In Search Of Bada Man

In 100 things to do before you die, no 101 should be plowing through slides, deciding which ones to scan. When I came to Bada Man, I searched the web to see who else had made the journey from Palu to Lake Poso. Two especially interesting entries were by Mark Moxon in ’97 (a decade after my trip) and Edward Pollard-Forest Conservationist, in 2001. There was another by two guys on motorbikes who had GPSs and cell phones but I couldn’t find it again. There have been changes of course, but the adventure is still waiting for the intrepid traveler.

How did I manage to find myself on a bark saddle on a small packhorse in a rain forest in Central Sulawesi? It all started with my obsession with a line drawing of an almost embryonic man in Bill Dalton’s “Indonesia Handbook.” Under the image was this caption: “This giant stone sculpture is found at Bada, Central Celebes.”

Surprisingly there were no directions and I couldn’t find anyone who had been to Central Sulawesi, much less Bada. The only certainty was that Celebes had become Sulawesi since Indonesia declared independence from the Dutch in 1945, and that wild mountains and fierce head hunters had effectively isolated the area for most of the 300 years of Dutch rule. The headhunters were subdued in 1910, leaving only mountains as a barrier.

A seemingly elusive 12-foot stone image was irresistible. I knew enough Bahasa Indonesia to talk my way in and out of villages but couldn’t find anyone else to share my fantasy. I would have to search for Bada Man alone.

I began my search in the stifling hot coastal town of Palu where I picked up the first-ever tourist map of Central Sulewesi. Waiting at the market/bus stop with sweat pouring onto the map and robbed of the energy necessary to make a few purchases I almost gave up what now seemed like a crazy idea. Then the bus rumbled to a stop and joined the crowd scrambling for seats while thinking that maybe I’d be turned back at the first village.

A five-hour bus ride with forty curious Indonesians happily occupying half that many seats ended in the village of Gimpu…the end of the road. We had gained a little altitude, the weather was a bit cooler and already the hint of adventure replaced my doubts as the bus let me off in front of the village chief’s thatched roof house.

(Photo opposite: Leaving Gimpu, sharing a saddle with salt and sugar.) The startled kepala desa (village chief) welcomed me with tea, shooed six children out of a large bed, and the guest room was ready. A cooperative kepala desa can perform miracles if he agrees to let you pass through his territory where he will be responsible for you until you reach the next kepala desa. The next morning, not knowing what else to do with the strange woman looking for stones, he hailed two men with pack horses bound for Moa. And that’s how I ended up on a wooden saddle balanced on either side with bags of sugar and salt, following the dotted portion of the map - the trail ending at Gintu, home of Bada man.

The morning ride was sheer enchantment. Faint footfalls of the two pack horses barely ruffled the silence of the forest as a magic land began to unfold. Stately trees with multiple strands of fern necklaces vaulted to the sky and splashed it green, while below, invisible gnomes tended lush explosions of tropical plants. A gentle rain, turning to mist as it filtered through the verdant canopy, added to the ethereal, dream-like atmosphere.

(Photo opposite: The horses hugged the mountain on narrow, muddy slivers that hardly qualified as trails.) The tranquil morning ride through the rain forest contrasted sharply with terrifying moments in the afternoon as the horses hugged the mountain on narrow, muddy slivers that hardly qualified as trails. Below us (when I dared myself to look down) was the Karanganan, the mighty, muddy river that had cut this chasm.

After picnicking on a rice packet lunch from the kepala desa, I was thoroughly enjoying my adventure when around a bend, I dodged a fallen tree, the saddle slipped, the horse bolted and I somersaulted over the back of the horse. My guides rushed to my rescue. Helping me up they said in unison, “Nonya, sakit?” (Mrs. are you sick?) The breath had been knocked out of me but as far as I could tell, nothing was broken. Feeling foolish, I gingerly remounted my steed but as each breath became more painful I realized that at the very least I had badly bruised ribs.

The rest of the ride was an endurance test. At sunset, all sense of reality vanished as a tropical mirage appeared before us. A narrow path wound past a steepled church through the center of the village of Moa. Poinsettias waved red banners over thatched houses set among fruit gardens of banana, papaya and coconut. I stared, wondering if I were hallucinating, at the church where written in English were the words “The Salvation Army”.

To reach the village, the path cut through a bramble patch. I tried to lift my legs but couldn’t. If I hadn’t been bone-weary, dehydrated and in pain I would have cried as the thorns tore at my legs. The kepala desa’s porch was filled with villagers who witnessed my final indignity. I clumsily dismounted and collapsed. My legs wouldn’t carry my to the porch so I crawled to the first step and began my, by now silly, even to me, litany of “looking for old stones”.

(Photo opposite: Poinsettias waved red banners over thatched houses in the village of Moa.) The astonished kepala desa granted me two days in this paradise, and after a supper of noodle soup, I fell asleep in someone’s vacated room where light from a kerosene lamp cast dancing shadows through woven bamboo walls.

