Zero Interest Rate Effect on the Potential of US Economic Deflatoir

By : Edmond F. La’lang

             Interest rates are similar to "say with flower" to express love, appreciation and generosity of the lender / creditor to the donor / debtor. If interest rates further lower to zero rate (0 - 1.0%), it is not emerging new flowers or plants grow stronger, but it is increasingly shed their leaves and the flower itself, because of the overdose. This is experiences by farmers if the land had been given instead of excesss fertilizer will produce a lot of grains or fruits, but it will reduce the level of productivity. Because of nutrient fertilizers, particularly inorganic fertilizers can be toxic to plants. Similarly, the zero interest rate will not be able to provide a stimulus for developing business opportunities for the low cost of funds / money,  because of very sluggish economic conditions, frozen and chilled because the purchasing power and low consumption levels will reduce the level of industrial production, sales and services and finally to increased number of layoffs, unemployment and corporate bankruptcies. This condition gives domino effect "deflationary spiral" of increasingly heavy and severe Japan also has experience from 1992 - 2010 and until now the interest rate is still low at between 0.10 - 0.25 % for 18 years. Thats why many speculators come to Japan for Carry Trade and invest this fund on high yield return without making the real sector will be recovery. And now too in US, where the Fed rate is 0.25 % and much more printing money for QE1 - 2 as US$ 1,4 Trillion goes to emerging market and commodities market to speculate and rocketing the stocks and commodities price and finally make US and world peoples being more weak buying power for living. And make emerging market being funerable by bubble and overheating economy to be downturn again if they are not smart to manage their economic growth with wisely economic and monetary policies..

            Progress to December 2008, shows the trend of increasingly aggressive European and world central banks cut rates by 0.5 - 1.0% and will continue to 1.0% and eventually will go Zeo rate as was experienced by Japan, followed by the U.S.(1.0%) Progress to December 2008, shows the trend of increasingly aggressive European and world central banks cut rates by 0.5 - 1.0% and will continue to 1.0% and eventually will go Zero Rate as was experienced by Japan, followed by the U.S.(1.0 %) Will cut by the Fed to 0.25 to 0.50 % as well as other world central banks.  I also predict that BI will ultimately continue to decrease towards zero SBI rate after a contraction of inflationary toward deflatoir in 2010 - 2011 later. Prices will fall dramatically, although like in Indonesia apply a by word that "strong downward price" that we experienced for 30 years, which continued inflationary conditions characterized by permanent high level of SBI since the 1970s.

            U.S. financiail crisis has spread with systemic symptoms and cause a domino effect on all lines of business from banking, manufacturing and other services including the creative industries in the future. Finansil crisis has caused huge losses for investment banking, general banking, securities, insurance, hedge funds and retail investors a liquidity drought caused the banking world by withdrawing U.S. funds in the entire world back to its parent company to cover losses and pay debts and bill customers withdraw funds. This condition also catastroph in world stock markets and commodities that add to the panic of investors around the world and the shift of these funds into speculative forex USD. In addition to U.S. funds which have invested in both developed and emerging markets caused USD getting stronger against the hard currency and currency others, including the rupiah continued to weaken and had penetrated the level of Rp. 13 400 (Indonesia) at the end of November 2008.

          This effect will be make Cenrtal Bank of Indonesia would be difficult to aggressively reduce SBI anticipates his economic weakness due to recession and the threat of deflation for the business world still goes on. The spread between the SBI with inflation for the inflation rate can suppress effectively is about 1.5 - 2.5%, where the rate of inflation in 2008 was around 11.5 - 12.5%, mean SBI is the optimal level of about 9,5 to 10.5%. If the BI tends to follow the decline in interest rates as other central banks in the world, of course, we face the potential weakening of rupiah in the future. But why the Fed in economic recession even make a strange policies to lower the Fed rate with aggressively to zero rate at 0.25 % to anticipated the inflation rate by import inflation, where US$ will be depreciated condition ? And furthermore the Fed after bail out many banking and other financial institution tend to make more US$ depreciation with Quantitative Easing on QE1, QE2 and maybe continued to QE3 – QE6 ? This is make much funerable for healthy of economic growth in sector but advantage for growth in financial sector, where we knows that the Big Four Investment Banking and other Richman will be advantaged,    

but that  impoverish lower and  middle class ? So, how can you calmly the inflation on food, gasoline and raw materials for industries, just by cutting the employment salary ?

