The US government and the congress are debating about creating a $ 700 billion package to bail out the economy form what is regarded as the worst crisis since 1929. Will this package stabilize the financial giants from going bankrupt and save the economy from recession???
What a socialist government!!!
What is more shocking than the fall of these “wall street giants” is the manner in which these organizations are nationalized. If there was a poll on the best socialist governments, I would certainly vote in favour of the Bush government ahead of other famous socialist governments that of Hugo Chavez, Indira Gandhi, Putin and even Fidel Castro!!!. These governments were primarily famous for nationalizing the big corporations. The nationalization of its three biggest corporations in a span of two weeks has shocked the whole world. The lefts are puzzled by the nationalization drive of the US government which they have always viewed as capitalist.
Some people might view this nationalization to be for the benefit of rich (Shareholders). But that is not case; the nationalization of these firms will push down their share price to a virtual zero. The drive has ensured that the value of shareholding of the rich has been wiped out and the top management is expected to be replaced. The nationalization of these organizations was not a rescue of rich but that of the poor. The take over of AIG will save millions of insurance policy holders from losing their coverages and saving. The collapse of Freddie and Fannie would have affected “people needing mortgages” and the “already fragile housing market” in US. Both these institutions are one of the largest mortgage lenders in the world, with $ 5 trillion of mortgages and loans in their balance sheet, which is five times the India’s GDP!!!.
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Privatizing profits and socializing losses!!!
The difference between this nationalization drive in US and that of the traditional socialist governments is that these are not aimed to give the state a stronghold over industrial production and the economy. These takeovers are a temporary affair, which would be followed by privatization of these corporations once the crisis is resolved and the financial health of these institutions improves.
The rescue package of $ 700 billion is expected to buy out the “toxic securities” such as mortgage securities, credit default swaps, credit card defaults and corporate bond defaults. Many argue that US government has created the world’s biggest sovereign wealth fund, which is highly skewed towards the financial sector. The US government has to overcome issues regarding appointment of fund manager to manage buyout, management and subsequent sell-off of these securities. US economy seems to be headed for difficult times to come. The credit crunch and decline in the housing market will affect the purchasing power of the people. The global recession seems to be inevitable with the slowdown in US. The recession will affect developing countries more. The reforms in financial sector in India such as opening the sector to foreign players and capital account convertibility are expected to be postponed.
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End of Beginning…
And to answer about the turbulent times ahead for us, we can better remember the words of Winston Churchill’s. “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
And to answer about the turbulent times ahead for us, we can better remember the words of Winston Churchill’s. “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
1 comments:
I guess it is good for the US taxpayer since the bailout package is not approved. In my opinion, the taxpayer must not be the victim of the folly of the investment banks, insurers and banks. They have the liberty to invest and reap profits; hence they should be prepared to face the loss. I think Warren Buffett has shown the way by investing $5 billion in Goldman Sachs.
This crisis will have a contagian effect on Europe. But European also chose to invest and hence must be ready to pay the price.
However, if the costs of inaction exceeds the cost of action by the Government in the form of bailouts, more liberal credit from the standpoint of the taxpayer, then the Government has to take some action.
However, one thing is certain, investors would demand more transparency in the future. Probably companies may use derivatives for the purpose of hedging rather than specultion.
I am sometimes wondering how George W Bush Jr. was elected for the second time!! I thought that Americans were well educated!! I assume decisions based on rationality sometimes is clouded by a layer of irrationality.
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