Tuesday, December 16, 2008


The US Securities and Exchange Commission charged Bernard Madoff and his investment firm, Bernard L. Madoff Investment Securities LLC, with securities fraud for a multi-billion dollar Ponzi scheme that he perpetrated on advisory clients of his firm. The SEC is seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm. Madoff is a former chairman of the Nasdaq Stock Exchange. Madoff is claimed to have told his sons that the fraud could amount to $50 billion.

The SEC's complaint, filed in federal court in Manhattan, alleges that Madoff on Wednesday informed two senior employees that his investment advisory business was a fraud. Madoff told these employees that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme." The senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other, different investors. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion.

"We are alleging a massive fraud — both in terms of scope and duration," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "We are moving quickly and decisively to stop the fraud and protect remaining assets for investors, and we are working closely with the criminal authorities to hold Mr. Madoff accountable."
Andrew M. Calamari, Associate Director of Enforcement in the SEC's New York Regional Office, added, "Our complaint alleges a stunning fraud that appears to be of epic proportions."

According to regulatory filings, the Madoff firm had more than $17 billion in assets under management as of the beginning of 2008. It appears that virtually all assets of the advisory business are missing.

Madoff founded the firm in 1960 and has been a prominent member of the securities industry throughout his career. Madoff served as vice chairman of the NASD, a member of its board of governors, and chairman of its New York region. He was also a member of Nasdaq Stock Market's board of governors and its executive committee and served as chairman of its trading committee.

The complaint charges the defendants with violations of the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. On December 10, 2008, Madoff informed the Senior Employees, in substance, that his investment advisory business was a fraud. He also stated that in approximately one week, he planned to surrender to authorities, but before he did that, he had approximately $200-300 million left, and he planned to use that money to make payments to certain selected employees, family, and friends.


The office door bore an impressive name—the Securities Exchange Company—and during the first seven months of 1920, it made the Niles Building at 27 School Street one of the busiest addresses in Boston. A steady stream of people turned up with wads of cash, convinced they would soon strike it rich.

They were scrambling to invest in something few of them had ever heard of, let alone seen—international postal reply coupons, slips of paper that post offices would exchange for stamps. These certificates enabled someone sending a letter to include return postage when seeking a response from a recipient in another country. Currency exchange rates were in flux after the Great War, and the founder of the Securities Exchange Company claimed enormous profits could be made when coupons purchased with undervalued liras or francs were redeemed in the United States.

How much profit? Investors were assured they would double their money in just 90 days. The notion of such quick and lucrative returns was as ridiculous then as it sounds now, but thousands of people—from poor immigrants to businessmen who should have known better—collectively poured millions of dollars into the scheme. Bostonians felt blessed to have a financial wizard in their midst, a man who knew how to make easy money and was willing to share the secret with the masses. A charming, slick-talking man named Charles Ponzi.

A century ago this month, Ponzi’s house of cards collapsed when the Boston Post revealed he was a convicted forger and the U.S. Postal Service confirmed that no one was exchanging postal reply coupons in the massive volumes needed to generate his promised, sky-high profits. Ponzi had been using the money pouring in from new investors to pay interest to earlier investors, and the revelations cut off the cash flow needed to keep the scheme afloat. He was charged with theft and mail fraud. Much of the money he had raked in—at least $10 million, almost $100 million US today—had vanished.

Ponzi’s “financial alchemy,” notes his biographer, Mitchell Zuckoff, “would mark the first roar of the 1920s,” a decade of investor-mania and stock market gambling hurtling toward the Wall Street crash of 1929. He was not the first con artist to use the rob-Peter-to-pay-Paul scam. But his audacious fraud gave it a new name.
*   *   *
The man whose name has become synonymous with fraud was born in Italy in 1882 and emigrated to the U.S. when he was twenty-one. He bounced from job to job—everything from washing dishes to repairing sewing machines—before landing a job as a clerk at a bank in Montreal. Caught forging a check, he served a 20-month term in a Canadian prison. While crossing back into the U.S. after his release in 1910, he was charged with trying to smuggle in a group of undocumented Italians and sentenced to two more years behind bars. He finally settled down in Boston, found work as a clerk and married. But Ponzi wanted more—cursed, his wife later lamented, with “the tastes of the millionaire,” he was determined to find a way to make a fortune.

He began selling a directory that promoted local merchants and one day in 1919, while checking his mail, he spotted a coupon he had been sent to cover return postage to Spain. He thought about the exchange rate and an idea “fell in my lap like a ripe apple,” he noted in his memoirs, a “shortcut to some easy money … it took me less than five minutes of figuring on a scratchpad to realize its possibilities.”

When a bank balked at loaning him money to back his dubious scheme, he set up his company and began selling shares. Early customers turned a quick profit, boasted about their good fortune to friends, and word spread quickly. Ponzi hired salesmen and opened branch offices from Maine to New Jersey. Many customers were Italian immigrants who entrusted their countryman with their lifesavings. Three-quarters of Boston’s police officers, it was said, were investors. A banker from Kansas ponied up $10,000. In late July 1920, at the height of the frenzy, Ponzi raked in a jaw-dropping $1 million in a single day. And he lived a millionaire’s lifestyle, driving into town from his suburban mansion in the back of a chauffeured limousine.

Doubters soon burst Ponzi’s bubble. How could this upstart deliver a 400-percent annual return at a time when banks typically offered depositors a modest—and far more realistic—five percent interest a year? Ponzi was not about to reveal his secret. “I told just enough to whet people’s greed and curiosity,” he recalled. “Nothing more.” Massachusetts officials and newspapermen began to question his claims; the knock-out punch was a front-page Boston Post story, published on August 11th, revealing his criminal record for fraud. Investors panicked and demanded their money back. Two days later—fittingly, Friday the thirteenth—Boston’s financial wizard was behind bars.

Ponzi’s scheme was nothing new. Decades before him, swindlers were touting high-yield, sure-thing investments to reel in the suckers, then looting the money flowing in to pay interest and create the illusion of profit. The scams stayed afloat for as long as the con artist could keep enough new investors pumping in new money.

In 1878 Bostonian Sarah Howe opened a private bank, promised to pay interest of eight percent a month, and enticed more than a thousand women to deposit their savings. The former fortune teller-turned-banker took in a half-million dollars and lived well on the proceeds until the scheme collapsed. A few years later, Chicago promoters offered huge profits to investors in their mysteriously named “Fund W,” paid back some of the money as interest and absconded with the rest.

