Maharani Putri Samsu Wibowo
by Maharani Putri Samsu Wibowo
Future Faculty Development Program
School of Business and Management
Institut Teknologi Bandung
Today, a global economy is in crisis. From all indications, this current global economic turmoil has initially been caused by the subprime mortgage crisis which was aroused in August 2007. What’s happened in subprime mortgage crisis actually?
Subprime is a housing credit in which the lenders have high perceived risks of default, such as those who have a history of loan delinquency or default, those with a recorded bankruptcy, or those with a limited debt experience. Meanwhile, adjustable rate mortgage (ARM) is a mortgage loan where the interest rate on the note is periodically adjusted based on a variety of indices. And the fairytale began when the financial and banking system in U.S had started to give a housing credit to this kind of lenders, and caused a great explosion of the property sector in U.S. Whenever the U.S Federal Bank increased the interest rate, these subprime lenders could not afford to pay the credit created a high default rates on subprime. This situation later led to a downturn in the housing market of the U.S, risky practices in lending and borrowing, and excessive debt levels of both individual and corporate, causing multiple adverse effects to the world economy. The crisis was then worsened along with increasing prices of many global commodities, in particularly oil and gold price.
To cover these debt levels, many companies and financial institutions in U.S have withdrawn their funds from all markets around the world, especially from the stock market. This provocative action was undertaken as the stock indices all over the world were bubbling in the beginning of 2007, and stock is the most liquid (easy to sell) financial instruments. As the result of such an action, many big non-U.S investments banking and financial institutions experienced a black day in the stock market, including Asia’s indices.
For Indonesia’s capital market, the index plunged by 48.069% from 2795.4 (the highest index on 6 December 2007) to 1451.67 (the lowest index on 8 October 2008). This might have been caused of many foreign investors followed by local investors had decided to withdraw a huge capital from IDX (Indonesia Stock Exchange) within a year. The worst crash was happened on 8 October 2008. Within a day, the index was dropped by 10.38% , thus, trading ought to be suspended for two days. IDX became the top loser compared to others, followed by Nikkei (Japan) hooked at the second place.
After the market was closed on 8 October 2008, there was a panic attack from all market players and the government. The president and related ministers had a press conference and made a rush decision to handle the crisis. The government committed to take a serious action for bad speculators who had tried to take an advantage in this crisis and had been proved of cheating in the trading. The next press conference was later held by Bakrie Group members. They made a credit for USD 1, 2 billion to JP Morgan and created loss in their derivatives transactions. Now, several of their companies have become collaterals to JP Morgan. As the latest corporate action of Bakrie Group to pay the credit, they plan to sell some of their ownership in five companies: Bumi Resources, Bakrie Sumatera Plantation, Bakrieland Development, Bakrie Telecom, and Energi Mega Persada. And this decision will make stock prices of these five companies’ even worst.
Filed under: economy