         

Visit my blog, http://bioeconomic-natural.blogspot.com      

Paradoxial Economic Chaos Analysist of Iraq War

By : Edmond F. La’lang

        Actually the U.S. economy has reached its peak in 2000 in the era of Bill Clinton after the step for 8 years since 1992. At the senior Bush era has indeed been declining due to the defeat of U.S. manufacturing from Japan since 1985 in the U.S. domestic market. Clinton has reformed its economy by relying on technological innovation, efficiency and stimulus to corporate computers in Silicon Valley appear marked with many software and hardware companies, like Microsoft, Dell, Apple and began his Internet era is finally followed by the booming New Economy Dotcom (provider service providers). And then the economy begun started to increase again, and manufacturing began to rise and surpass the Japanese corporation. Since early 1980, Japan struck the U.S. corporation by acquiring a U.S. corporation known as "The Rising Sun". But in early 1994, since Japan went into recession and deflation is finally reversed his condition in which many Japanese corporations acquired by U.S. corporations, including Mitsubishi, Toshiba, etc.. until the end of the Clinton era in 2000.  Actually Bush  could continue greatness Clinton at least until 2003.

         There are a number of events and structural conditions that increasingly burden US economy financial and real sectors  is :

        

1). WTC Tragedy makes the U.S. economy began to collapse buildings are detrimental to hundreds of billions USD in the world of business, tourism and U.S. airlines;

2). Shocks of New Economy Dotcom crisis that erupted in 2001;

3) The scandal of Enron and Xerox in the accounting fraud;

4) Fragility of the U.S. economy by the consumption structure and credit cards often exceed the level of income Americans;

5) Standard of living and level of CEO salary and bonus to employees who are highly paid compared to the salaries of Japanese employees of U.S. corporations. The case of the Big Three U.S. automakers GM, Ford and Chrysler, which causes them to lose USD 74 billion since 2004 and suggestions of the U.S. Senate to cut employee salaries is opposed by labor unions that caused the bailout amounted to USD 14 billion jeopardized on December 13, 2008, and the case of salary and CEO of Wall Street bonuses reached $ 500 million / year.

6) Standard of living is high these cause the U.S. economy increasingly heavy burden and CEO salaries and bonuses and high employee also become operational costs U.S. industry more and more weight so the cost per unit of production to price products more expensive and less than the Japanese products (automotive) and China (food, electronics and household appliances). For the U.S. automotive industry is supposed to terms angggota Congress from Republicans to cut employee salaries to be equal with the salaries of employees Nissan, Honda and Toyota to make the Big Three automobile products have price competitive with Japanese auto products;
7) with a high consumption patterns of U.S. society consumerism by making use of various credit cards that often exceed their income and always rely on profits from stocks share fluctuated.

8) Model mortgage subprime mortgages policy since 1997 (the Clinton era) and the policy of the Governor of The FED, Alan Greenspan cut rates aggressively FFRT from 6.75% (2001) to only 1.0% (2003) to be triggered jor-rod housing loans by property developers as well as boomerang for the property industry and subprime derivatives are sold in stages by the time the investment banking crisis of subprime mortgages;

9) Biocycle and biorhytmic U.S. economy that is affected by the supernatural and natural forces, which were supposed to be weakened in the recession mild to moderate, but due to factors point 1-8 (especially sub-prime mortgages crisis), causing increasingly severe economic crisis which led to economic recession and deflation to the condition that is potentially more severe to the Great Depression. Thus, we should be more rational, reasonable and not emotional too blame Bush as the main cause of economic chaos as alleged by Democratic economists after we know the chronology of the causes of economic turmoil, the Iraq war only helped worsen the recession main conditions (10-15 %) , while the rest is another point (85 – 89 %).

Visit my blog, http://bioeconomic-natural.blogspot.com

Macroeconomic Policy in a way Bailout, Stimuli, Low Rate and Quantitative Easing (QE) to recover of the economic recession

By : Edmond F. La’lang

Why the fiscal and monetary policies do not able to recover the economic growth, included high unemployment rate ? We must remove on old paradigm in economic science and change of much economic and monetary policies, so that we can able to resolve many economic problems in this recession and find a good vision on how to make economic and monetary that have not make much turbulencies, trouble, crisis and recession as early warning system on preventive ways in the brightness future. This is analysist to answer why the QE, stimuli, bailout, low rate and much printing money doesn't make a real recovery economic but only make much problem in huge debts, debt trap to be default, still high unemployment, low buying power, much more poor peoples, deflatoir threat condition still existing and slow economic growth. The money circulations not going to real sectors to create some opportunity business but banking tend to give credit with carry trade action to the highly real speculation with greedy for climb the mountain price in commodities, forex and stocks with no real fundamental prospects. So how the real sector being more stronger and healthy with highly their raw materials price to produce goods and service in stable prices and how the consument, especially in under developing countries to get and buy the highly consumption products price with low buying power ?