Then it was bookkeeper William Franklin Miller’s turn. In 1899 he launched the Brooklyn-based Franklin Syndicate and claimed to have discovered insider secrets for playing the stock market. Investors would earn a whopping 10 percent on their investments every week, more than quintupling their money within a year. The outlandish claim worked and the man who became known as “520 Percent” Miller was soon pocketing an average of $80,000 a week. He fled to Canada with $2 million but returned to face charges, and was sentenced to ten years in prison.

But none of these early peddlers of fake investments could match the imagination and chutzpah of Leo Koretz, a Chicago lawyer who ran a succession of schemes, each one paying interest using fresh investments, for almost two decades. He sold fake mortgages, then claimed to be making a killing in Arkansas rice farms. But his masterpiece was the Bayano Syndicate. Koretz dreamed up this shadowy group of millionaires in 1911, claimed they controlled valuable timberland in a remote corner of Panama, and began selling shares in this tropical bonanza. By the early 1920s investors were earning an astounding 60-percent annual return on their investments. When Koretz needed more money to meet the hefty interest payments, he simply announced that the Syndicate had struck oil on its land and would soon be one of the largest petroleum companies on the planet; a flood of new investors begged him to take their money.

Not even Ponzi’s spectacular flame-out in 1920 could shake the confidence of Koretz’s loyal followers—they began calling him “Our Ponzi,” unaware the joke was really on them. As much as $400 million, in today’s terms, flowed into Koretz’s various schemes before he skipped town in 1923. And his success, combined with Ponzi’s notoriety, inspired future generations of imitators. Wikipedia lists dozens of major Ponzi schemes that have been exposed since 1980, culminating in Wall Street fund manager Bernie Madoff’s spectacular $65-billion default in 2008. American securities regulators uncovered 60 of the schemes in 2019 alone, funded by a staggering $3.25 billion from investors.

Why do so many people—including many with experience in business or investing—continue to fall for Ponzi schemes? Tamar Frankel, a law professor in Ponzi’s hometown of Boston, has studied the schemes and identified patterns. Promoters offer high returns, no matter how implausible (one 2011 scheme she cites promised to double investors’ money every month) to catch a potential victim’s attention. The investment itself is touted as something new and lucrative—one scam featured synthetic rubies, for instance, while another was based on a cheaper process for refining gold. Canadian authorities recently exposed the failed cryptocurrency trading company QuadrigaCX as a classic Ponzi scheme that cost investors $125 million. Bitcoins supposedly stored in online “wallets” proved to be as fleeting as postal reply coupon profits and pipe-dreams of Panamanian oil.

Once a client is hooked, the swindler’s powers of persuasion—and the victim’s urge to get in on the ground floor of a sure-thing—can be irresistible. “Warnings against fraud and lists of red flags,” notes Frankel, “seem to offer little protection against treacherous charmers.” Investors who jump in early enough reap the promised returns and may even recoup their investment, and their success offers a further inducement to latecomers. But the pool of potential investors is bound to dry up at some point, no matter how skilled the swindler or alluring the investment, leaving most victims in the red. By the time Ponzi’s scheme collapsed, two-thirds of the money invested was gone.

Unlike a traditional, short-lived con game, where the fraudster finds a dupe, grabs the money and runs, Ponzi schemes take time to build and come with a best-before date. “The fatal weakness of the scheme is that you cannot stop,” journalist Garet Garrett noted in the 1930s. “When new creditors fail to present themselves faster than the old creditors demand to be paid off, the bubble bursts. Then you go to jail.” As did Ponzi (who eventually took a stab at selling worthless Florida swampland) and Koretz, captured in 1924 after a year on the lam in Canada.

A century later, Ponzi’s name—and the fraud he made famous—lives on. And the reason is not only the endless supply of con artists who can conjure up new ways to tease money out of pockets. What keeps the same time-worn scheme popping up, in new guises, is the folly and greed of the people it targets. “We are all gamblers,” Ponzi himself once noted. “We all crave easy money. And plenty of it. If we didn’t, no get-rich-quick scheme could be successful.”

Friday, December 12, 2008


The fundamental cause of the global financial crisis now manifesting itself in various ways is a banking system which:-a) creates money out of nothing) adds interest (as distinct from administration cost)c) directs it at anything except the development and spreading of the ownership of productive (and the associated consuming) capacity so as to achieve a Say’s Theorem balance of supply and demand with producers and consumers being the same people while, at the same time, forwarding social and economic justice.

Because only enough money is created for the principal of a debt but not for the interest which must be paid, more and more interest-bearing debt must be created if the system is not to collapse. But, as the amount of interest-bearing debt continually rises, not only is the debt hugely increased (with consequent massive systemic instability) but inflation is continuously created.

The instability is compounded by the newly-created money not being put into the development and spreading of productive capacity. Thus the USA, putting the interest-bearing money into anything except productive capacity, has in practice hollowed out its economy which, of course, exacerbates the effect of the huge, mind-boggling, debts.
The solution can be summarised as the issue of national bank-issued interest-free loans (administered by the banking system) for the development and spreading of productive (and the associated purchasing) capacity to all individuals in the population. All environmental capital projects, all governmental capital projects, micro-credit, small business, student loans and the private sector if wide ownership is involved are covered by the solution.

At the same time as the national bank loans are issued, the banking system must be curtailed in its present ability to create money out of nothing and lend it for any purpose except the development and spreading of productive capacity. The curtailment can be done by a rise to 100% banking reserves.

At the core of the solution is the use of interest-free loans issued by the national bank for the purpose of productive capacity. Such loans cannot be inflationary, indeed, they are counter-inflationary ─ when the loans are repaid, they are cancelled leaving behind in the economy productive, income-generating capital assets. Thus productive assets always back the currency.

Crucially, the loans originate with the national bank. By originating the money with the national bank (rather than the banking system) society’s ownership of the money supply is established and so the money can be interest-free and focused on the purposes of productive capacity and the real economy so as to achieve a Say’s Theorem balance of supply and demand while, at the same time, forwarding social and economic justice.
Thus it is proposed that a country’s national bank should create interest-free loans. On repayment, the loans (like the principal of normal bank loans) are cancelled leaving the capital projects in existence. The money for repayment of loans is collected and repaid as it is at present except that the capital projects would cost, roughly, half, even a quarter or less of what they cost today.

The collateral for the loan would be similar to that today e.g., either secured on the project itself or on the repaying power of the government and its administrative systems. Essentially, the government would be repaying itself thereby removing creative liquidity which has fulfilled its function.

In the past the mechanism has been successfully used for public capital projects in Canada, New Zealand, China and Guernsey and is believed to be being used in Malaysia today for some big public capital projects. Gradually, over time, the banking system (by an increase in required reserves) would be increasingly restricted in its own creation of money unless such creation demonstrably spreads productive capacity and assists sustainable development.

