Abstract

Proactive Structural Simulation of Monetary Economic, Fiscal, Macro prudential Policy Impact on Causes, Consequences of Credit, Financial Crisis, Stability and Basel II, III Risks, Corporate Scandals Early Warning

Warren Huang OSA Intl Operations Analysis OSA Global Strategic Management San Francisco, Ca., USA

Website :www.osawh.com / www.osaglobalstrategicmanagement.com email: wh3928@yahoo.com
Fenglan Zhang, Zhejiang University, , China flzhang0626@yahoo.com.cn,

JEL code C53, C54, C58, C63, E27, E37, E44, E47, E52, F36 , G12, G32

Despite the tremendous advances in financial risk measurement, risk management fail in large and complex financial institutions prior to the global financial crisis all due to current stochastic, probability based macro, financial decision modeling analysis in financial asset pricing and risk valuation pricing, fail to provide the proactive structural simulation of the causes, onset, early warning months, years ahead for macro, financial monetary, economic, fiscal policy impact on macro stress (GDP ), inflation, jobless rate, systemic risks and assets ( equities, debt, commodities, housing, derivatives ) prices bubbles bursts resulted global financial, debt, crisis , Basel II operational economic capital, corporate governance, transparency, market, credit ,and Basel III economic capital, liquidity risks monitoring, valuation and early warning .
1.This country, industry, company specific proactive, structural macro, financial models forecasted month, years ahead all corporate scandals in last 30 years financial crisis, were all linked to specific industry asset price bubble burst, not caused by incentives in compensational structure .
It is the excessive liquidity , rate cuts, resulted excessive business personal and government spending resulted current housing prices bubbles boom and bust caused Fannie Mae, Freddie Mac , warned by Huang ( W1- W5) in 2002 and AIG, Lehman, Bear Stearn and trillion dollar bail out in MBS assets in 2007 , PIIGS debt crisis and IT bubble burst in 2000 resulted WCOM and oil price bubble burst in 2002 by ENRON scandals and commodity, stock market bubble in 2003 by PARMALAT scandal
These boom and bust in financial crisis induced windfall profit environment for greedy executives speculation scandals, betting in the wrong direction of asset prices
2. This work proactive structural macro financial , macro prudential financial decision models for asset pricing and Basel II, III risk valuation can provide reliable macro stress and banking stress early warning for risk management , rational , reliable financial regulation reform tracking and rational investment and risk management:
Overoptimistic government forecast of inflation, GDP, underestimate the excessive rate cuts , excessive liquidity in macro stress resulted assets price bubble inflation lead to banking, financial market and resulted greedy investors corporate scandals betting on the ever rising asset prices bubbles and windfall profit in exaggerate the earning in financial statements to speculate stock prices , underestimate the banking stress crisis, while hiding the loss in bubble burst leading to asset prices plunge, illiquidity during the financial crisis.
Zhang ( W1- W5) assisted to implement Engle Granger co-integration for causes , consequences analysis , supporting senior author Huang’s ( W1- W5, 1- 45) over 30 years development, implementation of proactive structural simulation, tracking last 30 years global central banks monetary, economic, fiscal, macro prudential policy impact on macro economic stress, daily banking, financial asset ( housing, equities, commodities, debt, derivatives) prices bubbles,, associated banking stress, banking financial crisis, replacing current misguided unreliable stochastic models based macro prudential and risk valuation models

Keyword :US/China/Global, monetary policy, housing , equities, debt, commodity, currency asset prices bubbles valuation mortgage default simulation, bubbles burst, credit, financial instability , macro stress, banking stress Operations Simulations Analysis, Basel II credit, market risks , Basel III, Capital, Liquidity requirement financial regulatory reform

Submitted to Bank of Finland, CEPR, Journal of Financial Intermediation and SUERF

two-day conference on The Future of Risk Management on 22-23 September 2011 in Helsinki