           Treasury bailout $ 700 Billion and FED bailout of $ 800 billion debt that causes the U.S. budget deficit could reach USD 1.5 to 2.0 trillion and the U.S. government's plan to publish the T-Bill $ 600 Billion. The amount of USD 2.1 Trillion bailout is certainly not yet able to rapidly restore the property sector, especially to help subprime borrowers and investment banking finansil which has suffered losses amounting to USD 15.4 trillion. This bailout is only for improving the psychological effects of the market and a little patch up there in the hope that losses will come back market confidence in the property sector, financial and banking. Obama's stimulus plan in 2009 in the infrastructure sector is to be an emergency to reduce the unemployment rate, but not on fundamental problems in the real property and manufacturing sectors. We agree the analysis to some observers of the U.S. economy that U.S. auto bailout of USD 15-34 billion is just a waste of money, without touching the "basic problems" U.S. automakers inefficient, wasteful automobile fuel products, breakthrough technologies that expensive even though the car was enough life span durable. Difficulty GM, Ford and Chrysler during this time is unable to compete with Japanese automakers, South Korea and Europe in both the world and in the domestic market, due to chronic inefficiency and wasteful of fuel.

           Mediumterm of  Henry Poulson plan is actually quite touching to help sub-prime borrowers and other property, but it should be thoroughly good for business efficiency and the need to "take a rest, consolidation, innovation, efficiency and turn around" for recharging and recovery the U.S. economy at the level real. But with economic conditions starting point to deflatoir, then in our opinion, the U.S. will be difficult for the quick recovery and consolidation was supposed to happen first, including natural selection will occur for all business sectors. This natural selection will shed a lot of companies in major losses and bankruptcies, so that more and more weak economic conditions. This is where the need for economic policies that can gradually awaken the economic engine in nature and not by economic tehnical engineering as has been done by financial sector, where instead of getting better, but even more severe. So, "do not fight the natural law", let nature manage human life and not the other way that would further aggravate economic conditions in the long term. Deflation will form the economic rate of cold (cooling step) and not direct high rise with an indication of inflation began to rise again. The zero rate is never make a significant grow up with warming in inflation but only make a winter season with deflation and slowly growth in long time goals.

           The U.S. economy and the world will go to the first winter for some time about 3 - 5 years (2012-2014) and gradually warmed up to 70-10 years (2015-2018). But if human (economics, financial and business management) tried hard to healthy returned with various "acrobat economic and management policies", instead it will make economic conditions will further cool down (deflation higher), which makes more and more companies go bankrupt, unemployment growing high, increasing consumption levels fell and the poor increases with crime, social and political upheavals which will also increasing. Thus let the business will organize its performance is supported by the government's economic policies conducive to the various efforts incentives to stimulate economic engine to start to rise again, but healthy in the long term without experiencing a severe crisis.

          It is strange in the human health and environment science that severity of the economic disease which really needs to take a rest or bed rest in the hospital but the economist and monetarist with his economy science still want to rise and be strong again after turbulencies and free fall or having financial tsunami. As like climate rotation after fall season as many institution business has fall for big losses and bankruptcy must be follow the winter season as indicated of economic recession or downturn, but economist with his knowledge (but Prof. Paul Ormerod have been says that the “Economy Science is Death”)  hard efforts to resistance of the natural law with the policy of giving an injection form of bailout, stimuli, low to zero rate, printing money and add big debt with QE 1 to QE 2 and I think will be much more like addicted to wants QE 3 – Q 5 until he/she broken down.

         This will make the US economy instead of getting better like expected, but it is getting worse by the threat of deflation spiral and depression (Double Dip Recession predicted by Prof. Nouriel Roubini  will be happen in a couple years?). Why do economics with financial engineering acrobatics instead of following the rules of nature itself with more and provide stimulus to the patient and environmental condition that have been sick to continued their activities ? Are you want ignoring and fight against the Natural Law ?  And I am not sure that the arrival of spring will coming soon (economic growth with generate many new corporates and employment opportunities) with the increasing flood of printing money (maybe create a big water flooding disaster in the mainland). This is because of bad winter and not eyet the arrival spring. Thus the Fed only burn wood to warm the body during the freezing temperature at night in the woods forest but gave not inflationary core effects in to the system which actually freeze and lead to continued cooling of economic growth. So, the US peoples should not fear the threat of inflation but should the threat of deflation spiral like that have been experienced by Japan since the 1990s.

