Lessons from relay of debacles
January 13, 2012
By A. Rangarajan
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The financial crisis that erupted in 2008 in the wake of the infamous sub-prime mortgage lending in the United States dealt a severe blow to several economies in North America, Europe and even in the Gulf.
The aftermath of the crisis has prompted several people to take a good look at what has been happening within the secretive precincts of the Wall Street where greed was pumped relentlessly through the world’s financial system.
From churches in Germany that lost millions of euros in investments when Lehman Brothers went bankrupt to municipalities in the Netherlands that had their savings wiped out when they opted to deposit their savings, hankering for higher interest rates, in Icesave schemes of Icelandic banks whose combined debts totalled to 10 times the national GDP before going bust, it was one story of sordid disaster after another.
People woke up to CDOs (Collateralised Debt Obligations), derivatives, credit default swaps, leverages and the other myriad things the quants (financial analysts) had cooked up for the Wall Street’s greedy bankers and hedge funds. Stories of predatory lending and home repossessions have now become all too familiar chapters in this story’s smelly autopsy.
While reining in the banks and regulating this industry has still not progressed in the US and elsewhere as most people had desired, reminding us of the lobbying power of these special interest groups, people’s movements across the globe have started piecing together the puzzle of the highly interconnected nature of government welfare spending and the power of commercial banks in highly fiscalised countries of the rich West.
As sociologist Manuel Castells of the Portugal-based Gulbenkian Foundation, while talking to the Dutch VPRO TV channel pointed, there has been a metamorphosis of the crisis from a financial crisis that became an economic crisis before finally ending up as a political crisis. And the governments of the day are holding the baton in this relay race of debacles. And they do not know what to do next.
The “Occupy Wall Street” movement and the several occupy movements across Europe that followed echoed the sentiment “Arab Spring is European Autumn”, expressing a rare solidarity, last year. The ordinary individual was powerless not just in dictatorial regimes but even in free societies where powerful financial interests defined the boundaries of freedom.
The people and protesters by and large saw where true power lay. The “one per cent” metaphor had gained considerable currency world over. The slide continued and resulted in the crisis of the euro of 2011 with the Greeks, the southern European countries and Ireland taking a battering.
Taxpayers had to bail out the banks and had to face hardship when austerities were imposed.
Mr Castells points out that banks’ interests are invariably protected regardless of the circumstances and people are forced to pay both ways. When the Euroland crisis spread, the power of the bond market came to the fore.
Italian Prime Minister Silvio Berlusconi could not be singed even after a decade of disgust most Italians had shown for him. But the bond market eased him out of power.
When Mr Berlusconi vacillated over his resignation, the interest rate rose and Italian President Giorgio Napolitano had to press for his exit, thus redefining solidarity and its contexts in a globalised and fiscalised world.
The same rating agencies that had given AAA to dubious CDOs, were now becoming key players again in this bond market drama, deciding over the fates of several elected governments.
In the aftermath of this crisis much has emerged.
Concerted attempts to understand the monetary and banking system operating in most parts of the world is one. The role of banks in debt-based money creation another. As world’s central banks have retreated to a role of passively regulating interest rates, commercial banks have come to the fore in setting the stage for the economy.
Instead of real growth based on long-term perspectives, we have had cheap credit and excessive liquidity driving the system. In place of innovations and research that could deliver sustainable welfare, we have asset bubbles and real estate speculations. There are many who hold that the current monetary system, with its constant push for growth, has been destructive to nature and has driven inequalities in humans.
Governments that have increasingly depended on the markets for their resources have become more or less powerless. A fundamental rethink had become necessary, is what the protesters have come to hold. Several independent researchers who have earnestly looked at this question seem to arrive at the conclusion that at this juncture governments and powerful interests playing their current roles have more or less forsaken the people. The traditional function of politics as the mediator of power amidst competing interests to deliver fairness within a society seems to have been badly dented.
This has lead to a number of people-led initiatives. The Bank of Happiness operated by several volunteers in Estonia where citizens barter free services with each other, doing away with money, is one.
Local currencies, where members of a local community issue and adopt a local currency to have social relationship based on trust with each other, is another. Brixton pound is one such currency that went into circulation recently in the UK.
The dinar-dirham combination that has become an alternative currency in Indonesia is another. These are seen as initiatives that bring power back to people from inscrutable and remote institutions.
Whether these initiatives drive a fundamental change to a fairer world or not remains to be seen. At any rate this crisis and the aftermath holds key lessons for countries like India.
Excess fiscalisation, the road we are set on, has inherent dangers and in a country as vast, diverse and populous as ours, such a direction could damage the very fabric on which our social peace is founded upon. To ignore this lesson would be to our own great peril.
The writer is an IT consultant based in The Hague, Netherlands and is a freelance writer and can be contacted at wildranga@yahoo.co.uk
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