Fortunately, I awoke before dawn and was the first to reach the communal bathroom, the river. Dawn crept softly over the mountains, transforming black-and-white-silhouettes into lush primary colors. Sun touched the flowers of coffee plants, perfuming the world. Then the rhythm of the village day began with the thump, thump of a wooden pestle hitting freshly roasted coffee beans in a hollow tree trunk, followed by the staccato beat of three girls alternately pounding rice in a wooden bin. Dogs yapped at the heels of men with spears on their way to the forest to hunt wild pig. Children shouted as they chopped wood and husked coconuts.

I was almost grateful for the accident that left my mind blank and my senses free to enjoy this Shangri-La village. At sunset, the workday ended with the clanging bell in the church steeple. Children stopped what they were doing and ran to the church to sing and to draw crosses and Bibles and hands that were praying.

The kepala desa observed me carefully and after two nights deemed me fit for travel–sans horse. The guide chosen by the kepala desa arrived, without a horse, but with a rectangle of cloth tied at two ends, forming a backpack for my bag and lunch - a banana-leaf packet of rice.

Entering the forest, we strolled to the steady drone of cicadas through an endless park with only one moment of stark terror - a black snake crawled across “our” narrow trail. I had been in the lead, but I now hung behind, as my new interest in this Garden of Eden became the heels of my guide.

As the sun began to slip between the accordion-folded hills, and I began to wonder how much further I could walk, a man and his son returning from distant rice fields invited us to stop at their home. We clambered over the log fence surrounding the hillside garden and wound our way through an avenue of towering green corn. Unprepared for the vista at the summit, I thought I had fallen off the mountain, died and gone to heaven. A most charming thatched house floated at the top of the world in a ring of mountains attached to the earth by a single strand of yellow marigolds. Who had created this fairy tale scene? Longing to know how the people live in such houses, I vowed I would spend the night at the Tware Bed and Breakfast.

The son called to his mother and I followed the men up the tree-stump step. I slumped on the bark platform that served as the floor as well as the sofa, bed and table, and saw that the room was almost bare. Blankets hung from the ridgepole. Jerry cans held water. A box of earth with three stones, twigs in the center, held a clay cooking pot.

(Photo opposite: A woman with a bark cloth that can be used as a blanket or a skirt.) After I had convinced the woman I couldn’t walk even another step, she carefully smoothed her sarong and sat like a high priestess in front of her hearth. The ritual began. Her arms began darting here and there, brushing coals aside, moving clay pots off and on the fire, chopping and stirring in a rhythmic pattern until, like a queen presenting her jewels, she served four tin plates with an artful arrangement of red rice, green vegetable and, for me, the honored guest, and egg.

A thick fog turned our square of door light to darkness as the wife unrolled a mat for me on the far side of the hearth, lit the string in a can of kerosene and began weaving a rice-winnowing tray. As she wove the thin strips of bamboo, she admired every thing I had: my dress, my thermos, my flashlight. The husband tried my reading glasses and shouted, “Everything is opened up”.

When the wife handed me a blanket, I was astonished to find that it was made of bark, my first clue that bark cloth was still made and used. Too tired to deal with my rioting thoughts, I fell asleep under the bark-cloth blanket.

The next morning after rice and coffee it was time to say goodbye. I had given them everything I had: a dress, a blouse, the thermos and glasses. They gave me an enchanting glimpse of a simple dignified life…and the bark-cloth blanket.

Down the mountain and into Bada Valley the scenery changed dramatically as I balanced precariously on slippery rice terraces and waded through irrigation canals, praying that I wouldn’t be host to the liver fluke known to cause schistosomiasis in this area. In a time and space warp, up and down, I staggered across a wobbly suspension bridge, walked across a flat, uninhabited plateau and entered at long last, the village of Gintu, home of Bada Man. It was late and Bada Man would have to wait.

The guide took me to the home of a secretary I had met in what now seemed light-years-away Palu. Early to bed after a supper of rice and fried chicken, my dreams of Bada Man were jolted at six in the morning as “Go Tell It On The Mountain” followed by “Jingle Bells” blared from a battery-operated cassette player.

(Photo opposite: It took two rafts to ferry us across the river for a visit to Bada Man.) The final expedition for the assault on Bada Man included the 13-year-old sister of the secretary and several of her giggly friends. They knew just how to act because the government tourism crew had recently photographed their older sisters in traditional dress in preparation for the first tourist brochure, which I was able to show them. Younger children joined our parade as we walked past thatched sheds where women wearing bark cloth skirts were softly felting bark with beaters, scored stones lashed to rotan handles, looking somewhat like lollipops. By the time we reached the Tawaelia River, it took two bamboo rafts to carry all of us across the river.

