-size-fits all approach fails to acknowledge the different geographical and market segmental impact of the crisis.
61% believe global regulation of financial institutions is not practical
It is highly unlikely that, as scholars of the financial world have pointed out, a stable financial system, an integrated financial system and national financial autonomy are all compatible.
52% said tighter regulation will impede a recovery
Although the US and UK governments in particular are asking the banks to lend more, the regulators are demanding that they manage their risks better - the corollary of which is “deleveraging” and less lending.
68% believe risk management should be given increased resources but only 47% thought financial services would actually make the necessary investment
Respondents broadly agree that more authority and resources (68%) should be given to risk management functions in financial institutions. Unfortunately only a minority (47%) believe they will be given the resources.
83% agree more focus on remuneration is required as part of risk management
Respondents overwhelmingly agree that financial institutions should be more focused on their remuneration structures as part of their risk management strategies. Previous Norton Rose surveys have revealed that many finance professionals acknowledge the need for changes, but these latest responses suggest opinion has moved even further. In February 2008, nearly 42% said there should be a move towards long term incentives while 40% came out against such a move.
75% of respondents say that state intervention in financial institutions and markets has been effective
It can only be surmised the 25% of respondents who answered “no” to the question are concerned about the quality and nature of state intervention rather than about whether intervention was necessary at all.
84% feel not enough is being done to rid the banking system of toxic assets
Respondents in overwhelming numbers said that not enough is being dome to rid the banking system of toxic assets.
66% expect financial institutions to reduce significantly the range of products and services they offer
There is a general consensus that financial institutions will need to change in order to be in the best shape to compete as the global economy recovers. Most respondents think it is likely (51.8%) or highly likely (14.2%) that financial institutions will cut back the range of products they offer.
Report available on request. More information can be found at here.
For further information please contact:
Sean Twomey: http://www.nortonrose.com/people/sz/person...aspx?lang=en-gb
Nicole Sharp: http://www.nortonrose.com/people/sz/person...aspx?lang=en-gb
Editors note
Norton Rose LLP is a constituent part of Norton Rose Group, a leading international legal practice offering a full business law services from offices across Europe, the Middle East and Asia.
Knowing how our clients’ businesses work and understanding what drives their industries is fundamental to us. Our lawyers share industry knowledge and sector expertise across borders, enabling us to support our clients anywhere in the world. We are strong in corporate finance, financial institutions, energy and infrastructure, transport, and technology.
Norton Rose Group comprises Norton Rose LLP and its affiliates. We have over 1000 lawyers operating from offices in Abu Dhabi, Amsterdam, Athens, Bahrain, Bangkok, Beijing, Brussels, Dubai, Frankfurt, Hong Kong, Jakarta*, London, Milan, Moscow, Munich, Paris, Piraeus, Prague, Riyadh*, Rome, Shanghai, Singapore, Tokyo and Warsaw.
* associate office
Another interesting document on the current global financial crisis and what it might mean for us, directly or indirectly:
Source: http://opencrs.com/document/RL34742/
The Global Financial Crisis: Analysis and Policy Implications
April 03, 2009
Summary:
What began as a bursting of the U.S. housing market bubble and a rise in foreclosures has ballooned into a global financial and economic crisis. The world now appears to have entered a global recession that is causing widespread business contraction, increases in unemployment, and shrinking government revenues.
Some of the largest and most venerable banks, investment houses, and insurance companies have either declared bankruptcy or have had to be rescued financially. The world is facing the worst economic conditions since the great depression.
Nearly all industrialized countries and many emerging and developing nations have announced economic stimulus and/or financial sector rescue packages, such as the American Recovery and Reinvestment Act of 2009 (H.R. 1, P.L. 111-5). Several countries have resorted to borrowing from the International Monetary Fund as a last resort.
The crisis has exposed fundamental weaknesses in financial systems worldwide, demonstrated how interconnected and interdependent economies are today, and has posed vexing policy dilemmas for governments. The process for coping with the crisis by countries across the globe has been manifest in four basic phases.
The first has been intervention to contain the contagion and restore confidence in the system. This has required extraordinary measures both in scope, cost, and extent of government reach.
The second has been coping with the secondary effects of the crisis, particularly the slowdown in economic activity and flight of capital from countries in emerging markets and elsewhere that have been affected by the crisis.
