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Coping with crises

March 15, 2009

Much has been written,published,rehashed,talked about,repeated and forgotten,promised and defaulted about the current ongoing global crisis.

The current global crisis is surely a product of more than 20 years in making. The widespread credit infusion since 1980’s has clearly injected a lot of bad ‘karma’ in the environment which is coming back to bite the biggest global economy back.And very ironically, this is one crisis which the US government can’t solve by waging a war.

Plenty many evidences exist, that this crisis can’t be coped with huge infusions of credit as is happening right now. In fact, Einstein who commented stupidity as “doing the same things over and over and expecting different results” might find a new example in the US government stances. Bush govt. has moved on only to find Obama govt. doing the same mistake at a much larger scale. Unfortunately, economy does not know any rhetorics of ‘hope’,’freedom’ and ‘change’. In fact, it again proves the same old adagio, “the more the things change, the more they remain the same”. Obama proved it.

Per se, I am not anti-Obama. I very much support his views of encouraging sciences, but then my political bias is not the point of this story.
It can come as a surprise to many people seeing the magnamity and scale of global economic failure while US economy has come to the precipice. If anything this shows a nice demonstration of globalisation, where investments flow freely in and out of a geographical border. So what transpires is, banks from UK speculating in the reality in Alabama, an entire country, Iceland[read as: a huge hedge fund] speculating in the Credit Defaults in the state of Louisiana and Indian banks doling out mortgages to sub prime in California.

This is apparent that, at least national intervention and TARP/TRAP/CRAP/SHIT don’t work the way they are intend to.Percy Mistry suggests,

  • Forming a global fund which will buy out toxic mortgages starting with a base value of a nominal 45cents or less and from there starting out a reverse auction.

He argues.. “would mop all toxic assets once and for all”. But he is wise enough to add to it,”this scheme would avoid the premature recapitalisations around the world”.

Read it as: Stupid Bailouts will stop!

Understandably, I am a bit vocal of Keynesianism which Mistry so easily puts down. Laissez Faire is not working because I argue Laissez Faire is not allowed to work. It takes guts, pain to be strong. And crisis like this makes the system strong. But sliding into protectionism is something which doesn’t help the economy at all. And this slide into protectionism had been in the sidelines slowly seeping into the mainstream almost invisibly.

The continous stimulus to the auto industry is one burning example. An even more striking and tangential instance is the protection on the free flow of ideas and scientific pursuits. Stem Cell research was stiffly opposed. Emmigration was questioned and the very lifeblood of US prosperity, scientific pursuit put to rest. Perhaps who knows, had US built a safer, sounder scientific ecosystem and more encouraging research arena, we might have seen lesser financial jugglery around. But in no way, I am knaive to blame the financial engineers for the present crisis. Blaming the financial engineers, laissez faire or even banks for this outcome is evasive and self-defeating. In fact, blaming anything other than bad governance and coherence in policy issues is an important thing. Blaming anything, other than rampant consumerism as a way to boost up economy, even doling out debt to meet that end, will be detrimental to the effect.

The way, I see it will be to let a dual pronged attack of what Mistry suggested coupled with lifting of any protectionism whatsoever in any aspect of US economy.

Because, this is our only hope. Perhaps the last

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