         Why did US follow to Japan  Economic and Monetary Policy to face his Recession with longterm Deflatoir mistake. US must be  should in consolidative and efficiency of his economic and business driven and not much more add debts. So eventually, Japan and US now increasingly sank in the “Muddy Sand” with giant debts which actually has exceeded its own GDP  and if experienced by small states and weak economy will be down and penalty with default and worse in trusty crisis like economic crisis 1997 in Asia (Indonesia, Thailand, Philipine) and now face by Europe countries to face default and must be want to bailout like Greece, Iceland, Ireland and Portugesea and began threat to Spain, Italy, France and maybe Britain if not careful in carrying out economic condition with prudential and smat economic and business policies. I agree the policy of ECB (Trichet) is quite and smart than the FED (Bernanke) is precisely to continued the economic and monetary policy in Japan by increasing amount of money in circulation in stimuli, quantitative easing (QE) with printing money, zero rate and more adding to the burden of debt without being able to get out of the hole of deflation and economic growth weak for over almost 20 years and this also would  be experience by US economy if it continues to make “structural faults” with bizarre economic policies and problem solving are not smart.

          Likewise medically that stimuli, QE and much more highly debts is like drinking alcohol that can be intoxicating and can walk out of balance, behaving strangely, talking and acting ridiculous or endanger himself and others in driving car or drink uncontrollably ecstacy, narcotics, drug stimulant and tonic but in a systemic and longterm will be even more damaging US economic system and financial itself and result in more heat and bubble conditioning in emerging market economies by hot money flows of funds and the booster to increase in commodity prices that will be destroy the growth of manufacturing industries, transportation, gasoline car by high cost of energy prices. And food commodity prices sky rocketed which causing more and more increase in the poor and social and political crises and destruction of forest to search new agricultural and settlements in various countries, mainly in Africa and Middle East.

          So, we must remove on old paradigm in economic science and change of much economic and monetary policies, so that we can able to resolve many economic problem in this recession and find a good vision on how to make economic and monetary that have not make much turbulencies, trouble, crisis and recession as early warning system on preventive ways in the brightness future. This is analysist to answer why the QE, stimuli, bailout, low rate and much printing money doesn't make a real recovery economic but only make much problem in huge debts, debt trap to be default, still high unemployment, low buying power, much more poor peoples, defaltoir condition threat still exist, slow economic growth. The money circulations not going to real sectors to create some opportunity business but banking tend to give credit with carry trade action to the highly real speculation with greedy for climb the mountain price in commodities, forex and stocks with the real fundamental prospects. So how the real sector being more strong and healthy with highly their raw materials price to produce goods and service in stable prices and how the consument, especially in under developing countries to get and buy the highly consumption products price with low buying power ?

Visit my blog, http://bioeconomic-natural.blogspot.com

Susidarto (Observer and Banking Practitioner): Building a Business Habitus (Kontan Daily, 31 December 2008)

Comment by: Edmond F. La'lang.

          
Stay a few days we will leave in 2008 to 2009 with great optimism and hope of a better situation, amid global economic uncertainties sweeping across the world. The hope of creating a conducive climate for economic recovery amid global economic uncertainties.
One that needs to be built is our habit which is ingrained in the business for this. Borrowing the term B. Herry Priyono, SJ, we need to build a habitus new in all things, termsk in business. Why is this necessary? Reflecting the global economic crisis which is now happening, it was obvious that the downfall of many corporations snapper in the U.S. and also in various parts of the world, it happens out of habit (habitus) which bad done by the managers.

           In my view, indeed we need to know food and feeding habits of a global company. Habits are transparent, prudential risk management, port-folio allocation of good and proper, not bubble turnover to get their big bonuses, real derivatives that economically healthy, do not create rumors and myths that are not right to raise the share price tends to be a bubble and vulnerable turbulence.

- The small, tough

The CEO and management under it, all this time trying to hunt down a fantastic bonus and high facility with a less elegant manner and ethical, that treat a large turnover of businesses in various ways. Jor-rod phenomenon Listing subprime loans that led to the mega-scale defaults, has destroyed the U.S. economy. The phenomenon of the economic bubble has been created with the effort to inflate the turnover of the business through asset securitization. Here econophysical theory in the form of derivative transaction plays a major role in a rapidly inflating asset and instant.

           In my opinion, the theory of physics is only economically studying natural phenomenon, like earthquakes, electrical power, gravity, fluid turbulence (mass of water) and air (aerodynamics) that actually has no role in the derivative system, but most likely to use mathematics to be included in financial engineering. Or maybe a nuclear physicist and nannotechnology with a given small mass square of the speed and produced a huge bubble of energy according to Einstein's relativity theory. Where speed is the speed used by the possibility of price growth and spread of derivatives? It is difficult to do because it requires the container is strong, extraordinary collision and reaction speed of light, so we thought Tannous and economically Fessant as the originator of physics can not possibly do acrobatics econophysical to form a derivative levels. Meanwhile, habitus are less elegant and supported with the economic concept pa-sar-style neo-liberal (no state intervention at all and left managed market itself), it does look amazing.

