THE EFFECT OF THE GLOBAL ECONOMIC CRISIS
TOWARDS THE INDONESIAN ECONOMIC
Based on the definition of economy, economy is the realize social system of production, exchange, distribution, and consumption of goods and services of a country or area. A given economy is the end result of a process that involves its technological evolution, civilization's history and social organization, as well as its geography, natural resource endowment, and ecology, among other factors. These factors give context, content, and set the conditions and parameters in which an economy functions.
Economy activities means a lot to people. Economic activities help humans to growing and develop. With economic activities, human can fulfill they basic need of food and also another secondary need that they want. Human also can socialize through economic activities. With economic activities human learn how to deal in business, exchange and trade with any other people who need goods or service from another person. Economy has become daily activities for people now days. Economic activities not only based on exchange, and trade like it was long time ago, now economic also useful to investment, saving and production.
Economy is one of few factor to measure how the condition of some country. Based on the economic activities, some country can be categorized into mature country or developed country. From the economic activities, the effectiveness and efficiency of the people in some country can be known. Economy activities also become one important thing to create a relation between country or nation. With economic relation each nation can support and learn each other in order to increase the wealth of the country itself.
Economic activities not always stable and success, there is some point where the situation of economic is heading into crisis when the problem is already complicated and complex. In time of economic crisis, the impact will easily spread and effect the whole factor around it. In the time of crisis there will be huge change of the habit of people. Usually the biggest impact are hit the lowest level of society and economic level. They tend to be more suffer with the situation of crisis. a specific and gradual action is needed to solve the situation of crisis, there are many factor of consideration to be thought.
The economic world now has just hit by global economic crisis, this crisis has become entirely downfall for all the economic factor all over the world across nation. The crisis has penetrate all the level of economic scale. Until now the impact of the global economic crisis is still remaining. The people all over the world try their best to return this crisis back to normal state as before.
The Global Economic crisis was started in the Super Power Nation, United State. United State had reach their peak of business, with powerful economic activities and flow of cash and trade exchange. In the United State, the development of stock exchange, and obligation are highly increase and grow even bigger and bigger. Lots of people invest their money in share, stock and obligation. People are attracted because they know that they don’t have to do a hard work to earn money. Even within a single day, with investment and stock exchange they can earn lots of money. Without any hesitation lots of people become relying on those assets. In August 2002 an analyst identified a housing bubble. Dean Baker wrote that from 1953 to 1995 house prices had simply tracked inflation, but that when house prices from 1995 onwards were adjusted for inflation they showed a marked increase over and above inflation-based increases. Baker drew the conclusion that a bubble in the US housing market existed and predicted an ensuing crisis. It later proved impossible to convince responsible parties such as the Board of Governors of the Federal Reserve of the need for action Baker's argument was confirmed with the construction of a data series from 1895 to 1995 by the influential Yale economist Robert Shiller, which showed that real house prices had been essentially unchanged over that 100 years.
A common claim during the first weeks of the financial crisis was that the problem was simply caused by reckless, sub-prime lending. However, the sub-prime mortgages were only part of a far more extensive problem affecting the entire $20 trillion US housing market: the sub-prime sector was simply the first place that the collapse of the bubble affecting the housing market showed up.
The ultimate point of origin of the great financial crisis of 2007-2009 can be traced back to an extremely indebted US economy. The collapse of the real estate market in 2006 was the close point of origin of the crisis. The failure rates of subprime mortgages were the first symptom of a credit boom tuned to bust and of a real estate shock. But large default rates on subprime mortgages cannot account for the severity of the crisis. Rather, low-quality mortgages acted as an accelerant to the fire that spread through the entire financial system. The latter had become fragile as a result of several factors that are unique to this crisis: the transfer of assets from the balance sheets of banks to the markets, the creation of complex and opaque assets, the failure of ratings agencies to properly assess the risk of such assets, and the application of fair value accounting. To these novel factors, one must add the now standard failure of regulators and supervisors in spotting and correcting the emerging weaknesses. For many months before September 2008, many business journals published commentaries warning about the financial stability and risk management practices of leading U.S. and European investment banks, insurance firms and mortgage banks consequent to the subprime mortgage crisis.
Beginning with failures caused by misapplication of risk controls for bad debts, collateralization of debt insurance and fraud, large financial institutions in the United States and Europe faced a credit crisis and a slowdown in economic activity The crisis rapidly developed and spread into a global economic shock, resulting in a number of European bank failures, declines in various stock indexes, and large reductions in the market value of equities and commodities. Moreover, the de-leveraging of financial institutions further accelerated the liquidity crisis and caused a decrease in international trade. World political leaders, national ministers of finance and central bank directors coordinated their efforts to reduce fears, but the crisis continued. At the end of October a currency crisis developed, with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund.