While the supply of interest-free loans (originating with the national bank) increases, there needs to be, at the same time, a decrease in the present ability of the banking system to create money out of nothing. This would be done by, over time, a gradual rise eventually to 100% banking reserves (which effectively ends the ability of the system to create money out of nothing). The banking system would, of course, still be able to lend its own capital and (with permission) the deposits of customers.

Tuesday, November 11, 2008

Modal bisa beranak pinak

Dahulu kala harta adalah sebidang tanah dan kumpulan ternak. Dari harta itu orang hidup dan menghidupi dirinya untuk berkembang dari generasi kegenerasi. Namun belakangan karena manusia semakin bertambah dan kebutuhan semakin meningkat maka kompetisi terbentuk. Harta tidak lagi diartikan ujud phisiknya. Tapi harta telah berubah menjadi selembar document sebagai bukti legitimasi dari penguasa. Selembar dokumen itu berkembang menjadi derivative asset bila dilampirkan dengan seperangkat izin ini dan itu. Kemudian digabungkan dengan yang namanya project feasibility maka jadilah sebuah akses meraih uang. Bukan dijual tanpi digadaikan. Uang itu berputar untuk kegiatan ekonomi dan menghasilkan laba untuk kemudian digunakan membeli harta lagi.Ini disebut dengan nilai reproduksi capital atau project derivative value

Bila laba semakin banyak , tentu harta semakin meningkat. Kumpulan dokumen harta ini dan itu , menjadi saham ( stock ) dalam lembaran dokumen bernama “perseroan”. Akses terbuka lebar untuk meningkatkan nilai harta itu. Penguasa semakin memberikan akses kepada harta itu untuk berkembang tak ternilai melalui pasar modal , bila harta itu memperoleh akses legitimasi dari agent pemerintah seperti underwriting, notaris, akuntan , lembaga pemeringkat efek. Dari legitimasi ini maka harta menjadi lembaran kertas yang bertebaran dilantai bursa dan menjadi alat spekulasi. Hartapun semakin tidak jelas nilainya. Kadang naik , kadang jatuh. Tapi tanah dan bangunan tetap tidak pindah dari tempatnya.

Akses harta untuk terus berkembang tidak hanya di lantai bursa. Tapi juga di pasar obligasi, Dokument Saham dijual sebagian dan sebagian lagi digadaikan dalam bentuk REPO maupun obligasi.   itu akses permodalan conventional lewat bank terus digali agar harta terus berlipat lewat penguasaan kegiatan ekonomi dari hulu sampai kehilir. Dari pengertian ini, maka capital seperti yang disampaikan oleh Hernado de soto dalam bukunya “The Mystery of Capital” mendapatkan pembenaran. Kapital dapat mereproduksi dirinya sendiri. Bahwa harta bukanlah ujudnya tapi apa yang tertulis. Dan lebih dalam lagi adalah harta merupakan gabungan phisiknya dan manfaat nilai tambahnya. Nilai tambah itu hanya mungkin dapat dicapai apabila dalam bentuk dokumen.

Ketidak adilan dibidang ekonomi dinegara berkembang dewasa ini , lebih disebabkan oleh akses “ legitimasi harta “itu. Hingga soal legitimasi ini membuat kegiatan ekonomi terbelah menjadi dua. Yaitu sector formal dan informal. Pemerintah dengan entengnya menggunakan istilah formal dan non formal. Anehnya, ini untuk membedakan rakyat miskin dan rakyat kaya. Atau orang pintar dengan orang bodoh. Perbedaan kelas ! padahal negara ini sudah merdeka. Idealnya semua orang harus sama dihadapan negara dan berhak mendapatkan status “formal “. Kenapa kepada asing kita bisa sebut “formal” sementara kepada rakyat sendiri disebut “informal” ?

Inilah akar masalah kenapa terjadi perbedaan antara negara kaya dan miskin. Di negara kaya, capital dapat mereproduki dirinya karena kemudahan akses birokrasi. Negara miskin, birokrasi menciptakan kelas secara otomatis. Karena budaya korup , maka orang miskin yang tak bisa menyuap akan kehilang akses legitimasi harta. Sementara yang bisa menyuap akan mendapatkan akses tak terbatas dibidang perekonomian. Itulah sebabnya dalam bukunya The Other Path, de Soto menyimpulkan bahwa kaum miskin dalam keadaan ’terkunci’ sehingga tetap berada di luar hukum. Segala jenis aset ekonomi mereka dalam berbagai bentuknya tidak dapat diubah menjadi kapital yang diperlukan untuk kegiatan ekonomi. Sangat menyedihkan sebagai bentuk penjajahan cara baru yang systematis.

Capitalism has failed.

Congratulations, Mr President.!

Those who depend on unrestricted capitalism for their power, wealth and position in society will want you to resuscitate it by sacrificing the welfare, comfort and even the lives of ordinary people. They will claim that such failure (which they will call recession, depression or even crisis, but never failure) is, to quote Safire, as necessary to the economy as breathing is to an animal. This only shows how narrow their mindset is, how willing they are to condemn millions of people to periodic misery for the sake of retaining or improving their own chances of acquiring their own wealth.

They will assert that only democracy in the service of the markets, which is what they have had for the last 3 decades in the US and Britain, is compatible with well-being.

They will claim that having markets serve democracy always leads to poverty and is anyway tantamount to serfdom.

They will expect you to continue to propagate the myth of trickle-down even while they sit on mountains of inequality, having themselves appropriated the bulk if not all of used to be called the peace dividend.

They will have the cheek to demand that the state rescue their failed enterprises so that they can continue to pocket gargantuan bonuses and salaries while telling the poor and the unemployed that personal responsibility is all and that they only have themselves to blame.

And almost all of them will want you to resuscitate the failed Reagan-Thatcher system of a business-led society and democracy in the service of wealth and markets, with no redistribution and minimal taxation, preferably falling on some if not all of the poorer people.

Resist them, Mr President. You have been a community organizer and are very familiar with the concept of class. You will know that the business class has greater class solidarity than any other – the fear of the slightest condescension at the country club can turn them into rabid union-busters if they are not already. They must not be allowed to lead society nor to have great influence over it, else democracy dies of ineffectiveness.

You will need a good economic team. When selecting that team, keep in mind that Reagan-Thatcher has failed and that it is unlikely that developers, promoters and supporters of that system, which can be described as casino capitalism, can be of help now. On the other hand, there are two recent American Nobel winners who have been steadfast critics of Reagan-Thatcher and of the economic shock therapy which caused so much misery in Eastern Europe and Latin America.