Actually there is intervention into the market through the SEC (Security Exchange Commission) which must have the policy of that market mechanisms work well without any mistakes, moral hazard and other actions that lead to evil mode. For that is the neo-liberal reform is necessary to "manage-liberal" means the market should have control or control over their behavior to avoid excessive and cause a bubble with a variety of rumors, fry buy back stock and action, but the fact is not true that pushed investors buy up particular stock based on rumors and fried shares.Within an instant, the stock price-2 major U.S. corporations soared, and this affects the big bonuses for CEOs and their management ranks. They give bonuses beyond human reason. It is said that there is a CEO receives a bonus billions of dollars (tens of trillions of Rupiah). Unfortunately habitus is less elegantly framed with the economic bubble had to end tragically and its impact can be felt throughout the world.

          Yes indeed the CEO had to control ourselves from greed, selfishness, deceit veiled and other business practices unethical and elegant. For that there needs to be setup correctly on corporate performance conditions that are associated with stock prices in the future, without any window dressing excess, accounting fraud, improper corporate rating, excessive expectations that the price of shares of a corporation will ride height according to predictions of certain brokers known bona fide. So the price of corporate stock will be reasonable based on performance and business prospects and not on the game and speculative price bubble. For it must be recalculated based on the method of determining the share price PER, EPS, ROI, ROE, ROA, PBV, performance expectations, expansion, acquisition, taking credit and corporate prospects who must be guided by professional brokers, rational, prudent and honest.

Views megalomania that the big ones are great and strong, we must also begin to get rid of. The global economic crisis that has toppled so many corporate big fish at least shows that the premise which has been adopted and used as a school that big must have strong, healthy and strong are also not always indicate its significance. Evidently, the crisis and global economic recession has "subvert" U.S. world economic giant, to the acute economic recession. Any crisis that toppled giant world-class corporation, Lehman Brothers and other classmates.

          In my opinion, we must distinguish whether he actually is full of strong muscles, agile and expansive water or just full of fat cholesterol so that it sickly, slow, weak and defensive, and at worst just a game finansil a REPO, there debt debt here in stages similar to the derivative (dug holes closed hole) to zoom in assets and turnover. It is similar artisans selling cheap medicines with marketing techniques tebar charm and grandiose promises / wind pepesan heaven but it is empty with the performance, profit, ROI, ROE and low prospects.

Visit my blog, http://bioeconomic-natural.blogspot.com

Lessons from Economic Financial Disaster

By : Edmond F. La’lang

“Learn from this chaotic, national banks we can pick a few things about risk management. Do not ever think that risk management is only stop on risk management certification exam is now spring”.

          I think, diploma / certificate and the science is supporting 10-20% of one's success. This is a misguided mindset that the successful person is viewed from the level of formal education via the intelligent quotient (IQ) and have not touched the EQ (emotional quotient) and SQ (spiritual quotient) which actually plays an important role for the career, achievements and self-control and the risk of life and the right business. Let us learn to live by exploiting the biological sciences to economic and business in the form of bio-economic, bio-management, bio-risk, bio-natural and bio-dynamic of an integrated world market but full of turbulence and volatility risk of market panic. Studies on bio-bio is preventive (prevention) in various aspects of life, so people in each of its activities including business can always be easily avoided the risk of natural (natural) and man-made systemic own (physical).

 
          With the familiar strains of bioritmik human activity, then we can get to know aspects of psychological, mental, economic and human performance, when it will rise and fall, when it will happen turmoil, turbulence, crisis and recession. With proper time management then we can make a precise prediction correctly. This of course can be a "benchmark" and a reference for CEOs and management in setting the strategic management, execution of decision making, action plans, where the allocation of funds, when borrowed, the amount of the loan according to its capital structure, when the expansion, when ordering raw materials and auxiliary materials, when to increase production, expand market share and is quite familiar with the movement of fuel prices, minerals and other commodities that are important to industrial activity, business and investment for market risk, business and business fluctuations can be identified accurately in the form of "early warning system" a good and correctly or according to Soros' run ahead of the curve "that we can take the management policy for preventive action before the occurrence of turbulence, turbulence, crisis and recession to reduce the incidence of risk and failed to pay, even to take gaining of risk and threat that will come.