Scrambling up the riverbank, I caught my breath as the outline of Bada Man began to emerge. Surrounding hills turned the meadow into a theater-in-the-round. Bouffant clouds billowed overhead. At center stage stood Bada Man, whose real name is Palindo. He was magnificent. A torso with few details, his grandeur came from size and simplicity. Forehead and flared nose were one, above a faint slit mouth. Round stone eyes stared benignly at the peaceful valley.

What rituals had those eyes witnessed as a long-gone people took heads to appease their demanding gods? What was the meaning of the peculiar knob on his head? Who had made this enigmatic image?

As I stood in the middle of the meadow imagining all manner of pagan rituals, the girls interrupted my reveries. More interesting than the image was, “Did I have any medicine that would make their hair curly - like Michael Jackson’s”.

The map had shown a road, a red line from Gintu to Tentana on Lake Poso, as well as a cross for an airplane. The road was a half-truth, and might possibly be completed this year. The Cessnas had not flown for some months.

(Photo opposite: A young beauty poses by the statue that led me on a jungle trek. Called Palindo by locals, he will always be Bada Man to me.) The next morning, Albert, the guide, appeared with his horse. I traded my hat for a large grapefruit, found I was well enough to smartly mount my steed and departed through a multitude of children. In the next village it was school registration day. From an official’s megaphone boomed: “Goodbye to the mother on the horse. Have a safe journey and give to the world greetings from the people of Bomba”.

A gentle, two-hour climb put us on our first summit. While the horse grazed, Albert packed the saddlebags with grass for the horses, while assuring me, “I am a good man and I will get you safely to Tentana”. Gazing back at the valley I had no way of knowing I wouldn’t reach Tentana that day but two days hence after spending two nights in the forest.

I bade farewell to Bada Man, the reason for my journey. I had traveled 70 miles in distance and 2,000 years in time, back to the Neolithic hearth, bark clothing and perhaps even to the era of Bada Man.

But for all of that, the real men, women and children were the stars of the show.

Real Estate in Roatan

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I spent the past Saturday night at a private dinner in Changchun. Unsurprisingly, the dinner consisted of Chinese food. It included seafood, for instance rose fish and mackerel. We washed the seafood down with Chinese beer and Chinese wine. I can’t honestly claim to be into alcohol. Yet sipping a glass of wine or a glass of beer bolsters my well being at times, in particular over dinner. The dinner on Saturday night gave me the opportunity to taste both Chinese beer and wine.

Chinese beer seems to be available across the globe these days, especially in Chinese restaurants. The brand Tsingtao’s made plentifully inroads. So far I haven’t sniffed Tsingtao out. Instead, we sipped a Chinese lager whose name I can’t recollect. Its taste comes across as rather mild. My host vouched that it’s the right sort of beer for a state banquet. Which made me respond that it thus perfectly fits the bill for us.

Anyway, I didn’t forget the name of the Chinese wine we sipped over Chinese seafood. The Chinese wine we sipped is known as Dynasty. Dynasty’s said to be one of the few Chinese wines that are leaving a mark all over the world. Dynasty may have reached a similar stage by now to Chilean wine loads of years ago. Loads of years ago, the reaction to Chilean wine presumably sounded like “what’s that?” Things have changed a little since then. It may play out quite similarly with China’s Dynasty wine. In case you feel like keeping a watchful eye on things, have a look at http://www.dynasty-wines.com/.

World Economic Forum In Tianjin

There’s recently been a market in Tianjin for both Chinese Dynasty wine and the Chinese beer we sipped over dinner. The World Economic Forum held its summer session 2008 in Tianjin. Tianjin’s a coastal city in Eastern China near Beijing. The gathering there brought together a blend of international businessmen and pundits as well as policy makers. These movers and shakers debated how to keep the show on the road given that the drumbeat of less than satisfactory economic and financial news intensifies. They’re likely to have chatted about whether or not my present stomping ground China can continue to shore up global economic growth. It looks a little tricky because of happenings in the financial sector.

The financial sector in the United States has made an almighty stink. Financial institutions in Europe have made an unholy mess. However, things in China presently look quite robust. An educated guess relays to me that China will broadly remain above the fray. Be that as it may. If I resided in a western nation at present, I’d be ultra - cautious with banks and dough. Yet there are a few striking safe havens that would draw my undivided attention. They range from an Irish Bank to under the mattress and an old sock at a hidden spot. In Asia a Singaporean bank too does the trick.

Never mind. You’re familiar with my take on that sort of thing. The present almighty stink contributes to dethroning the US Dollar. But the US Dollar won’t fall from grace in one go. It will gradually take place. After all, the US Dollar prevailed against the British Pound in the 1920s. In the 1930s the British Pound surpassed the US Dollar again. If the 1920s and 1930s are anything to go by, the world’s in for plenty of volatility and interesting times.

