Wednesday October 8 2008
America's financial Pearl Harbour: But no war on hunger
By Devinder Sharma
The smile has gone. The markets are again plunging, even after the US Congress gave its belated approval to the $700 billion bailout package that the Bush administration has worked out to prop up the failing market economy. With American tax-payers pumping in $1.8 trillion in the past one year to provide a life-saving shot to the failing markets, investors couldn’t have asked for anything more.
Three of America’s top five investment banks had disappeared. The remaining two Morgan Stanley and Goldman Sachs have now been converted into commercial banks. After the US meltdown, it is now the turn of the European Union countries to feel the heat. In the week following the mayhem in Wall Street, central banks in Britain, 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 ultimately rescued by government treasuries.
Expressing urgency that “government’s intervention is not only warranted, but essential,” the US President George Bush offered the mother of all bailouts seeking approval for a $700 billion bailout package. It sure is the ‘mother of all bailout’ packages considering the legislation making it categorically 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 $700 billion that the United States is spending to shore up the balance sheets of failing behemoths could have wiped out hunger (FAO estimates 854 million people go to bed hungry every night) from the face of the planet. The additional $1.1 trillion that the US has spent in the past one year could have pulled out the world’s estimated two billion poor from perpetual poverty and that too on a long-term sustainable basis.
In short, the money that the US has been spending could have wiped out the last traces of poverty, hunger, malnutrition and squalor from the face of the earth. Warren 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”.
Warren Buffet is probably not aware that the world is silently living through tens of Pearl Harbours every day. An estimated 2,042 people died and another 1,282 were wounded in Pearl Harbour whereas the UN estimates that 24,000 people are dying with each passing day in an endless wait for their next morsel of food. I am not defending the attack on Pearl Harbour, but what the financial leaders need to know is that a thousand mutinies are being enacted every day in the developing world.
And if the global leaders, who met at the 63rd session of the UN General Assembly last fortnight, were honest enough, a similar urgency could be demonstrated in tackling global 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. Poverty would have been banished. Hunger could have also been relegated to the pages of history.
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 the corrupt CEOs of multinational corporates and huge financial institutions. The trillion dollar questions that arise are: 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 remaining public sector companies: pressure is also building up to privatise the nationalised banks. The arguments are the same, you have often heard them. Every economist worth the name will argue in favour of privatisation of the nationalised banks. And when the private sector goes bust or the markets explode, it is invariably the governments that are expected to nationalise them.
Come to 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 entire financial system. The total $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”.