One has to be skeptical of the Washington Consensus institutions: the World Bank, the IMF and the WTO. They may, in some cases, have promoted gross growth, but little of that has been seen by most of the populations of the developing countries – most has gone to the further enrichment of elites. Based as they were on the failed ideals of unregulated markets in any case, these institutions and their policies need review and radical restructuring, in order to make them help people, not countries.

You have been compared, superficially, with John F. Kennedy in 1960. But the situation today is much more like the one that Franklin Roosevelt faced when elected – a failing economy – and in many ways worse because of the two wars and the absurdly named War on terror started by Bush and his business supporters. Radical rethinking of American society is needed, and I believe that can only lead a democracy served by markets where markets are needed, rather than the reverse, an economy democratically planned to protect citizens from poverty and exploitation by excessive competition, redistribution at least to ensure that inequality of outcome in one generation does not cause inequality of opportunity in the next, political influence of labour at least equal to that of business, freedom for the democratic government to business itself, as in WPA, and economic arrangements such that warmongering is profitable for no-one. The situation calls for change at least as great as Roosevelt's which will, no doubt, attract resistance and opprobrium at least as intense as what Roosevelt faced.

Good luck, Mr President. My hopes are with you. The long nightmare of triumphant neo-conservatism may finally be over.

Saturday, October 11, 2008

China masa lalu dan kini

Petugas business center mengirim guide untuk aku berkunjung  ke Mao monumen. Guide itu seorang wanita dengan tinggi di perkirakan diatas 170 cm. Dia mengenakan Baju putih, kerah berenda dan dipadu dengan rok diatas lutut warna merah. Dia kenalkan namanya, Fang Yin. Kalau saja matahari musim panas sedang berbaik hati, rok tipisnya tentu menerawang pula.

Bagiku dia tidak lebih wajah lain dari China sekarang. Kalah dan menang. Komunisme memang telah terkubur secara culture kesehariaan di China. Ia hanya tinggal simbol seperti patung Mao itu dari sekian banyak monumen yang dibangun di China. Walau sebetulnya kematian Mao, komunis juga ikut mati. Namun para elite politik tak ingin komunis kehilangam simbol.  

Bagiku, pesan yang disampaikannya oleh monumen itu bukanlah simbol keagungan Komunisme. Tapi simbol yang pernah membuat pemimpin china menawarkan kebohongan berongkos mahal. Seolah menyediakan anak tangga untuk naik menggapai kejayaan, tapi sejatinya adalah parade prosesi kematian kemanusiaan.

Sepekan menyusuri Changsa cukup untuk menemukan betapa masa lalu, termasuk yang baru saja lewat, beroleh tempat penting. Monumen, mural, artefak museum, teater mutakhir, seni rupa beramai-ramai mengabadikannya dengan saksama. Sepertinya, ada kerja kolektif untuk menjaga ingatan. Semacam saling mengajak waspada. Jakarta adalah lain cerita. Uang dihamburkan untuk lampu-lampu hias, air mancur, patung-patung pahlawan palsu dan monumen-monumen nirmakna. Ketika Changsa dikepung ingatan, Jakarta terkubur kepalsuan dan lupa. Kau tetap mematung menerawang di sana. Di pelataran monumen yang luas dan memanjang sungai Xiang , jarak kami, mau tak mau, dekat belaka.

”Apakah orang inni semua seperti kamu ?”  Katanya. Orang china menyebut indonesia dengan sebutan Inni. Entah mengapa. Mungkin lidah mereka tidak bisa melafalkan secara utuh Indonesia.

” Mengapa kamu tanyakan itu.?”

”Mengherankan juga. Ada yang suka monumen ini, apalagi dari Indonesia.” Batas antara seringai dan senyummu menyembul dari balik payung jingga. Gigimu putih berkilau.

”Memang jelek secara artistik dan arsitektural. Tapi aku suka pesan yang dibawanya. Ajakan waspada pada kembalinya kebrutalan masa lalu. Menjaga ingatan. Melawan lupa.”


”Ada apa dengan orang Indonesia ?”

”Saya suka orang Indonesia karena mereka punya akal sehat dan berani melawan komunis.”

”Wow! Tahu dari mana kamu ? pernah ke Indonesia.

“ Itu yang saya tahu dari buku bacaan dan saya menyimpukan rakyat Indonesia cukup cerdas dan berani bersikap. Suatu saat saya ingin berkunjung ke Indonesia.

”Sekarang giliranku yang mesti heran kalau begitu. Kenapa kau harus bekerja sebagai Guide. Kamu cantik dan tentu tidak sulit dapatkan kerjaan lebih baik ?” Aku menyergah, mengubah posisi.

”Di China orang hidup berkompetisi dan mengambil resiko. Kami tidak ada waktu berpikir dan bertanya mengapa. Kalau ada kesempatan hari ini ya gunakan. Aku butuh kerjaan dan makan.”
Senyap menyergap senja Changsa. Gerimis mulai mereda. Langit merah di sungai Xiang memanggil-manggil malam.

Perjumpaan kedua kami adalah pada senja bergerimis berikutnya. Angin tak mau mengajak berkawan. Udara musim panas Changsa pun sedikit mendingin.

”Boleh aku sedikit mendekatimu?”

Permintaanmu tiba-tiba. Dan mustahil kutolak.

”Aku ingin bunuh diri.” Kau pecah sunyi dengan cara yang sama sekali tak kuduga.

”Hah!? Maksudmu?”

”Kurang jelaskah itu? Atau bahasa Inggrisku kurang bagus di telingamu?

”No. No. Inggrismu sempurna. Aku mendengar. Tapi….”

”Ya. Aku sedang berpikir untuk bunuh diri….”

”Bagiku tak masuk akal.”


”Kau begitu muda. Ranum. Cantik. Cerdas. Dunia membentang luas di depanmu. Di sekelilingmu, perubahan berdentum-dentum. China-mu begitu bergairah. Kau hidup persis di tengah contoh sukses Asia da barat yang terpuruk. Masa depan menunggumu. Tinggal kau jemput. Kau dikepung musim semi daya hidup. Bagaimana mungkin kau justru ingin melangkah ke arah sebaliknya.”

”Oh… Begitukah kami dari kejauhan? Kau terlalu romantis. Kau pikir kematian komunisme adalah berita baik seluruhnya? Setelah komunisme mati, perubahan menghasilkan para penikmat sekaligus korban. Celakanya, aku menjadi yang kedua, korban! ”

”OK. Sorry untuk kenaifanku. Aku siap menjadi pendengar.”

”Ceritaku akan panjang. Ayo kita ke hotelmu saja. Keberatan kutemani dengan cerita panjangku?”