(Photo opposite: Bedugul in Buleleng where Bruce lives with his family.) I’m known for the lack of traveling that I do. Usually, I stick to driving one of my daughters to school, going to one of the local stores for shopping, visiting the bank once a week and snorkeling in front of the house. It’s a pretty non-adventurous life. I certainly couldn’t have done this ten years ago – I would have gone stir crazy, but ten years can have a calming effect on a person. My years in Pakistan during the early days of the war in Afghanistan were fairly adventurous, and my nine years of roaming the jungles of New Guinea were exciting and gave me a wealth of tales to tell. I’ve more or less settled into a family-oriented life now – the kids, my wife, and reading and writing keep me satisfied and amused.

However, I still am struck by the occasional need to get out of the house, the neighborhood, and the city and wander around Bali to see what is going on in the other parts of the island. This past weekend, I headed down South to Kuta with two friends to spend a few days just looking around, as I haven’t spent any time there in years.

I was astounded by the amount of money that is evident in all the luxury houses, apartments, commercial buildings, condos and villas. Huge billboards advertising one housing development after the next with prices listed at $150,000 and up and up blighted the view along Sunset Road. We pulled in to Carrefour so that I could check on what items they had for sale there, and again I was amazed at all the imported specialty food items.

One of the characteristics of aging is a tendency to anchor reality somewhere in a past often veiled by the mists of time. I noticed that my comments during the two days we were down south were punctuated with “I remember when this was…” By the end of the second day, I was just getting to accepting the reality of the south as it is now – one continually developing sprawl of malls, housing complexes and businesses catering to the ever increasing expatriate and tourist population.

For me, the trip was useful because it gave me a more realistic idea of what is happening in the south. I feel much more confident now answering the regular email questions that appear in my inbox about where I would live if I had the chance to move again. No question for me that I continue to be a partisan of Buleleng.

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* More Articles on Living in Indonesia
* Real Estate in Indonesia
* Banks in Indonesia - Worldwide Banking Directory
* Universities in Indonesia - Colleges & Universities listed by Country
* Embassies and Consulates of Indonesia

(Photo opposite: Panama’s official Presidential residence: Palacio de las Garzas) As the 2009 Panamanian presidential election approaches, and as the presidential candidates campaign across the country, a lot of people are wondering what it will take for one of the candidates to pull ahead of the pack and become the next president. The answer to that question really depends on the candidate, specifically the candidate’s background, the candidate’s ideology, the candidate’s social class, and the candidate’s party. But even more important than background, class, ideology, and party, to the average Panamanian voter is whether or not the candidate understands their particular Panamanian reality. And since Panama is a society in which there are such extreme differences in class and ethnic identity, it can be hard for the candidates to find the pulse of the voter. Most candidates will first try to be popular with the people.

And the first way to be a populist in Panamanian politics is to eat and drink like the masses. Eating traditional foods like mondongo and guarapo will make the voter think you are one of them – if you have seconds even more so. Eating traditional Panamanian food is very important to the middle and lower class voters because they believe eating certain foods makes you Panamanian. To be a populist you also need to let the voter know you can make money; you need to be rich for both the upper and lower classes: the upper class wants you to understand their important role and the lower classes want you to be their champion.

After a candidate establishes his/her popularity with the masses they can start carving out the voters they need to win. Road building has become a very important way of winning votes in Panamanian elections. Promising to build roads to remote rural communities or expanding roads in the cities has been a very effective way of appealing to different regions. Another way to appeal to voters is to promise to improve the infrastructure of communities, especially water systems. Lot’s of people in the greater Panama City area no longer have water 24/7 water in their homes: if you could bring that back as president you would win lots of votes. Another way of appealing to voters is to improve the public transportation system. Since I started living in Panama different candidates have talked about improving public transportation, but none have ever been able to implement a plan that would phase out the current system of transportation: one of the most powerful voting blocs are bus owners.

All of the factors mentioned above will play a role in who will win the presidency in May 2009. Let’s take a look at what each candidate needs to do in order to win:

Balbina Herrera: Balbina needs to play two important cards which on the surface look quite contradictory. She needs to be popular with the urban middle and lower classes, which make up her most important voting block, but she also needs to let the upper classes know she can be their president as well. Balbina is the one candidate who is looking up rather than down: her support among the lower classes is strong; she needs to win over the business class and upper class to win. Her ideology is leftist, her background is in the 1968 revolution, her class is from the lower to middle class and her political party is the PRD, the biggest in the country. For her to win she needs to look as if she is moving to the right, is moving into the upper class and finally wants reforms not revolution. Will everyone fit under her umbrella is a question that a lot of Panamanians and outsiders are asking.

Ricardo Martinelli: For Martinelli to win he need to do what he has been doing so far: appealing to the lower and middle classes by appearing to be one of them. This is something that Martinelli has been doing for a couple of years now: his campaign message is pure populism. He has attacked the PRD party by saying that they’ve had the reins of government for years and have done nothing for the country: that kind of attack works in an election year. Martinelli is the candidate for those who don’t want to vote for the PRD party. What Martinelli needs to worry about is that his support is wider than it is deep: his political party is very small and he should be worried that his support might be a little softer than the polls suggest. Martinelli’s ideology is centrist, his background is business, he is from the upper class, and his party is Cambio Democrático. Everyone is waiting to see if Martinelli will stay on message, increase his popularity and win the presidency: right now he seems to have the lead.

