It has taken the biggest crisis since the Great Depression to put the American economy on the agenda of the presidential polls.
“Before you do anything with your portfolio, ask yourself this: Do you still believe in capitalism?” — From the New York Times, September 20, 2008.
Nope. That’s no flaming radical capturing space in The Times, but a free market believer sounding off on the front page of the Business Section. The writer is simply making this pitch to his readers: either you believe in capitalism or you don’t. And there is a rationale to his posing the question. At this point, a large number of Americans are pretty unsure what they believe in.
Finally, it’s taken the biggest crisis since the Great Depression to put the economy on the agenda of the presidential polls. Till that point, it was about who looked “more presidential.” Or John McCain’s war record. Or who would wage the war in Afghanistan more aggressively. Hours went in debating who was more experienced or Sarah Palin’s “energising the base” of the Republican Party. Media analysts spewed micro details of the daily “strategising” of the rivals. There was also endless twaddle on “change we can believe in.” It took Wall Street’s bid for collective harakiri to alter all that.
Giants who advise governments across the globe on how to modernise their economy find they can’t manage their own. One of the largest insurers the world has ever seen was begging for insurance for itself. Suddenly the whiz kids who had been running the world spoke up to say “Hey, you know what, we really don’t know how. And could you lend us a trillion dollars to bailout? Parachutes are expensive.”
There is an element of the tragic-comic to the media trotting out “experts” to explain to their viewers and readers “how to look after your money.” The very same deadbeats who left them clueless of any crisis through all these years. The same experts who gained from their financial links to the very institutions now going under. The Wall Street insiders who still speak with the assurance and arrogance they always did about things they did nothing to warn their audiences of. Editors from Forbes and the Wall Street Journal there each hour to tell you “exactly what is going on.”
Similar experts on the government-approved credit rating agencies had bestowed ‘AAA’ ratings on most of those companies whose last rites are now under way. The ‘experts’ never questioned these Triple A ratings. Maybe these now stand for Alarm, Assault & Agony. Sure, they were all rapidly downgraded to BB ratings (Better beware??). It calls for a good look at the rent-a-rating racket that now prevails. Many of those companies got their ‘rating’ by paying a huge fee for it.
The $700 billion ‘bailout’ is just the beginning. The final bill could touch one a half trillion dollars to just clear up the mess and plug other breaches in the dyke. And so a nation with a $12 trillion debt that could not find millions of dollars for improving education or billions of dollars for healthcare now forks out close to a trillion to rescue the authors of the mess. And does that with the money of those ripped off by them. Epithets like “financial socialism” and “privatising profits, socialising losses” can now be heard even on the floor of Congress.
It’s also fascinating from the point of view of India — where a forced killing of public sector banks has long been on. Where the government aims to privatise those banks, among many other things. In fact, the Indian government seeks to enshrine the right of private corporations to do in India the very things that have led to the mess in America.
Remember the cries of rage over the “historic farm loan waiver?” How that was “fiscal imprudence” — at public expense? Well that at least was, in the government’s own words, for hundreds of millions of distressed farmers. The $700 billion in the U.S. is for some of Wall Street’s most bloated profiteers. It is also at public expense, and is more than 43 times as large as the $16 billion bailout for millions of poor Indian farmers.
Finally, George Bush reappeared in the public eye. Not in decades has a presidential address to the nation featured so many terms like “panic … depressing scenario … serious financial crisis … a long and painful recession … [and more] potential bank failures.” Worse, “foreclosures [could] rise dramatically, … millions of Americans could lose their jobs.” The smuggest President in U.S. history even warned that the “entire economy is in danger.” The message was simple enough: fork out your funds for the financial barons or face a disaster far worse than the one they’ve just inflicted on you. Another variant of this logic is: “Too big to fail.”
The behemoths of Wall Street are so large that the earth shakes when they fall. The damage from the demise of anything their size would extract a horrible toll. So pay up to save them. The truth is that so many of them are too big to exist. They should never have been allowed to bloat to the bulk they did — where they now drag down the entire economy. Yet, there they are: being bailed out with the money of those they may have ruined. Those who gained from the awful growth model of the past two decades are the ones to benefit again from its downfall.
Also fascinating from an Indian point of view: there is a clamour in the U.S. now for limiting CEO compensation. Some Senators threaten to make an issue of it in legislation. Remember India barely two years ago? When the CEO bloat reached such levels that even Prime Minister Manmohan Singh felt compelled to click a timid tongue in protest against ‘conspicuous consumption,’ etc.? Remember the rage of anger in the media? For once, the media’s favourite Prime Minister came in for a lashing. Curb CEO salaries — how dare he even talk of it? These people were the risk takers and deserved their rewards and more.
Precisely the same argument was used these past years to pay unheard of salaries on Wall Street. “These people” were the true risk-takers and experts at allocating capital in ways that made life better for everyone. Now it turns out they were pretty good at transferring risk while bettering their own lives. The executives of Bear Stearns gave themselves bonuses worth billions of dollars just weeks before the crash of their bank, which they knew was coming. So they timed their bonuses in a way that they would not be required to return them. They acted as though all was well — and the captive financial media asked no questions, did nothing to disturb that illusion. Just as earlier, top correspondents of some of the world’s most venerable financial publications were speechwriters for Enron’s CEO.
The invisible hand of the market is an increasingly visible bunch of grubby paws grasping at public money. Remember the leave-it-to-the-market crowd? It is mostly occupied screaming for state intervention and public money now. The boot is on the other foot. As one famous financial daily says with obvious disgust, the present mess gives new life to “the capitalism-is-dying-crowd.”
Never, though, underestimate the arrogance of the true Market Fundamentalist. The silence on these failures amongst great Indian devotees of that faith is striking. Criticism of any policies of the kind now bringing the chickens home to roost was for long met with contempt and derision. Even at the height of the soaring food price crisis. As one editorial put it at that time: leaving the markets to do their thing would be the best way of ending hunger. But alas, governments were denying markets and free trade their life-saving role.
However, the Prime Minister’s Office, it is reported, has asked the Finance Ministry for its take on the “state of investments in Indian retail and real estate companies following the recent triple-decker crisis.” That is, the meltdown involving Lehmann Brothers, Freddie Mac and Fannie Mae and AIG. If true, that’s fascinating. What will they come up with?
But back to the polls. John McCain “suspended” his campaign and rushed back to Washington. That grand political gesture aimed to place the economy “above personal, political interest.” This was the same candidate who firmly declared the fundamentals of the economy to be strong barely two weeks ago. Mr. McCain also suggested postponing the first Presidential debate between him and Barack Obama. Ostensibly to give priority to the economic crisis — but clearly aimed at averting his own. Being the party in power, the Republicans should be uncomfortable in any debate at this point. Even if the first one is on foreign policy, there would have to be discussion of the war in Iraq that has cost between $1 trillion and $3 trillion in varying estimates.
So Mr. McCain tried to duck that debate with what one wag here has called “the biggest dog-ate-my-homework-excuse in history.” Mr. Obama declined to cry off the debate saying this was precisely the moment when Americans needed most to hear about the economic philosophy of the man who will be the next president. As it turned out, Mr. McCain was lucky he went to the debate. Mr. Obama failed to pin him to the Bush government and the Wall Street meltdown. Mr. McCain diverted that issue to high government spending.
Both Mr. McCain and Mr. Obama have also been meeting Mr. Bush in the White House trying to work out how to save Wall Street. And Senators are flocking back to Washington determined to look good on television during the hearings on the bailout. It’s as the business writer in the New York Times suggests: either you believe in capitalism or you don’t.
6 months ago