”No. Sama sekali tak keberatan.” Tentu aku menggeleng. Begitu baikkah Tuhan padaku senja ini?

Di luar, para pelancong hiruk-pikuk lalu lalang. Suara-suara beragam bahasa dunia menerobos masuk melalui jendela kamar hotel yang kita biarkan lebar terbuka. Seperti suara ribuan lebah yang pandai berganti dendang.

Ceritanya panjang. Lirih. Dan kelabu.

”Aku anak  bungsu dari 4 bersaudara. Dulu  di bawah kekuasaan komunis Mao, hidup menjadi begitu rutin. Ayah dan Ibuku menjadikan kegiatan membuat anak sebagai selingan menantang. Anak demi anak lahir begitu saja. Setiap tahun satu. Berderet-deret seperti pagar. Komunisme memang memanjakan. Negara menyediakan apa saja, mulai sabun mandi hingga roti, dengan tak ada lebih pada seseorang dibanding yang lain. Di bawah komunisme, orangtuaku dan siapa pun tak dibiasakan apalagi didesak untuk berkompetisi. Segalanya tersedia tanpa perlu upaya berlebih. Tapi itulah, hidup kami menjadi manja. Tidak menjadi kaya, tapi dalam kesehajaan yang terpelihara. 

Hidup terasa mudah belaka sampai kemudian Mao wafat dan seakan komunis juga ikut terkubur bersamanya. Keadaan berbalik seratus delapan puluh derajat. Reformasi Deng  memaksa kami untuk berkompetisi. Negara tak lagi jadi penyantun, tapi membiarkan kami saling sikut untuk bertahan dan saling berebut hidup yang lebih baik.”

Suara-suara bising beragam bahasa dunia yang menyelinap dari balik jendela terbuka mulai perlahan menyenyap. Malam makin sepuh. Kubayangkan, para turis yang mulai letih telah memenjarakan dirinya di kamar-kamar hotel atau menyerbu panti-panti pijat dan klub-klub malam untuk menukarkan penat dengan keletihan yang lebih menyenangkan. Suaramu masih benderang, ceritamu seolah tak berujung, sementara ujung malam beringsut mendekat.

”Ibuku yang terlampau tua di hadapan kapitalisme, tersingkir dan tak lagi terpakai sebagai pejabat di kecamatan. Ayahku terkena program rasionalisasi Deng, yang memangkas lebih separuh PNS  tanpa diberi uang pensiun. Di berhentikan begitu saja. Kakak-kakakku sibuk dengan urusan masing-masing. Hidup yang keras membikin mereka tak lagi saling peduli satu sama lain. Aku terjepit dalam ketiadaan pilihan sampai sebuah tawaran yang begitu manis datang begitu saja dua tahun lalu. Sebuah biro penyalur tenaga kerja menawariku bekerja sebagai pramusaji di Malayasia.”

Kau terdiam. Menunduk. Matamu segera menjadi telaga. Dua sudut bendungan di sisi luar pangkal hidungmu makin tak mampu menahan air telagamu yang membanjir. Air matamu berjatuhan tanpa tercegah. Lalu suaramu menyendat pada pangkal cerita yang rupanya segera tiba.

”Aku ditipu. Aku dijual ke sebuah tempat prostitusi di Bukit Bintan dan Genting. Garis nasib yang kelam mesti kuterima tanpa daya. Badanku remuk dihantam kerja jahanam itu. Kemanusiaanku terbunuh oleh rutinitas itu. Membuka pintu kamar, membiarkan diperlakukan sebagai binatang, memunguti uang yang dilempar begitu saja ke atas tempat tidur sambil mendengar pintu ditutup dan suara sepatu lelaki di lantai menjauh hingga hilang ditelan lobi berkarpet. Badanku hancur, tapi hatiku lebih hancur. Kemanusiaanku makin hari makin tak bersisa. Benar-benar binasa.”

Air matamu membasahi bahuku. Dingin. Kita diterkam senyap yang tiba-tiba menjadi asing.
”Untunglah aku akhirnya bisa melepaskan diri dari enam bulan terpanjang dalam hidupku itu. Kabur dari  Kualalumpur, kembali pulang. Tapi hidup tetap tak bersahabat. Akhirnya kuulang pekerjaan yang sama di sini. Kali ini atas kemauanku. Persisnya, karena aku tak punya pilihan lain. Hingga sampailah aku menjadi guide dari biro tour. Ya… aku ingin bunuh diri. Rasanya aku sanggup menghadapi hidup yang berat dan keras, tapi tidak hidup yang terasa hambar seperti ini….” Sesenggukanmu mengeras. Sebuah cara pilu mengakhiri cerita panjangmu.***

Senja bergerimis. Langit di atas Bandara Internasional Changsa tersapu terlalu banyak kelabu. Birunya seperti malu-malu. Enggan memperlihatkan diri. Kau mematung menopang dua matamu yang nanar. Lagi-lagi bertelaga. Aku nyaris kaku ketika kau bisikkan kata-kata itu….

”Terima kasih banyak Bro. Untuk pertama kali dalam waktu yang sangat panjang, aku sanggup berbagi dan menangis. Kupikir air mataku sudah habis di Malaysia.” Suaramu parau. Aku mengusap-usap lembut punggungmu. 

”Keep in touch ya...” Kataku  seraya berjalan menuju ruang tunggu pesawat yang akan membawaku ke Hong Kong,  seperti memasuki lorong panjang yang asing. Kita menjauh, tapi suaramu seperti makin keras memanggil-manggil. Sosokmu hilang tertelan kelokan menuju ruang tunggu pesawat. Seorang pria bule tersenyum duduk di sampingku. 

“ Tahun 1998 saya datang ke China" kata pria bule itu. "Saya tidak suka orang china. Mereka kasar. Tidak tertip. Sikap yang tertutup.  Tapi kini mereka ambil hampir  semua asset kami.” sambungnya, entah apa maksudnya. Wajahnya nampak muram. 

Sambil menggeleng gelengkan kepala “ Bagaimana mungkin, masyarakat yang tertutup akhinrya bisa jadi kekuatan ekonomi dunia. Dari bank, telekomunikasi , property, dan lain lain orang china kuasai. Itu hanya dua puluh tahun baru kami sadari. Kini negeri kami berhutang lebih dari separuh anggaran kami. “ Kata Bule touris dar Amerika. Saya hanya tersenyum dan tak bergairah untuk menemaninya ngobrol sampai nunggu boarding

Ruang tunggu yang ramai tiba-tiba terasa begitu senyap. Di belakangku, terhalang berlapis-lapis dinding, di bawah gerimis senja Changsa seorang perempuan China sedang menangisi nasipnya. Nun di depanku, dipeluk malam Jakarta, orang orang masih sibuk bicara soal anti china, anti komunis, bersatu karena Sunnah. Masih sibuk dengan politik populis. Masih sibuk membangun mimpi utopia. 