Juan Carlos Varela: This is Varela’s first run at the presidency and so far he has kept himself in the race. He could still win the presidency. To win he has to hope that somehow Martinelli’s campaign will run off the tracks; if that happens, Varela will be in a position to pick up all those independent voters that presently are leaning towards Martinelli. It’s hard to see how Varela can win if Martinelli doesn’t implode. However, Varela is in an excellent position to negotiate an alliance with Martinelli since his political party – the Panameñista Party – has lots of strong supporters, especially in the countryside. Varela’s ideology is centrist/business, his background is in business, he is from the upper class, and his party is the Panameñista Party, the second largest in the country. Varela could have a very pivotal position to play in this election, especially if Martinelli’s campaign shows signs of weakening. How he plays his cards could decide the outcome of the election. He’s a long shot to win, but he may end up as Kingmaker.

Ranking Panama’s Presidents

I decided to rank the presidents since 1940 as I wasn’t able to dig up that much information on the presidents that came before 1940. I’ve not included the puppet presidents that were in power during the military years. So that means that all the presidents from 1969 to 1989 have not been included: I’ve only ranked the presidents that were democratically elected. There were elections in the 1980s but almost all of the elections under the Noriega regime were fixed and therefore the presidents were subservient to the military. I also have not included the current government of Martin Torrijos because it has not completed its time in office.

1. Roberto F. Chiari (1960-1964) – Chiari was president during the 1964 Canal Zone riots when 21 Panamanians were killed: the second worse episode in U.S.-Panamanian relations. Chiari had the guts to formally break relations with the U.S. The break lasted 8 months and sent a message to the U.S. government that Panama would not accept the U.S. presence in Panama forever. It was at this point that the U.S. knew it would eventually need to leave Panama. Chiari was elected in 1960 in a clean election and ran a clean and effective government.

2. Ernesto De la Guardia (1956-1960) - De la Guardia is often called the cleanest president Panama ever had. He was also a very important president because he marked the transition from the military president of Remon (1952-1955) to civilian democracy. He also survived a coup attempt by Roberto Arias (Margot Fonteyn’s husband) which may or may not have been instigated by Fidel Castro. De la Guardia initiated a period in which the military and civilian politicians worked with one another rather than competing for power with one another.

3. Arnulfo Arias (1940-41) - Arias had a couple of turns as president but it was in his first term that he built his legacy. He introduced a new constitution in 1941, he gave women the right to vote and he introduced social security, and public health care. This was the high point for Arias as president; after this, his presidencies would do more damage than good.

4. Guillermo Endara (1990-1994) - Endara was president after the U.S. invasion of Panama, the worse episode in U.S.-Panamanian relations. Endara’s government was weak and indecisive and he was unable to change the military constitution of 1972 or defeat the PRD party (the party of the military) in the 1994 elections. Despite all of that Endara did get the economy of Panama moving forward and he did at the end bring some stability to the country. He left the country in the black which helped his successors.

5. Jose Remon (1952-1955) – A former military man who became a very popular president in Panama. Remon introduced many progressive social reforms to the countryside and he did try to lessen corruption in military. He was assassinated at the horse track which is named after him. The assassination has never been completely resolved.

6. Mireya Moscosco (1999-2004) – Moscosco was the first female president of Panama and there were lots of expectations that as a woman she would bring something different, something better to the presidency. Her government had its corruption scandals and Moscosco was often more interested in being a celebrity than a president. The economy from 1999 to 2002 was very weak under her presidency. Most people say Moscosco was a president for the rural people in Panama, particularly the rural areas in the province of Los Santos around her hometown of Pedasi.

7. Ernesto Perez Balladares (1994-1999) - Balladares government had its scandals but his most damaging political decision was to hold a referendum to change the constitution so he could run for another term as president: he lost decisively in the referendum. His privatization program for the most part turned out to be a success, though telephone service skyrocketed in price during his time as president. He also did not attend the transfer of power from his government to the succeeding government. Very few people today talk about his presidency.

8. Marcos Robles (1964-1968) – Elected in a dirty election, Robles was not a very honest president. He used the position of president to enrich friends. He was also not able to resolve the status of the Panama Canal after the 1964 riots. He was impeached in 1968 for helping his candidate in the 1968 election and only held onto power because the head of the military stood by him. Robles was president during the horrible 1968 elections when corruption and violence engulfed the country. Robles left the country for Miami hours before the incoming president – Arnulfo Arias - was inaugurated: he never returned to Panama and died in 1991.