The third phase of this process is to make changes in the financial system to reduce risk and prevent future crises. In order to give these proposals political backing, world leaders have called for international meetings to address changes in policy, regulations, oversight, and enforcement. Some are characterizing these meetings as Bretton Woods II. On April 2, heads of the G-20 nations met in the Leaders’ London Summit and announced measures to bolster the international financial institutions, stabilize the world economy, and reform and improve the financial regulatory system.
The fourth phase of the process is dealing with political, social, and security effects of the financial turmoil. Significant foreign policy implications of the crisis are now emerging. The role for Congress in this financial crisis is multifaceted. While the recent focus has been on combating the recession, the ultimate issue perhaps is how to ensure the smooth and efficient functioning of financial markets to promote the general well-being of the country while protecting taxpayer interests and facilitating business operations without creating a moral hazard.
In addition to preventing future crises through legislative, oversight, and domestic regulatory functions, Congress plays a key role in generating policy options and informing the public through hearings and other means. On the regulatory side, the largest questions seem to be how U.S. regulations should be changed and, if changed, how closely those changes are to be harmonized with international recommendations.
Other questions include: should the United States promote global regulatory standards to be voluntarily adopted by countries or should a supranational regulatory institution be created? Where would enforcement authority reside; at the state, national, or international level? Congress also plays a role in measures to reform and recapitalize international financial institutions. Also, should U.S. policies be designed to restore confidence in and induce return to the normal functioning of a self-correcting financial system or has the system, itself, become inherently unstable?
Download the FULL article here: http://assets.opencrs.com/rpts/RL34742_20090403.pdf
Source: http://opencrs.com/document/RL34742/
The Global Financial Crisis: Analysis and Policy Implications
April 03, 2009
Summary:
What began as a bursting of the U.S. housing market bubble and a rise in foreclosures has ballooned into a global financial and economic crisis. The world now appears to have entered a global recession that is causing widespread business contraction, increases in unemployment, and shrinking government revenues.
Some of the largest and most venerable banks, investment houses, and insurance companies have either declared bankruptcy or have had to be rescued financially. The world is facing the worst economic conditions since the great depression.
Nearly all industrialized countries and many emerging and developing nations have announced economic stimulus and/or financial sector rescue packages, such as the American Recovery and Reinvestment Act of 2009 (H.R. 1, P.L. 111-5). Several countries have resorted to borrowing from the International Monetary Fund as a last resort.
The crisis has exposed fundamental weaknesses in financial systems worldwide, demonstrated how interconnected and interdependent economies are today, and has posed vexing policy dilemmas for governments. The process for coping with the crisis by countries across the globe has been manifest in four basic phases.
The first has been intervention to contain the contagion and restore confidence in the system. This has required extraordinary measures both in scope, cost, and extent of government reach.
The second has been coping with the secondary effects of the crisis, particularly the slowdown in economic activity and flight of capital from countries in emerging markets and elsewhere that have been affected by the crisis.
The third phase of this process is to make changes in the financial system to reduce risk and prevent future crises. In order to give these proposals political backing, world leaders have called for international meetings to address changes in policy, regulations, oversight, and enforcement. Some are characterizing these meetings as Bretton Woods II. On April 2, heads of the G-20 nations met in the Leaders’ London Summit and announced measures to bolster the international financial institutions, stabilize the world economy, and reform and improve the financial regulatory system.
The fourth phase of the process is dealing with political, social, and security effects of the financial turmoil. Significant foreign policy implications of the crisis are now emerging. The role for Congress in this financial crisis is multifaceted. While the recent focus has been on combating the recession, the ultimate issue perhaps is how to ensure the smooth and efficient functioning of financial markets to promote the general well-being of the country while protecting taxpayer interests and facilitating business operations without creating a moral hazard.
In addition to preventing future crises through legislative, oversight, and domestic regulatory functions, Congress plays a key role in generating policy options and informing the public through hearings and other means. On the regulatory side, the largest questions seem to be how U.S. regulations should be changed and, if changed, how closely those changes are to be harmonized with international recommendations.
Other questions include: should the United States promote global regulatory standards to be voluntarily adopted by countries or should a supranational regulatory institution be created? Where would enforcement authority reside; at the state, national, or international level? Congress also plays a role in measures to reform and recapitalize international financial institutions. Also, should U.S. policies be designed to restore confidence in and induce return to the normal functioning of a self-correcting financial system or has the system, itself, become inherently unstable?
Download the FULL article here: http://assets.opencrs.com/rpts/RL34742_20090403.pdf
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