The markets are smiling. After all, with American taxpayers pumping in $1.8 trillion so far to provide a life-saving shot to the failing markets, investors couldn’t have asked for more. And who cares if all the investment banks in Wall Street have faded into history.
Three of America’s top five investment banks have disappeared. The remaining two — Morgan Stanley and Goldman Sachs — have now been converted into commercial banks. With ace investor Warren Buffet promising to invest $5 billion in the now-nationalised American International Group (AIG), investor sentiments are high.
In the week following the mayhem on Wall Street, central banks in Britain, the European Union, Japan, Switzerland, Canada, Russia and India have pumped in $600 billion in multiple rescue acts. Ironical, isn’t it? The private-sector giants are being rescued by the government’s treasury. In the past one year, the US treasury has already spent US $900 billion in bailouts.
Expressing urgency, US President George Bush offered another whopping sum — a $700 billion bailout package. It sure is the ‘mother of all bailout’ packages considering the proposed legislation making it clear that the measures are non-reviewable and cannot be challenged ‘in a court of law or any administrative agency’.
The political urgency with which the US government, and for that matter governments elsewhere, have come to the rescue of the financial system from getting worse exposes their double standards. The $600 billion, which was coughed up in just one week after the mayhem, could have wiped out hunger (the Food and Agriculture Organisation estimates 854 million people go to bed hungry every night) from the planet. The additional $900 billion that the US has spent in the past one year could have pulled out the world’s estimated 2 billion poor from poverty.
In short, $1.8 trillion (including the proposed $700 billion bailout package) that the Bush administration has provided in the past nine months could have wiped out the last traces of poverty, hunger, malnutrition and squalor from the Earth. Buffet sounds so hollow when he compares the collapse of the Wall Street with Pearl Harbour: “It is not like Pearl harbour where you could look at what happened with your own eyes and decide you had to do something that day. This is sort of an economic Pearl harbour we’re going through.” Buffet is probably not aware that the world is silently living through tens of Pearl Harbours every day. An estimated 2,042 people died in Pearl Harbour whereas the UN estimates 24,000 people dying each day in an endless wait for their next morsel of food.
And if the global leadership was honest enough, a similar urgency could be demonstrated in tackling poverty and hunger. There would have been no need for the United Nations to provide a cover–up for their collective guilt in the form of Millennium Development Goals.
Look at the market mantra: when the going is good, the government must step back and allow the bull a mad run. And when the collapse comes, the losses are picked up by the taxpayers, whose savings actually line the pockets of corrupt CEOs. The trillion dollar question that arises is: Why should the governments intervene? Aren’t the markets supposed to be self-regulatory and self-contained? And if not, does it not mean that capitalism is not the right model of economic growth?
In India, pressure is on to disinvest the public sector firms and nationalised banks. The arguments are same, you have often heard them. And when the private sector goes bust or the markets explode, it is invariably the governments that are expected to nationalise them.
If you think of it, the $85 billion bailout for AIG by the US government is the biggest nationalisation in history. Rescuing AIG was crucial because its failure posed a much bigger threat to the financial system. The $1.8 trillion that is being pumped in to write off the losses is in reality what will keep the markets alive. No wonder, Prof Nouriel Roubini of New York University’s Stern School of Business had once called it “privatisation of profit and socialisation of losses”.
Devinder Sharma is a New Delhi-based agricultural scientist and food policy analyst