The Challenger of Financial Storms
Sohu.com 2008-12-03
Financial Reporter: Wang Qingfeng
When people worldwide are shocked and scared by the rampant global financial crisis starting from the Wall Street, there is a man who has been paying unremitting effort to fight against and try to stop the crisis for years alone with a clear mind. He is Professor David X. Ding, world’s famous financial expert and financial crisis prophet as well as the inventor and founder of FinancialTree System, System Finance, Financial Ecology, Financial Science, Financial Science System, Chief Financial Scientist of China Gold Investment Analyst Professional Committee and Vice President of China Financial Science Academy.
According to Prof. Ding, financial assets are liquid like “water” while financial markets are the system like “reservoir” in which financial assets “float around”. Liquid water could have great lashing and destroying power if the reservoir leaks or damaged, therefore, reservoir is supposed to be fixed with strong defensiveness and interception. “Water” and “reservoir” are a unity of opposing forces. Three years ago when Wall Street entered its booming period and many counties followed its suit, through FinancialTree System, Prof. Ding keenly detected potential crisis of American “reservoir” system, which has serious leaks and dislocation. However, his repeated alarms and forecasts were neglected. Instead, people paid more attention to the seemingly unavoidable Chinese financial crisis, which was a nonexistent possibility then based upon Prof. Ding’s judgment.
At the beginning, if the water seepage of the levee of the reservoir can be found and mended in time, the problem can be solved easily. However, reservoirs are destroyed one by one due to the unknowing of the nature and systematicness and laws of finance. When the whole Wall Street was submersed, the US supervision authority and financial insiders finally came down to earth. Rather than any one particular investment bank, insurance company or securities company, all financial institutions on the giant “Financial Tree” of USA could fail, the entire economic entity and global economy will suffer heavy losses. At this critical point of time, they were so scared as if the doomsday were to come because the levee of almost all reservoirs has been washed away. Where to find stones to stop the “floodwater”?
Prof. Ding believes that all things in the world are interlinked and the universe is connected. Everything has its rule, and the history of human beings is to explore and discover the nature world. Long time ago, people thought the heaven is round and the earth square and knew nothing about the reason and rule of wind and rain. But now we not only master the rule of natural storm, but also can fly in space.
To explore financial rules, Prof. Ding has been engaged in studying traditional financial theory, economics, mathematics, mechanics, physics, dynamics, psychology, philosophy and religion as well as geophysics, botany, evolutionism, meteorology, cosmography, polymorphism, unified field theory and space theory, etc. However, he benefits more from natural phenomena. As for Einstein, the nature, especially the physics is a unified whole and there is inner unification behind the diversified natural phenomena. And for David Ding, the finance including accounting standard is a unified whole. The seemingly complicated, disordered financial world is very systematic and disciplinary. The goal of science is to discover rules and predict future. By studying the growth of trees, he finally found the exclusive financial rule. Based on this, he has alarmed and forecasted the eruption of financial crises and bankruptcy of many well-known enterprises such as D’Long, China’s Silicon Valley Technologies and Enron.
He finds that though finance belongs to human sense, it still be governed by natural laws, and people can not do whatever they want. He also believes that all financial crises are man-made, should have never happened and avoidable. But financial crises can hardly be avoided before mankind masters the basic financial principles. He takes the lead in integrating natural science with humanities and creating a series of new system subjects. It has been proven by years of research and practices that finance is the “tree” and any violation of the principles and rules of FinancialTree will cause financial crisis.
Prof. Ding’s “Financial Tree”: based on FinancialTree system, System Finance, Financial Ecology and Financial Science, the seemingly complicated, disordered financial world has strong systematic nature and regularity, which is showed clearly. Grasping the system and regularity of finance is the precondition to master the financial market and prevent financial crisis.
Prof. Ding has devoted himself into preventing the global financial turmoil for many years with unremitting efforts.
Several years ago, he tried to persuade the United States Congress and Financial Accounting Standards Board to replace the current, single accounting value and market value standard with the FinancialTree Value System, because the former two fail to reflect the real value of enterprises in an objective, accurate and timely way, and will distort the economic value and cause serious impact. The accounting value is past value. When the financial report is released, everything is done already. And you cannot undo what is done. That is the reason why many principals of lager financial institutions resigned at once when seeing the report. The market value refers to instant market value, i.e. mark-to-market. This is the accounting standard that technically caused the shrink and bankruptcy of many financial giants with a history of hundred years and ten or hundred billion capital. Moreover, it almost destroyed the several-hundred-year-old Wall Street in one day. Obviously, the accounting standard that has been implemented for many years is illogic and even incompatible with the principle of heaven. It is a pity that US government has just started to realize the seriousness of this accounting problem and authorized the US Securities and Exchange Commission the power to suspend the mark-to-market accounting rule in the financial bailout plan passed on Oct. 3. On Oct. 15, European Parliament and EU member states also decides to suspend the mark-to-market accounting rule in a effort to help financial institutions better cope with the financial crisis. Nevertheless, both European and American do no know how to implement. In fact, Prof. Ding cracked this world’s top difficulty five years ago, because FinancialTree system can clearly reflect any value of an enterprise and a country, such as past value, current value, expected value, future value, accounting value, assessed value, market value, etc. If the US adopted this value system, the current crisis would have never formed, needless to say its breakout.
