Root of Global Crisis

This story began from the economic system in America that every company must have twenty percent (20%) increasing of their revenue. Wow, this sounds great. This system has a good purpose, because it can make a good environment for those companies in America to do effort making their balance always in surplus condition. But as a matter of fact, it doesn’t always work.
A giant corporation called Lehman Brother in America that has many portfolios in every types of business. One day, they make a business in property. They many houses for middle down American people so they can live properly. They think if those American people can not pay the installment they can seizure the house and they can resale to other people. For notice, there is a requirement from a rating organization that draw up regulation more less 500. But with determination from Lehman Brothers they want to reduce that number up to 200 so that those “poor” American people can buy that house. You know, in the fact those people who kicked out from their credit house, they buy another credit house so by the time goes the credit doesn’t run well, stuck.
This very bad condition knows we called Subprime Mortgage. After this subprime mortgage Lehman Brother Corporation collapse and goes bankrupt. Because this giant corporation collapses so the subsidiaries of Lehman Brothers that has very big influence in America and the world like city bank and the others also went bankrupt. This condition is like a domino affect where one card get down so the other will get the same.
This global crisis spread up to Indonesia that using open economic that let the investor from abroad invest and has dominant share. So when investor collapses the economic condition will also get the same condition.

We are all Keynesians now – Getting bang for your buck

We are all Keynesians now. Even the right in the United
States has joined the Keynesian camp with unbridled enthusiasm and on a
scale that at one time would have been truly unimaginable.
For those of us who always claimed some
connection to the Keynesian tradition, this is a moment of triumph, after
having been left in the wilderness, almost shunned, for more than three
decades. At one level, what is happening now is a triumph of reason and
evidence over ideology and interests.
Economic theory has long explained why
unfettered markets were not self-correcting, why regulation was needed, why
there was an important role for government to play in the economy. But many,
especially people working in the financial markets, pushed a type of "market
fundamentalism" . The misguided policies that resulted – pushed by,
among others, some members of President-elect Barack Obama's economic
team – had earlier inflicted enormous costs on developing countries. The moment
of enlightenment came only when those policies also began inflicting costs on
the USand other advanced industrial countries.
Keynes argued not only that markets are not
self-correcting, but that in a severe downturn, monetary policy was likely
to be ineffective. Fiscal policy was required. But not all fiscal policies
are equivalent. In Americatoday, with an overhang of household debt
and high uncertainty, tax cuts are likely to be ineffective (as they were in Japanin the 1990s). Much, if not most, of last
February's US tax cut went into savings.
With the huge debt left behind by the Bush
administration, the USshould be especially motivated to get the
largest possible stimulation from each dollar spent. The legacy of
under-investment in technology and infrastructure, especially of the green
kind, and the growing divide between the rich and the poor, requires congruence
between short-run
spending and a long-term vision.
That necessitates restructuring both tax and
expenditure programmes. Lowering taxes on the poor and raising unemployment
benefits while simultaneously increasing taxes on the rich can stimulate the
economy, reduce the deficit and reduce inequality. Cutting expenditures on the Iraqwar and increasing expenditures on
education can simultaneously increase output in the short- and long-run and
reduce the deficit.
Keynes was worried about a liquidity
trap – the inability of monetary authorities to induce an increase in the
supply of credit in order to raise the level of economic activity. US Federal
Reserve Chairman Ben Bernanke has tried hard to avoid having the blame fall on
the Fed for deepening this downturn in the way that it is blamed for the Great
Depression, famously associated with a contraction of the money supply and the
collapse of banks.

And yet one should read history and theory carefully: preserving financial
institutions is not an end in itself, but a means to an end. It is the flow of
credit that is important, and the reason that the failure of banks during the
Great Depression was important is that they were involved in determining
creditworthiness; they were the repositories of information necessary for the
maintenance of the flow of credit.
But America's financial system has changed dramatically
since the 1930s. Many of America's big banks moved out of the
"lending" business and into the "moving business". They
focused on buying assets, repackaging them and selling them, while establishing
a record of incompetence in assessing risk and screening for creditworthiness.
Hundreds of billions have been spent to preserve these dysfunctional
institutions. Nothing has been done even to address their perverse incentive
structures, which encourage short-sighted behaviour and excessive risk taking.
With private rewards so markedly different from social returns, it is no
surprise that the pursuit of self-interest (greed) led to such socially
destructive consequences. Not even the interests of their own shareholders have
been served well.
Meanwhile, too little is being done to help
banks that actually do what banks are supposed to do – lend money and assess
creditworthiness.
The federal government has assumed trillions
of dollars of liabilities and risks. In rescuing the financial system, no less
than in fiscal policy, we need to worry about the "bang for the
buck". Otherwise, the deficit – which has doubled in eight years – will
soar even more.
In September, there was talk that the
government would get back its money with interest. As the bail-out
has ballooned, it is increasingly clear that this was merely another
example of financial markets misappraising risk – just as they have done
consistently in recent years. The terms of the Bernanke-Paulson bail-outs were
disadvantageous to taxpayers, and yet remarkably, despite their size, have done
little to rekindle lending.
The neo-liberal push for deregulation served
some interests well. Financial markets did well through capital market
liberalisation. Enabling Americato sell its risky financial products and
engage in speculation all over the world may have served its firms well, even
if they imposed large costs on others.

Today, the risk is that the new Keynesian doctrines will be used and abused to
serve some of the same interests. Have those who pushed deregulation 10 years
ago learned their lesson? Or will they simply push for cosmetic reforms – the minimum
required to justify the mega-trillion dollar bail-outs? Has there been a change
of heart, or only a change in strategy? After all, in today's context, the
pursuit of Keynesian policies looks even more profitable than the pursuit of
market fundamentalism!
A decade ago, at the time of the Asian
financial crisis, there was much discussion of the need to reform the global
financial architecture. Little was done. It is imperative that we not just
respond adequately to the current crisis, but that we undertake the long-run
reforms that will be necessary if we are to create a more stable, more
prosperous and equitable global economy.
In cooperation with Project Syndicate, 2008.