The subprime crisis came about in large part because of financial instruments such as securitization where banks would pool their various loans into sellable assets, thus off-loading risky loans onto others. (For banks, millions can be made in money-earning loans, but they are tied up for decades. So they were turned into securities. The security buyer gets regular payments from all those mortgages; the banker off loads the risk. Securitization was seen as perhaps the greatest financial innovation in the 20th century.)
As BBC’s former economic editor and presenter, Evan Davies noted in a documentary called The City Uncovered with Evan Davis: Banks and How to Break Them (January 14, 2008), rating agencies were paid to rate these products (risking a conflict of interest) and invariably got good ratings, encouraging people to take them up.
Starting in Wall Street, others followed quickly. With soaring profits, all wanted in, even if it went beyond their area of expertise. For example,
· Banks borrowed even more money to lend out so they could create more securitization. Some banks didn’t need to rely on savers as much then, as long as they could borrow from other banks and sell those loans on as securities; bad loans would be the problem of whoever bought the securities.
· Some investment banks like Lehman Brothers got into mortgages, buying them in order to securitize them and then sell them on.
· Some banks loaned even more to have an excuse to securitize those loans.
· Running out of who to loan to, banks turned to the poor; the subprime, the riskier loans. Rising house prices led lenders to think it wasn’t too risky; bad loans meant repossessing high-valued property. Subprime and “self-certified” loans (sometimes dubbed “liar’s loans”) became popular, especially in the US.
· Some banks evens started to buy securities from others.
· Collateralized Debt Obligations, or CDOs, (even more complex forms of securitization) spread the risk but were very complicated and often hid the bad loans. While things were good, no-one wanted bad news. Side NoteWhen asked what if someone raised concerns, Peter Harn, one of the innovators of CDOs, an even more complex version of securitization, told the BBC such people would likely lose their job; anyone trying to slow down would have seen a decline in their market share compared to others, for example.
High street banks got into a form of investment banking, buying, selling and trading risk. Investment banks, not content with buying, selling and trading risk, got into home loans, mortgages, etc without the right controls and management. Many banks were taking on huge risks increasing their exposure to problems. Perhaps it was ironic, as Evan Davies observed, that a financial instrument to reduce risk and help lend more—securities—would backfire so much. When people did eventually start to see problems, confidence fell quickly. Lending slowed, in some cases ceased for a while and even now, there is a crisis of confidence. Some investment banks were sitting on the riskiest loans that other investors did not want. Assets were plummeting in value so lenders wanted to take their money back. But some investment banks had little in deposits; no secure retail funding, so some collapsed quickly and dramatically.
The problem was so large, banks even with large capital reserves ran out, so they had to turn to governments for bail out. New capital was injected into banks to, in effect, allow them to lose more money without going bust. That still wasn’t enough and confidence was not restored. (Some think it may take years for confidence to return. Shrinking banks suck money out of the economy as they try to build their capital and are nervous about loaning. Meanwhile businesses and individuals that rely on credit find it harder to get. A spiral of problems result.
The impact of Global financial crisis in Indonesia are surely happened. Indonesia also get the bad impact of the economic instability from European country. The clearly seen impact for Indonesian is, the number of unemployment will be increase. In order to reduce the company loss and avoid bankrupt, many company forced to send down their employee. Now days the number of unemployment has reach 250.000 people. Those number will still increase if the condition on economic are not going better. The number in percent of unemployment ill be increase from 7,44% to 8,87%. Another sector will be hit is the export industry or export goods. Because the flow of money in foreign country are limited and unsure, people will reduce their need of import goods or stuff from another country.
Conclusion.
The Global Financial Crisis has just happen and strike every point in this world. United State economy collapse, has give a big hit into many aspect of economic factor in European and Asian Country. No doubt that, the European country has the big effect, but Asian also get hit even not as big as European. Indonesia as the one of many Asian region representative, get the effect. But the effect for Indonesia are not so big, because the economy of Indonesia not too much rely on virtual money and investment. Indonesia can still keep up to stabilize the national economic condition. The government of Indonesia is need to be more careful with their step in the future. The experience of Well mature country like United State, should become a lesson how we should deal a problem like those, and prevent it from happened. Participation on Indonesian people also needed to develop and raise the economic activity. By appreciate and buying national product and service, the people already help government and their nation to be better in the future.