          The economic crisis also has taken the lives of the Tribune group which has 8 major newspapers (Los Angeles Times) and 23 television stations on 8 December 2008 has pleaded with his voluntary Chapter 11 bankruptcy as highly indebted to USD 12.97 billion with assets of USD 7, 6 Billion. According to the Tribune owner, Sam Zell "In fact we and the rest of this country have little ability to see where the economy works and how the performance of our businesses face a recession." Here we can see that the ability of economics and management has not been able to fully know the rhythm and cycles of the economy as good and right so to provide early warning to his businesses to anticipate in terms of new economics can only go "behind the curve instead of ahead of the curve" . So of volatility and risk of the economy, business and the market will not likely be known early "certainty (certainty)" of the coming disaster crisis and recession, so just take cover as he consoled himself that it was an "uncertainty (uncertainty)," which can not controlled or managed properly for business performance to "avoid risks".

“The actual risk management go hand in hand with ongoing business with the endless variety of derivatives”.

          My advice is the risk management needs to incorporate elements of time, the psychology of the market and business dynamics are always evolving and has a rhythm of fluctuating according to the character of its business into the calculation of risk in the form of mathematical dimension 2-3.

“The formula derived more and more banking business which will appear more and more also the potential risk of birth variations”.

 
         I think this is true, because in addition to the complexity of management will also interact with each other according to its derivative tissues. Economics, management, industry, especially financial and accounting should learn more about genetic science, because many menderivatif (lower) range of products utuk professionally managed business and worldwide. Surely must know the "state of the art" of red yarn network correctly, accurately and well according to Mendel's laws as well as aspects of biology, bio-chemical and bio-physics since they are always interacting according to the network and the system as well as humans as biological creatures, which also contains elements -element of bio-chemical and bio-physics.

 “Not to mention the risk of cross derivatived variations. This risk can not be prevented”.

 
          In my view, it could be home by knowing the characteristics and dynamics so that we can know clearly the strains bioritmik fluctuations and to exit into the safe with a risk of less than 10%, where we can know exactly when it will go up, when it will come down, when be self reinforcing (starting here market participants do not need to be greedy and forcing herself to make a profit at about the peak of growth) and when will catastroph (as well as market participants in an orderly manner with no need to panic, and jostled (Crowded) wants to exit the market as a trickle that can cause panic and many victims who do not need to happen, so market participants will be adults and to refrain from excessive greed, like the MotoGP and F1 racing when it's around the corner or peak, had to use standard brakes to avoid slipping off the track. Prediction and referrals to "buy on strength or short selling" is often made by passionate and greedy without knowing clearly the direction and trend correctly and accurately.

“BI-2 product shall study it carefully so it does not fire beard later in life”.

          Often we are including BI always too late to anticipate the problems that exist, let alone to prevent precisely with the early warning system. Latest case of bankruptcy of Century Bank in the middle of November 2008, which reports in September and October 2008, CAR was 14.5%, but when you lose clearing in the middle of November, having examined the BI, it turns CAR has - 2.3% with a loss of about USD . 1.5 Trillion to be in the bailout JPS Rp. 2 trillion, not to mention the loss of customers who were deceived with fictitious derivative products. The same thing happened to a RB in Lampung, which has harmed its customers amounted to Rp1, 0 trillion. So at best we only problem solving like the bailout or strict supervision after suffering losses, incorrect placement of investments and the number of victims of fraud. If market participants are adults and can control ourselves as well as his conscience and not have to speculate without the precautionary 2an, disaster would panic and disaster risk can be minimized by systematic and well planned in the long term.

         This certainly can reduce the frequent occurrence of crises, recession, depression, fall of the stock, at least we can extend the time of occurrence with the always growing and finansil real economic activity in a healthy mind and body without the need for a lot of cholesterol intake, alcohol, Viagra and Ecstacy in overdose, for the economic life of individuals, companies, countries and the world become more healthy and lasting.

“National bank must have education to customers. Not only the benefits or advantages that need to be delivered to customers but also potential risks”.

          Clearly if we want to profit and win big, we should also face the risk of large losses (High Return High Risk), where instead of banks and securities actors, often also not aware of risks that may arise, such as earthquakes, tsunamis and hurricanes. Surely the U.S. as the Temperatures of Linear Risk Management World, the tsunami finansil never included in the calculation of unexpected and economical linear.

“This is the embodiment of good corporate governance. Transparency. As a result customers are able to understand honey and venom of a product. Risk exposure”.