At the China (Shanghai) Futures International Investment Forum on Sep. 11, 2005, Prof. Ding pointed out in his speech of FinancialTree Illustrates RMB Exchange Rate Trend and Sino-US Finance and the article of US Deficit Exacerbates China’s Problems in the Business Watch Magazine published in Nov. 2005: “According to FinancialTree ecosystem, the US financial tree has serious imbalance. The tree keeps survival thanks to its fast root and flexible trunk. The whole tree may drop dead if the imbalance can not be modified. Once the US tree falls, the whole world will be affected. Therefore, it is urgent to solve the US deficit. After all the US deficit, especially trade imbalance is also the world’s problem…. it is related to the global economic development and financial stability. ……it is inevitable to result in the depreciation of US dollar and assets and the decrease of American living standard. Besides, as US dollar is the benchmark of the global economy to a great extent, the recession of US economy will surely cause the retrogression and chaos of global economy, possibly including RMB exchange deep appreciation … However, the RMB exchange appreciation will substantially hold up and affect the foreign trade export and economic development in China.
The increasing US deficit will weaken the risk resistance ability of US economy, and finally cause the devaluation of US dollar. However, the disaster is not inevitable, but its prevention requires a tough and painful decision, because it means the change of lifestyle and the decrease of American living standard and purchase power of US dollar. Moreover, China may lose the big US market that has brought huge US dollar transactions to a great extent.
As the crisis was approaching, Prof. Ding released Borderless Finance at Business Watch Magazine and Boundless Finance, Unlimited Risk at Sina.com respectively in Oct. 2006 and on Mar. 1 2007. He prompted: “The capital market has entered an era of radical and global reform. While enjoying the unprecedented convenience, comfort and efficiency brought by modern finance, people shall keep in mind that with improper management, the modern finance will become great scourges to overwhelm the economy of a nation, a region and even the whole world instantly. This is the beauty, penetrating power, killing power and speed of finance.”
To prevent the man-made disaster that sweep throughout the world, Prof. Ding has tried to meet with US President Bush for many times. He always said jokingly that one thing US President should do most was to talk with him. He will tell the President that the financial crisis is going to burst out and how to avoid it, and it will cause a heavy loss of the whole world, especially US. However, he was unsatisfied due to constraints of his time, energy and resources and the irresponsibility and low efficiency of bureaucracy. The crisis burst out finally.
After the eruption of US subprime crisis last year, he wrote a suggestion letter to the President, Premier and Chairman of China Securities Regulatory Commission. He indicated that the European countries were unable to provide any help to stop the crisis as they take the same economic institutions and financial structure as the US’. Thus, China faces with a historical market opportunity. It shall and is able to stop the subprime lending crisis becoming a global financial storm. China’s stock market is unnecessary to follow the US, especially under the continual fall of global stock markets at large. Otherwise, it will send a devastating signal to the shaky global financial market, and exacerbate the worldwide recession to a great extent. If even China that suffers very little from the crisis fails to overcome the storm, it will surely become a systematic global financial crisis, and China will also incur a grave loss and consequence. Now the fact and result are clear that both European and US financial systems were broken down, and China was expected to play a vital role. However, Chinese stock market was crashed as well. Missing the optimal time, the problem that could be solved easily last year became more difficult with multiplied complexity and risk.
Prof. Ding was invited to attend CCTV Dialogue on Mar. 25, 2008, shown as the pictures below. He said in the field: “Subprime lending is just a branch of the US financial tree. Its crisis reflects that the entire financial system has problem. The rampant US financial products will cause the economic recession and disorder worldwide.” Even at this time, the global financial turmoil can be eliminated if the supervision authority and leaders of relevant nations recognize the generality of the subprime lending crisis and take corresponding measures. Later, at another TV seminar, Prof. Ding elaborated the evolution of the subprime lending crisis with pictures.
Besides above-mentioned articles, speeches and lectures, he also released many alert papers and received interviews before the crisis, including China shall and is able to prevent subprime lending crisis from a worldwide financial storm, Revelation of US financial crash, 516 trillion, bubble execution of global derivatives trading contract, Meltdown of global financial markets, David Ding: Watcher of financial market, David Ding: Leading global finance, etc.
Besides, he has alarmed and forecasted financial crises and results every time before their occurrence.
In the early 1990s, China’s economic reform went through the toughest and most dangerous phase: the co-existence of new and old systems, absence of effective economic laws and regulations, inflation at new high as well as chaos of economic and financial operation. With his recognition of the seriousness of above problems, Prof. Ding has put forward many good advices to the State Council and others, which indeed helped China prevent financial crisis twice. In 1993 when China blindly developed futures market all over the nation, more than 60 national commodity futures exchanges were established right off, exceeding the total number in the rest of the world combined. Mr. Ding decidedly pointed out that the urgent task to develop China’s financial market is to reinforce macro control, regulate financial order and firmly stop unplanned development of futures market. Upon rectification, it reduced the number of exchanges to several at present and fundamentally limited the blind development of futures market, thus avoiding heavy loss and effectively controlling inflation. (But the State failed to stop national debt futures trade, causing the market crash and terrible financial disaster). Meanwhile, he further indicated that as a major production and consumption country with a large amount of products (e.g. grain, cotton, oil, etc.), China has to establish its own influential and competitive product exchanges within the objectively permissive time. Otherwise, it will be in the dock for all time. Today, we have felt the influence of international price of oil, cereals and edible oil on China’s economy and people’s life.
At the end of 1996 when Chinese stock market soared against the background of “1997 Hong Kong’s Return to China” and in the optimistic air of “bull market in the year of the ox”, Prof. Ding resolutely suggested the supervision authority: “The urgent task to develop Chinese stock market is to curb excessive speculation and cultivate rational investment”, and saved the market from the edge of collapse.
In 1997 when many people argued that state-owned enterprises must find the way to go out of troubles in capital market, he said in the report to Premier Zhu Rongji on the reform of state-owned enterprises and the development of stock market that it is wrong and very dangerous to offset the bad debts of enterprises and banks with stockholders’ money, as the method would severely jeopardize the healthy development of stock market.