(Photo opposite: Campus where Jurgen teaches in Changchun, China) There’s another university quite close to “my” university campus in Changchun. Even though “my” campus looks spacious, the other university’s campus gives the word “vast” a new meaning. There’s a reason for it. Whilst “my” university’s private, the other one’s a public outfit. That public outfit’s known as Northeastern Normal University. The campus of Northeastern Normal University includes numerous shops and restaurants. A few days ago, about half a dozen students and I hopped into a couple of taxis. We went for lunch to one of the restaurants at Northeastern Normal University. Because of the one week holiday in China, we had all the time in the world. The lunch took us three and a half hours or so.

Our extensive lunch consisted of chafing dish. Chafing dish is said to be a popular dish in Northern China, in particular in winter. Even though it’s still autumn, it’s already getting a little chilly. Looking at things from that angle, chafing dish was the right dish to go for. A heated pot takes centre stage with chafing dish. You pour boiling water into that pot. You then put slices of meat or fish into the pot. You can round all this up with a pile of tofu and vegetables as well as mushrooms and sweet potatoes. When all this is heated up, you take it out with chopsticks and dip it into a spicy sauce. That sort of mix tastes very delicious. You may be tempted to give it a go with your boots on the ground in Northeastern China.

Doing that sort of thing with students in my classes has turned into a habit, in the course of time. That sort of thing signifies fun for them and me. It helps me get the message across that there’s more to life than studies and work. On top of it, everybody involved in that do can have a banter in three languages, in English and German as well as in Chinese. It doesn’t take a rocket scientist to predict that the most significant of these languages will be Chinese in the - forseeable - future. If memory serves, it was Jim Rogers who gave the investment advice to learn Chinese and hold the Renminbi. I eat Jim’s cooking. The ongoing credit crunch changes nothing in that respect.

China and the Credit Crunch

Even before the credit crunch kicked off, the US Dollar did some substantial plummeting. It makes no hoot of a difference how the bailing out package for the financial sector in the United States is going to shake out. It costs a pile of dough. The United States doesn’t have that pot of money. Instead, it’s got to borrow the dough. Who knows? An educated guess tells me that the United States may borrow that pot of money from Chinese banks. Borrowing the dough will step up indebtedness in the United States. And more debts will make the US Dollar plunge more.

All the while, the Chinese Renminbi is likely to go north, in time. A strong Renminbi will slash costs to import commodities. A strong Renminbi will make acquire stakes in international firms more inexpensive. A strong Renminbi will contribute to more efficient manufacturing. A strong Renminbi will prop up the standard of living for the ordinary Chinese. Do you reckon that a strong currency comes across as a bad thing?

You may come up with the objection that my present stomping ground China is going to be adversely affected by the financial and economic mess in the United States. I concur, to a certain extent. However, China exports between thirty and thirty five percent of the country’s gross domestic product. The share of it heading for the USofA hovers around thirty to fifty percent. A significant chunk of Chinese growth stems from internal demand. More than a billion Chinese strive to boost their quality of life. Unlike the average American, they save. They’re not into debts. And that makes all the difference.

That’s pretty much what makes me reckon that Chinese economic development looks rather unlikely to go into reverse. Meanwhile, what’s playing out in western nations may turn into an unforgettable and painful experience. Common sense relays to me that it will result in a currency regime shakedown, at the end of the day. The pre - eminence of the US Dollar is beginning to come to an end. The tequila crisis and the Argentine financial meltdown pale in comparison. That sort of country triggers no global implications. By contrast, the US Dollar losing its pre - eminence is worth watching.

At the same time, the Euro projects the image of a structurally flawed currency. Who knows whether the Euro will still be around in - let’s say - twenty years time? I’m most unlikely to put down roots in China. Yet the Chinese Renminbi and the Singapore Dollar as well as the Japanese Yen and gold radiate more credibility to me than what else is available. I continue to sit and watch.

(Photo opposite: former New York investment banker, now expat in Asia, Antonio Graceffo) I did not go into banks and do an audit. Neither did I do an in-depth analysis of the current banking industry dilemma. I wrote this piece, however, just to explain in simple terms, how a bank can become insolvent because of poor credit policies and over-inflated assets.

Banks make money by making loans to people. The largest loans most consumers will ever take are home loans. The more home-loans a bank makes, the more profit they make.

When a bank loans money, for example $100,000, to a consumer to buy a home, that loan is carried as an asset on the bank’s balance sheet. The value of the loan is the loan, plus the interest. This seems simple, but there is one more fact that has to be calculated in. Not everyone is going to repay their loan. So, the value of the loan is discounted by the percentage chance that the person won’t pay it back.

Simple English: (This is a simplified example and doesn’t reflect real life numbers or factors such as the time value of money, or the rate and or schedule of repayment. It is only an illustration of how credit worthiness affects the value of a loan.)

Example:

Mr. Mork wants to buy a house. He applies to the bank for a $100,000 mortgage.