 
          In my opinion, Good Corporate Governance (GCG) is necessary for the company did not experience the potential risk, failure and bankruptcy, but still can exist, profitable and healthy expands to grow into larger and more advanced. Transparency is necessary to open all health conditions, advancement and progress of company profiles for stakeholders, stockholders and prospective customers to prevent moral hazard as well as a reference for them to give financial and investment support. But once again that if the company is unable to recognize and prevent the occurrence of a risk of loss, failure to pay, moral hazard, unprudential and less competitive, then the operational and systemic risk can occur unnoticed by the CEO and management especially for customers who lay sedated and only winds of heaven enticing promotions. So that customers are often misled and did not know honey and toxins from products offered finansil banking, securities, investment banking and hedge funds. And one more important that management needs to have a reliable filter to determine and assess the survey data, empirical and mathematical calculations whether incoming data is really valid or needs to be revised, so that starting from microeconomic data analyst, macro, finansil, taking and analyzing accounting data to be forwarded to the management and the CEO have been completely accurate and valid order to perform the assessment and desicion making a reliable investment in strategic planning.

 
         That has not been recognized by economists including business people are always engrossed and carried away with "reliability finansil mathematical calculation of linear dimension 1", while the nature of growth, the expected value as well as many aspects of human psychological dimension 2 - 3 - 4 ignored by financial and risk management, and perhaps new marketing management yaang include psychographic and spiritual aspects of marketing to know more detailed and accurate information about the condition of needs and wants of customers, changes and market dynamics, psycho-social conditions of the markets and the theory of market environment.

Visit my blog, http://bioeconomic-natural.blogspot.com

Paul Sutaryono (VP BNI International Division): “Lehman, Where is your risk management?” in Kontan Daily (October 2008).

comment by : Edmond F. La’lang

Risk  Management

             Everyone recognizes that the U.S. is the temperature of risk management as banking and insurance industries. But that kept sticking financial tsunami of commercial banks, investment banks and insurance which raises the question naughty: where the role of risk management unit?

There are several risk management functions:

 
1). “Risk management is able to provide information and perspective to the management about all the risk profile, a fundamental change of product and market, business environment and the necessary changes in the risk management process”

 
         In my opinion, this is a process of "validation and analysis of accurate data and appropriate" means if properly applied science of risk management has been able to answer correctly all the symptoms of symptoms of risk that will happen in the market. Because as it is known that Alan Greenspan himself realized that the existing risk analysis will never find the model and analysis to anticipate the risk, when and the magnitude of risk. Because of monetary economics and is currently unable to predict the accuracy of macroeconomic parameters, such as growth rate, risk rate, interest rate, inflation rate, and some other rate in the time series and changes in business environment and economics. That is why the economy is full of assumptions and calculations of complicated mathematical linear unable to accurately predict the magnitude and time changes in macroeconomic parameters.  And how can one perform an appropriate and proper planning if only to revise various macro-economic assumptions, where the assumption is not necessarily true. It certainly would make the rate of economic development and business are also irreversible and not smooth so that helped spur the emergence of turbulence distrust due to "wrong predictions" with one result that is not to anticipate the emergence of systemic risk, especially risk subprime mortgages in the U.S. domestic market as well as around the world which has been closely intertwined.

2). “Risk management is able to convey the central issues of risk management policy formulation and its review”.

 
         As mentioned above, how can management determine the appropriate policy formulation and accurate predictions, so it will not happen revisionists and trial and error patterns that are inefficient and ineffective in planning business strategies for investing in various sectors. Lehman Brothers Inc.. will also not be able to predict the vulnerability of subprime borrowers and weakening U.S. economy is fundamentally and structurally since 2001 due to competition with Chinese and Japanese products in its domestic market. The same thing happened on the economic team in the country and spur economic rate of private businesses are right on target as set out in the draft budget each year. This makes the progress of business and the economy is distorted by random and produce micro and macro business calculations that are not exactly referring to macro-economic assumptions. Thus can not be expected that the current risk management models can provide a central issue and fokusing to formulate risk management policies and rivewnya correctly on the macro and micro turbulensis and full of fierce competition.

3). “Risk management is able to calculate and measure the amount of risk exposure”.

..          I think that even if the existing risk management but will not be able to count on target with accuracy and speed can follow the rhythm of economic activity of business, if only based on linear econometric calculations, which at one time there risk of failure (fatigue in aircraft engines) will not be detected with good to be anticipated with the method of "early warning system" in order to reduce the risk of greater losses, due to the global turbulence.

4). “Risk management is able to determine allocation of funds as well-2 with a more appropriate risk limits”.