Padahal bukan idiologi atau etnis atau agama penyebab kemakmuran dan kemiskinan. Bukan. Tapi karena mental hebat yang bisa membuat orang bisa berguna bagi orang lain. Karena mental buruk yang membuat orang jadi beban sosial. Karena mental juga orang bisa bertahan dari kehidupan yang memang apa boleh buat tidak ramah, dan cacat atau tersingkir begitu saja dalam amarah dan mimpi utopia. So Change your attitude then success will follow you.

Transaksi keuangan Rahasia

Di Hong Kong ada tempat namanya Financial Club yang berada di Ritz Carlton Hotel. Tidak semua orang bisa masuk ke dalam club ini.Setiap orang yang ingin jadi member harus mendapatkan rekomendasi sedikitnya 3 orang CEO Lembaga Keuangan yang telah jadi member. Setelah dapat rekomendasi maka nama calon member ini akan ditempatkan di Board di samping pintu Club. Nama ini akan ada di board selama kurun waktu tertentu. Apabila salah satu member keberatan maka otomatis calon member itu akan delisting. Namun apabila tidak ada yang keberatan maka calon member akan menjadi member resmi. Dia harus menanda tangani kerahasian.Tidak boleh membawa wanita. Aturan dalam club dibuat oleh kesepakatan antara member. 

Dalam pasar keuangan dunia ada juga yang disebut dengan 144a SEC.  144 a SEC mengatur transaksi yang berhubungan dengan sekuritas yang dibatasi, tidak terdaftar, dan dikendalikan. (Kontrol sekuritas dipegang oleh orang dalam atau orang lain yang memiliki pengaruh signifikan terhadap penerbit. Jenis sekuritas ini biasanya diperoleh di atas meja (OTC) atau melalui penjualan pribadi. Dalam beberapa kasus, mereka merupakan saham pengendali di perusahaan penerbit SEC melarang penjualan kembali sekuritas yang dibatasi, tidak terdaftar, dan dikendalikan, kecuali sekuritas tersebut terdaftar di SEC sebelum dijual atau dikecualikan dari persyaratan pendaftaran. 

Ini dikenal dengan another world. Apa itu ? ini adalah wilayah pasar uang dengan putaran gigantik. Multi triliunan dolar berbagai global bond diperdagangkan , dari private sampai negara.Transaksi dilakukan dengan kerahasiaan tingkat tinggi. Semua transaksi non disclose (tidak boleh diungkapkan atau dibocorkan ke publik) Siapa yang terlibat dalam transaksi ini ? Hanya qualified institution (QI).Apakah kriteria qualified itu ? tidak ada yang tahu pasti. Pra syarat untuk jadi member harus punya uang tunai minimal USD 100 juta. Harus mendapat rekomendasi dari 3 lembaga keuangan first class. Jumlah member 144aSec ini tidak lebih 10,000 instititusi yang terdaftar dinegara bebas pajak. Capitalisasinya mengalahkan GNP Amerika. Bahkan GNP china dan British tidak ada artinya.

Mereka adalah elite yang tak tersentuh dan tidak diketahui siapa sebetulnya mereka. Transaksi menggunakan database online. Tanpa warkat. Semuga digital.Setelah selesai  settlement ,mereka bisa menghapus sendiri file yang ada sehingga kerahasiaan terjaga.Setiap members punya qualifikasi berbeda beda yang ditandai dengan level dari 1 sampai dengan 7.Level tertinggi adalah 7. Setiap level hanya bisa deal dengan level yang sama. 

Level 7 hanya ada 4, namun mereka memiliki saham dihampir semua Top Corporate 500 Fortune. Siapakah yang bertindak sebagai bank custodian dan pengedali dari system ini ?  Mereka adalah NM Rothschild (London), Rothschild Bank ( Berlin) Warburg Bank ( Hamburg), Warburg Bank (Amsterdam),  Lazard Brothers ( Paris), Kuhn Loeb (Bank of New York), Israel Moses Seif,  Bank of Italy, Goldman Sachs (New York)  dan JP Morgan Chase Bank (New York). Dari kalangan Individu yang juga pengendali utama adalah Schauf Lists William Rockefeller, Paul Warburg,  Jacob Schiff ( kepercayaan dari Kuhn Loeb) dan James Stillman ( Kepercayaan dari pemilik  Citigroup  yang menikah dengan klan Rockefeller.

Semua Top 25 Prime Bank disuluruh dunia bertindak sebagai settlement agent untuk menggerakan portai keuangan global seperti Euroclear ( London) , clearstream  ( Frankfurt ) dan  DTCC ( New York). Ada ribuan Lawyer,financial analisis, fund manager , asset manager berkelas dunia sebagai hulu balang. Karena mereka punya clearing house sendiri dengan kapitalisasi melebihi putaran transaksi antar Negara maka praktis merekalah pengendali keuangan global.

Dari tahun 2007 sampai 2009 mereka memberikan pinjaman kepada pemerintah Amerika mencapai USD 2,2 triliun. Itu sebabnya ketika FOMC ( Federal Open Market Committee ) berencana menetapkan suku bunga the fed, seketika Negara emerging market demam karena terancam dana asing kembali ke Amerika. Jadi merekalah pemilik sesungguhnya skema terbangnya uang panas dari Negara emerging market ke Amerika. Merekalah elite yang menjadi the second god bagi dunia kapitalis yang membuat mata uang dunia melemah atau menguat. Merekalah yang mengatur kemana bandul ekonomi dan politik dunia harus bergerak. 

Setiap krisis politik regional maupun krisis moneter global atau regional terjadi , tidak bisa dilepaskan dari peran mereka. Banyak pemimpin Negara menjadi proxy mereka dan menjalankan agenda mereka untuk menguasai dunia secara virtual. Melalui jalur yang rumit mereka membiayai ratusan ribu LSM diseluruh dunia yang membungkus diri lewat program kemanusian, agama, seni, budaya, riset .Mereka aktif membiayai program beasiswa bagi jutaan mahasiswa cemerlang diseluruh dunia agar pemikirannya berkiblat kepada kepentingan jangka panjang mereka menguasai dunia. Inilah yang menjadi biang ketidak adilan dunia dan membuat dunia selalu dihantam krisis politik maupun ekonomi dengan korban negara dan rakyat , namun mereka mendulang laba tak terbilang.