The bank evaluates Mr. Mork’s credit and deems him 80% likely to repay the loan. The bank has a policy that says they can only loan money to people who are 80% likely or more. So, Mr. Mork qualifies.

The bank loans Mr. Mork $100,000. With all of the interest that Mr. Mork will pay over the life of the loan, the loan is worth $150,000. (These are not real numbers.) The value of the loan on the balance sheet, however, has to be discounted by 20%. So, it doesn’t go on the books as $150,000. It goes as $120,000.

The bank makes a profit of $20,000.

The more loans the bank makes, the more money they make. So, it is in the bank’s interest to make more loans.

Mr. Warf and Mr. Data also apply for $100,000 bank loans. The bank does a credit check and deems them 70% likely to repay the loans. So, they are denied.

The bank CEO wants to make a larger profit. His annual bonus and compensation package is based on a percentage of the total revenue of the bank as well as his annual performance. So, he wants to loan more money. He is not permitted to loan money to people with a 70% likelihood of repayment, because this is set in the bank charter (or other public document.) he can’t change this policy because when the shareholders bought shares, they understood that this bank was only going to make loans to people who were 80% likely to repay. If the CEO started loaning money to un-creditworthy people, he would be violating that agreement.

Luckily, someone at the bank has an idea. They decide that their current credit evaluation procedures are too stringent. So, although they won’t loan money to anyone who is less than 80%, they will reduce the requirements to reach the 80% bracket. They reevaluate all of the loan applications from last year and under the new credit evaluation procedures, a number of people suddenly jumped to the 80% grid.

The CEO goes before the board and says, “My revolutionary new credit procedure will allow us to make three times the loans we made last year. So, our profit will increase 300%. And, I am happy to reassure you that we won’t be loaning money to anyone lower than 80%.”

Most of the board likes it. They don’t really understand what changes are being made behind the scenes, but they like it. A few board members have degrees in accounting. They see through this suicidal procedure and try to convince the others to block it.

The CEO or his PR people go before the shareholders. Before the meeting, they have already gone to the worst ghetto or trailer park imaginable. They come back with a poor, but honest, hard-working family, who “deserve” a place of their own.

“Would you deny Jorge and Roselda a decent house and a good school for little Pablo and Conchita? You fatcats sit back in your beautiful homes in suburban America. Your kids go to private schools. You sit back and collect dividend checks based on the sweat and labor of thousands of people like Jorge and Roselda, but now you are denying them a home.” If the shareholders are not in tears yet, he begins quoting Jimmy Stewart, from “It’s a Wonderful Life.”

“It is people like Jorge and Roselda who do most of the working, and, paying and dying in this town. Is it too much to ask that they do it in four decent rooms with a bath?”

The credit evaluation policies are changed. The bank makes three times the number of loans they did the previous year. Two thirds of those loans would not have qualified the previous year. The CEO triples the income of the bank. He gets a huge bonus. Often, new policies are accompanied by a “golden parachute.” There is a fear that a CEO is will not try anything new, because if it fails, he could be left with nothing. So, to encourage executives to think out of the box and try to pioneer new policies and lines of business, risky businesses are often accompanied by a “golden parachute.” Basically this is an incredibly lucrative compensation package paid to an executive if his “brain-child” revolutionary new idea fails.

There are other financial analysis that come into play here, but these are technical details. So far, this has been a simplified version of the problem. One more detail is this. People who default on home loan don’t usually miss their first or second monthly payment. The credit analysts would know, with some certainty, when a particular person would likely default. Maybe, for example, the average loan will default after four years or five years. So, the CEO announces that this last major program is the crowning achievement of his career. He will over see it for five years and then go into retirement. At which point, he will collect his percentages for the brilliant increase in the bank’s revenues.

The problem worsens.

What is an overvalued asset?

The banks borrow money from a central bank, in order to loan money to the public. They also sometimes sell debts to outside companies, in order to get cash to loan to other people. Banks, like everyone else, have to qualify as being credit-worthy. So, when a bank wants to borrow money, they have to show their assets listed on their balance sheet.

Now, Jorge and Rosalinda’s mortgage was $100,000 and they were meant to repay $150,000 with a 20% probability of failure to repay, so their home loan is valued at $120,000 on the bank’s balance sheets. So, they borrow money accordingly. But, according to last year’s policies. This loan would not have been made, because Jorge and Rosalina were only deemed 70% likely to repay the loan, which means the real value of the loan is only $105,000. So, the bank is over-extended. It can’t make good on the money it borrowed.

Another wrinkle.

Now, consumers are asking: “How do these guys live with themselves? It is so obvious that this is a ponsy scheme which will eventually explode.”

Well, maybe not so obvious.

One of the reasons that the bank executives were willing to lower the credit requirements of consumers was that they knew the average person wouldn’t default for five years (five years is just an example). At that time, the bank would take possession of the house, and resell it, to recoup its losses. By that time, the bank would have collected five years of mortgages plus the value of the resale of the house. So, the money could be repaid.