   ..      In my opinion that is okay, because risk management can properly share risk appropriately with the allocation of funds in various investment instruments. But if management risk insurance model to be used reduce/eliminate the risk with derivatives "Credit Default Swap" certainly will always cause systemic risk in the event of a failure (default) on the system such as sub-prime, where credit risk diderivatif even more, yes even more create a greater risk finansil although according to the econometric calculations can be spread but instead give a greater effect due to earthquakes are interrelated and form a giant building construction vulnerable to external shocks in the foundations of lower middle class borrowers are vulnerable to macroeconomic shocks.

 ..        This is one of the biggest mistakes of risk management that in order to minimize the risk is to divide and spread the risk to be shared is not heavy, like an insurance model, yes it is true does not felt, but if there is failure in the basement and then slowly pillars will give effect to "the WTC disaster the upper and middle like a red-hot stock and banking ", so in quick time as well as perpetrators of subprime giant building giant banking, investment banking and insurance giant hill is like a chunk of land that slides down due to gravity and also cause the victim under it like small country and the real sector which is already have declined slowly in accordance biorhytmic or decade cycle. So, "we do not fight the Natural Law"!

 
         This has been my worried since Governor FED, Alan Greenspan to cut rates aggressively from 5.75% (2001) to 1.0% (2003) that would have the effect of low interest rates on business activities, in particular properties that will take credit blindly without even knowing the risk of future that once diderivatif tiered (10 levels) by the Investment banking and insurance, and wearing these cheap funds into the way of "Carry Trade" to be invested in countries that have high interest rates rather than to the real sector to support economic growth quality .. But that's one reason from God to restore U.S. economic bubble and the world to go back to basics so that people do not aggressively grow irrationally. Then there will be a chain reaction with high-speed collision so as to form an atomic bomb explosion in all directions and took the lives of so many in various lines and the surrounding region or similar cases of "Tsunami Aceh", the collapse of an old building has been fitted with a variety of detonators to the pillar- Its main pillars and detonated simultaneously would quickly collapse or a mass of land with steep slopes without trees bare soil binder will easily collapse or erosion by water saturation of the mass with the gravitational force (weight) will collapse and collapse and many casualties. So not only we need to conserve agricultural land as a place of culture, but also conservation finansil good in the business of stocks, bonds, forex, commodities and real terms.

5).”Risk management is also able to avoid excessive portfolio concentration”.

          In my opinion, this is pretty good, but not yet know precisely the intrinsic of each portfolio, how their performance in space and time (time series), depending on the development and progress as well as risks that may exist and occur from each portfolio to be invested. Yes definitely do not put most of the eggs (funds) on a basket of sub-prime mortgages. So must be selected basketball portfolio with low risk according to the strains of bio-rhythmic time monthly (monthly) and annual (yearly) and not based on mathematical calculations and linear statistics are often wrong and inaccurate in predicting the presence of systemic risk and volatility of external risk.

6). “Risk management is able to create adequate reserves to anticipate the risks that have been measured and calculated”.

 
          I think not too useful, because by knowing the risk of ups and downs of business conditions, we can accurately and quickly perform "strategy in and out" effectively and efficiently. If the market is bullish and the pros-perspective, we can do the strategy in an effective and if the market is bearish and turbu-lencies, we can efficiently avoid the potential risk of loss exists. This is the problem not being able to predict in a timely and correct, in addition to confidence factors to reduce risk strategy derivative model that precisely incorrect and adversely impacted. Reserves are necessary but do not overdo it because there will be a waste without a high value added. Reserves needed to cover possible risks that would arise in the future. For that there is need for penyeselarasan with the calculation of risk in point 5 above.

7) “risk management which is able to avoid the potential loss is relatively higher.
We do not know what the risk management unit and a year's time is not a short time to perform preventive efforts in addressing the potential risks to the eye:.

          In my opinion, Lehman was too confident with the risk management of derivatives to eliminate the risk insurance model in which all policyholders will bear the risks that may occur in part or individual member of the policy holders are clearly not closely related to systemic risk derivatives storey building 10. Finally, the holders of subprime investments and derivatives that must bear the risk of loss and not all the policy holders, this is a fatal error method. Probably too late for Lehman and wrong in the calculation of the worst possible scenario (pessimistic scenario).

              Lehman suffered liquidity risk (liquidity risk) and market risk that certainly occurs in the form of withdrawal of funds in a rush, so that the liquidity drought and the risk of volatile markets on investor panic and loss on the value of its shares on the stock market dropped drastically to be sold to cover losses on subprime. This is why Lehman was not able to meet its obligations (of default and loss of customer complaints), which is then extended to all lines of business of Lehman.  Also, concentration risk because most are in one basket portfolio of subprime mortgages. Really do not put eggs in 1 basket.

Visit my blog, http://bioeconomic-natural.blogspot.com