Apakah Indonesia masuk perangkap jaringan 144 A Sec ? Selama tahun 2008 era Presiden  SBY, pemerintah Indonesia menarik dana sebesar USD 3,2 miliar melalui !44A SEC. Peraturan badan sekuritas Securities and Exchange Commission (SEC) melarang pemerintah untuk membuka informasi ke publik sebelum obligasi diterbitkan.Artinya legitimasi DPR sebagai pengawas perbendaharaan Negara di eliminit oleh kekuasaan 144 A SEC. DPR tidak berdaya karena ketika itu Indonesia mengalami deficit anggaran sementara situasi pasar keuangan global konvensional tidak mendukung menyerap global bond RI. Karenanya pemerintah dan DPR tidak punya pilihan kecuali harus masuk dalam 144 A SEC yang mempunyai unlimited financial resource di dunia ini.

the next crisis

This afternoon, I listened to Axel Leijonhufvud give a very interesting (and scary) talk at the Graduate Institute in Geneva about the financial crisis. He spoke about many things, but his account of the "unexploded bomb" of credit default swaps disturbed me. Others have written on CDS, but until today I didn’t really get it. Here is how I make sense of it.

Fact one—there are several dozen trillion dollars of these things out there—an amount that makes Paulson’s $700 billion look like a rounding error.

Fact two—they are basically insurance policies on bond defaults that are written without regulation, so the usual insurance-industry practice of setting aside reserves does not apply. Oh, and while the premia enter as bank income the pay-out obligations are not on their balance sheets.

Fact three—the large banks think they are hedged since they have "insurance policies" on both sides of the default events. Hedged? In normal times, perhaps. But imagine if one big issuer of these insurance policies went broke at roughly the same time that one of the insured bonds went bad—say, for instance, Ford bonds and a major Wall Street bank headquartered in Europe.

The Ford bond default would trigger a call for a huge payout by many banks, but the disappearance of one of the major issuers would wipe out the hedge that many other banks thought they had. This would leave banks liable for a huge payout for which they would have no reserves. This could trigger a wave of failures that would be very hard to stop given the size of the market.

Here is an account on Eurointelligence (from February 2008) of where the CDS' "unexploded ordinance" problem stands. Satyajit Das writes:

The CDS market entails complex chains of risk. This is similar to the re-insurance chains that proved so problematic in the case of Lloyds. … Over the last year, securitisation and the CDO (collateralised debt obligation) market have become dysfunctional. As the credit crisis deepens, the risk of actual defaults becomes real. Analysts expect the level of defaults to increase. The CDS market is about to be tested. While there have been a few defaults, the market has not had to cope with a large number of defaults at the same time. CDS contracts may experience problems and may be found wanting.

I hope the geniuses in the American and European governments are working on a contingency plan for a meltdown in the CDS market. Given the size of this unexploded ordinance, let’s hope they are working on it together.

Thursday, October 9, 2008

Will the US dollar collapse?

As we mentioned in The ABCs of hedging, the first step in hedging our investments is to subject our portfolio to ‘war-games,’ where we work out how it may perform under various economic what-if scenarios and come up with strategies to counter the unfavourable outcomes.

Today, we look at one possible scenario—the decline (or collapse) of the US dollar.

Lately, we are again hearing that central bankers are murmuring about diversifying their foreign reserves away from the US dollar. Does it mean that there is an imminent liquidation of their US dollar reserves? Well, this is not the first time they murmured about it and it is definitely not in their (including the Federal Reserve’s) interest to see a collapse of the US dollar. The Chinese, with their US$1 trillion of reserves, would not want to see their stockpile of US dollars to lose significant value. The same goes for the Japanese and the oil-rich Middle-Eastern nations. The US too, would not want to see their dollar collapse as that would result in soaring inflation in their homeland. Therefore, we do not expect mass selling of US currency reserves by central bankers in the near term.

On the other hand, it is open knowledge that the status quo is unsustainable. This morning, we heard that Alan Greenspan (the former US head of Federal Reserve) warned investors in a business conference in Tel Aviv to expect a few years of dollar weakness. He further said that is imprudent to hold everything in one currency. This prompted a further slide of the US dollar against the Euro. The US has the dubious honour of having the world’s greatest trade deficit. If not for the fact that the US dollar is (maybe ‘was’ is the more appropriate word) the world’s reserve currency, the US would be consigned a banana republic long ago. The world cannot lend to the US indefinitely. Sooner or later, they will demand a pay back. The moment they decide that the US will not and is unable to repay its debt, what will happen to the US dollar? What will happen to the global financial system when that happens?

Thus, this situation is akin to an individual owning the bank money. If he owes the bank a million dollars, he is in trouble. But if he owes the bank a billion dollars, the bank is in trouble—if he goes bankrupt, a large portion of bank’s loan portfolio will be wiped out, rendering the bank insolvent. The US owes the rest of the world so much money that they cannot afford to let the US go ‘bankrupt.’ But the rest of the world knows that sooner or later, the US will go ‘bankrupt.’ (Of course, a country cannot be bankrupt in the same way as individuals do because there is always the option to print money to remain solvent. But the end result will be just as horrible—hyperinflation.) What can be done?

We are all living in a precarious situation. We shudder to think of the day when a black swan event happens. On that day, whoever owns gold will have a lot of friends.

Wednesday, October 8, 2008

Business Risk

STEP 1 - Risk identification and analysis

STEP 2 - Risk allocation

STEP 3 - Risk management

Risk Identification and analysis
The project sponsors will usually prepare a feasibility study, e.g. as to the construction and operation of a mine or pipeline. The financiers will carefully review the study and may engage independent expert consultants to supplement it. The matters of particular focus will be whether the costs of the project have been properly assessed and whether the cash-flow streams from the project are properly calculated. Some risks are analyzed using financial models to determine the project's cash-flow and hence the ability of the project to meet repayment schedules. Different scenarios will be examined by adjusting economic variables such as inflation, interest rates, exchange rates and prices for the inputs and output of the project. Various classes of risk that may be identified in a project financing will be discussed below.

Risk Allocation
Once the risks are identified and analyzed, they are allocated by the parties through negotiation of the contractual framework. Ideally a risk should be allocated to the party who is the most appropriate to bear it (i.e. who is in the best position to manage, control and insure against it) and who has the financial capacity to bear it. It has been observed that financiers attempt to allocate uncontrollable risks widely and to ensure that each party has an interest in fixing such risks. Generally, commercial risks are sought to be allocated to the private sector and political risks to the state sector.