The bank calculated the probability of selling the house, and what the value would be, and it looked like a safe bet. If Jorge and Rosalinda defaulted, there would be 100 other buyers, willing to buy the house at its appreciated value. The banks bets were covered.

This next bit is an extremely simplified example, so if you know deeper economic theory and banking procedures, please don’t rip me apart. This is just a way of explaining it so everyone can understand it.

Five years down the road, the CEO retired, taking his millions with him. Jorge and Rosalinda defaulted on their mortgage, and the bank took control of their house. Jorge and Rosalinda lived in a housing development which was all financed under the same set of loans, with the same diluted credit policies as Jorge and Rosalinda’s house. So, the same week, 70% of the houses in the development defaulted. Now the bank is sitting on a ton of foreclosed houses.

They try to sell the houses, but in the mean time, the convenience store, the auto-repair shop, the restaurants…every business which was serving the housing development has closed because 70% of the people are gone. Prospective home buyers drive out, take one look at a deserted neighborhood, with no businesses close by, and they decide not to buy. So, the houses get harder to sell.

Let’s say that they do decide to buy anyway. They apply for a loan. Since the bank is getting slammed with foreclosures and lack of income, they decide to raise their internal credit policy back up to the previous, more stringent rules. Now, instead of 100 qualified buyers for these houses, they only find 10. So, 90 homes are now on the bank’s balance sheets. They are unsellable assets. The laws of capitalism basically say, if you can’t find buyers at $100,000 you drop the price to $90,000 and then to $80,000… The price of the house keeps dropping till it finds a market of buyers willing to buy it.

Now, remember that these houses were being carried on the bank’s balance sheet to secure major loans the bank took. But, the houses are steadily dropping in value. In a simplified example: The bank carried a house at $120,000 and borrowed $120,000. Now the house is only worth $90,000. the bank’s creditors come in and say, “You have to give us $30,000 in cash to make up for the shortfall of your collateral.” The bank doesn’t have $30,000. So, they can’t pay their creditor.

The creditor can take the house from the bank, but the creditor will now have a loss of $30,000. And remember this didn’t happen on one home loan or in one bank. It was across the industry, which means the companies who extended credit to the banks are now in danger of collapse. The banks are also in danger of collapse.

The buyout package which has been in the news, from what I can see, will be loaned to banks, to pay their creditors, so banks and their creditors can stay in business.

How does this affect you?

If you have large amounts of cash in a bank, FDIC insurance will protect up to $100,000 worth of cash. So, if the bank went belly up, your $100,000 would still be safe.

IMPORTANT! Not all money stored at banks is FDIC insured. If you have mutual funds, IRAs, or money markets they will probably not be covered. Check with your banker and make sure your money is in an FDIC insured account.

As a side note: credit unions and S and Ls are not banks. They often are not covered by banking regulations and are not FDIC insured. If you have money at those types institutions, or money in a cash account at a brokerage house, check with your representative and find out if you are covered under FDIC.

If your money is FDIC insured and the bank dies, your money should be fine. BUT if there is a credit crunch, which there is, this means that some banks are failing and others have no money to lend, this will send ripples through the whole economy. Certain types of business can only stay open if they have access to nearly unlimited credit. For example, a car dealership or a taxi company, or car rental business often does not own the cars on the lots, they are all financed. If there is no cash available in the finance system, these businesses cannot buy or lease cars, which will ultimately mean they will have to close.

The employees will lose their jobs. So, if you are an employee of these types of firms you will be directly effected. If you work for a company which sells services to these types of firms, you will eventually be effected, because your company will lose its customers.

Construction, real-estate, and land development is another sector which is completely dependent on the availability of credit. If credit dries up, all of these employees stand to lose their jobs. People who sell good and services to these industries or their employees will lose their customers and possibly have to close.

All of these employees will suddenly lose their income, which will mean defaulting on their personal debt and home mortgages…..

On a global note: The US is one of the largest consumer nations in the world. If millions of Americans lose their jobs and lose their access to credit, they will stop their consumer spending. There are entire manufacturing companies in China, for example, who only sell products to Wallmart. Any foreign country with a positive trade balance with the US (meaning countries selling products to the US) will lose their customers, and eventually have to close.

The flutter of a butterflies wings in New York becomes a typhoon in Asia.

Antonio Graceffo is a former investment banker. He left the world of finance to pursue his dream of being an adventure and martial arts author in Asia. For seven years he has traveled around Asia, living and studying in temples, learning languages and martial arts. He has published five books, available on amazon.com and several hundred magazine articles. He is the host of the web TV show, “Martial Arts Odyssey.” See his website: speakingadventure.com. Join him on facebook.com

Get Antonio’s books at amazon.com
The Monk from Brooklyn
Bikes, Boats, and Boxing Gloves
The Desert of Death on Three Wheels
Adventures in Formosa