Risk management
Risks must be also managed in order to minimize the possibility of the risk event occurring and to minimize its consequences if it does occur. Financiers need to ensure that the greater the risks that they bear, the more informed they are and the greater their control over the project. Since they take security over the entire project and must be prepared to step in and take it over if the borrower defaults. This requires the financiers to be involved in and monitor the project closely. Such risk management is facilitated by imposing reporting obligations on the borrower and controls over project accounts. Such measures may lead to tension between the flexibility desired by borrower and risk management mechanisms required by the financier.

Types of risks
Of course, every project is different and it is not possible to compile an exhaustive list of risks or to rank them in order of priority. What is a major risk for one project may be quite minor for another. In a vacuum, one can just discuss the risks that are common to most projects and possible avenues for minimizing them. However, it is helpful to categories the risks according to the phases of the project within which they may arise: (1) the design and construction phase; (2) the operation phase; or (3) either phase. It is useful to divide the project in this way when looking at risks because the nature and the allocation of risks usually change between the construction phase and the operation phase Construction phase risk - Completion risk.
Completion risk allocation is a vital part of the risk allocation of any project. This phase carries the greatest risk for the financier. Construction carries the danger that the project will not be completed on time, on budget or at all because of technical, labor, and other construction difficulties. Such delays or cost increases may delay loan repayments and cause interest and debt to accumulate. They may also jeopardize contracts for the sale of the project's output and supply contacts for raw materials.

Commonly employed mechanisms for minimizing completion risk before lending takes place include: (a) obtaining completion guarantees requiring the sponsors to pay all debts and liquidated damages if completion does not occur by the required date; (b) ensuring that sponsors have a significant financial interest in the success of the project so that they remain committed to it by insisting that sponsors inject equity into the project; (c) requiring the project to be developed under fixed-price, fixed-time turnkey contracts by reputable and financially sound contractors whose performance is secured by performance bonds or guaranteed by third parties; and (d) obtaining independent experts' reports on the design and construction of the project. Completion risk is managed during the loan period by methods such as making pre-completion phase drawdown of further funds conditional on certificates being issued by independent experts to confirm that the construction is progressing as planned.

Operation phase risk - Resource / reserve risk
This is the risk that for a mining project, rail project, power station or toll road there are inadequate inputs that can be processed or serviced to produce an adequate return. For example, this is the risk that there are insufficient reserves for a mine, passengers for a railway, fuel for a power station or vehicles for a toll road.

Such resource risks are usually minimized by: (a) experts' reports as to the existence of the inputs (e.g. detailed reservoir and engineering reports which classify and quantify the reserves for a mining project) or estimates of public users of the project based on surveys and other empirical evidence (e.g. the number of passengers who will use a railway); (b) requiring long term supply contracts for inputs to be entered into as protection against shortages or price fluctuations (e.g. fuel supply agreements for a power station); (c) obtaining guarantees that there will be a minimum level of inputs (e.g. from a government that a certain number of vehicles will use a toll road); and (d) "take or pay" off-take contacts which require the purchaser to make minimum payments even if the product cannot be delivered.

Operating risk
These are general risks that may affect the cash-flow of the project by increasing the operating costs or affecting the project's capacity to continue to generate the quantity and quality of the planned output over the life of the project. Operating risks include, for example, the level of experience and resources of the operator, inefficiencies in operations or shortages in the supply of skilled labor. The usual way for minimizing operating risks before lending takes place is to require the project to be operated by a reputable and financially sound operator whose performance is secured by performance bonds. Operating risks are managed during the loan period by requiring the provision of detailed reports on the operations of the project and by controlling cash-flows by requiring the proceeds of the sale of product to be paid into a tightly regulated proceeds account to ensure that funds are used for approved operating costs only.

Market / off-take risk
Obviously, the loan can only be repaid if the product that is generated can be turned into cash. Market risk is the risk that a buyer cannot be found for the product at a price sufficient to provide adequate cash-flow to service the debt. The best mechanism for minimizing market risk before lending takes place is an acceptable forward sales contract entered into with a financially sound purchaser

Risks common to construction and operational phases participant / credit risk
These are the risks associated with the sponsors or the borrowers themselves. The question is whether they have sufficient resources to manage the construction and operation of the project and to efficiently resolve any problems which may arise. Of course, credit risk is also important for the sponsors' completion guarantees. To minimize these risks, the financiers need to satisfy themselves that the participants in the project have the necessary human resources, experience in past projects of this nature and are financially strong (e.g. so that they can inject funds into an ailing project to save it).

Technical risk
This is the risk of technical difficulties in the construction and operation of the project's plant and equipment, including latent defects. Financiers usually minimize this risk by preferring tried and tested technologies to new unproven technologies. Technical risk is also minimized before lending takes place by obtaining experts reports as to the proposed technology. Technical risks are managed during the loan period by requiring a maintenance retention account to be maintained to receive a proportion of cash-flows to cover future maintenance expenditure.

Currency risk
Currency risks include the risks that: (a) a depreciation in loan currencies may increase the costs of construction where significant construction items are sourced offshore; or (b) a depreciation in the revenue currencies may cause a cash-flow problem in the operating phase. Mechanisms for minimizing resource include: (a) matching the currencies of the sales contracts with the currencies of supply contracts as far as possible; (b) denominating the loan in the most relevant foreign currency; and (c) requiring suitable foreign currency hedging contracts to be entered into.

Regulatory / approvals risk
These are risks that government licenses and approvals required to construct or operate the project will not be issued (or will only be issued subject to onerous conditions), or that the project will be subject to excessive taxation, royalty payments, or rigid requirements as to local supply or distribution. Such risks may be reduced by obtaining legal opinions confirming compliance with applicable laws and ensuring that any necessary approvals are a condition precedent to the drawdown of funds.

Political risk
This is the danger of political or financial instability in the host country caused by events such as insurrections, strikes, suspension of foreign exchange, creeping expropriation and outright nationalization. It also includes the risk that a government may be able to avoid its contractual obligations through sovereign immunity doctrines. Common mechanisms for minimizing political risk include: (a) requiring host country agreements and assurances that project will not be interfered with; (b) obtaining legal opinions as to the applicable laws and the enforceability of contracts with government entities; (c) requiring political risk insurance to be obtained from bodies which provide such insurance (traditionally government agencies); (d) involving financiers from a number of different countries, national export credit agencies and multilateral lending institutions such as a development bank; and (e) establishing accounts in stable countries for the receipt of sale proceeds from purchasers.

Force majeure risk
This is the risk of events which render the construction or operation of the project impossible, either temporarily (e.g. minor floods) or permanently (e.g. complete destruction by fire). Mechanisms for minimizing such risks include: (a) conducting due diligence as to the possibility of the relevant risks; (b) allocating such risks to other parties as far as possible (e.g. to the builder under the construction contract); and (c) requiring adequate insurances which note the financiers' interests to be put in place.