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FINANCIAL ORDER
OM PRAKASH YADAV
The crisis at Wall Street has spread like a contagion and miseries
are felt now within walls of each street in the world. Slum in bourses
gradually travelled and crossed the ocean; the crisis is trans-
continental. The economic slowdown is gradually metamorphosing
into a ‘worldwide recession’. The architect of ‘economic and housing
boom’, Allan Greenspan, former chairman of US Federal Reserve
(1987-2006), has also candidly accepted ‘mistake’ in the free
market ideology. Green span, hailed as the ‘genius of serial bubble
maker’ and sometimes ‘harbinger of post-war economic boom’ has
become villain now. The ‘housing bubble’ did burst, because
financially, it was ‘inherently malicious’ based on ‘excessive fiscal
leverage’ and ‘un-principled greed.’ Results, as we witness today,
are devastating both in terms of money, morality and mundanely.
The burst led to withdrawal spree, which Banks and other financial
institutions failed to withstand against, culminated into bankruptcy
of a number of Banks like Lehman Brothers, Stanley-Morgan, and
Merrill Lynch etc. Most of the Banks in America by now had moved
far away from the basic preamble of Glass-Steagall Act of 1933,
which was the first legislation to keep the Banking industries away
from the investment ventures. Even the ‘bailout packages’ have
been misappropriatedby many Banks, and reports suggest that
Bankers might instead use this money in giving dividends and bonus
to its executives, buying other banks etc. FBI is probing into the
matter; it is also probing into the ‘mortgage fraud’ in general and
role of ‘Fannie Mae and Freddie Mac’, the mortgage giants of
USA, vis-a-vis ‘burst of bubble’ in particular. It is important therefore
to understand the workings of the Banking system of USA, because
the collapse of the Banks was largely due to inherent weakness in
the banking system itself. Here are some important bubbles in
economic history of world-
BANKING IN USA-
As it always happens, unless you are ill, you are not diagnosed. Here
came ‘great depression’ in 1930, and prescriptions were written to
cure the ‘ailing economy’.
Nevertheless, this crisis came and came with great intensity. Some
called it great depression, some economic tsunami and other
economic slow or meltdown, but the after-effects and pains
emanating from it, does not seem different owing to this different
nomenclature. It would however be financially naive to prescribe
remedies for what had happened, because, it is easy to write
‘prescription in retrospection’. But certainly, this does not mean that
no inference is drawn from this ‘economic catastrophe’.
Similarly, World Bank also failed to represent the globe in real sense of
term. See the figure-
The workings of world Bank has always been under severe criticism,
even the chief economist of this organisation Joseph Stieglitz
criticised it by saying ‘so-called free market reform policy’ is often
harmful for the developing nations’. It proved correct in this crisis
also. Even the ‘President of the World Bank’ is nominated by US
President and the world on the other hand, has no say whatsoever,
on this issue.
The ‘feeble hatred’ of west is not unfounded and the roots are lying
in post gulf war situation. The post 2nd Gulf war situation slanted
strategic balance of power towards US, and these international
financial institutions came under almost total control of the US. The
eclipse of USSR in the 1990s paved the way for unipolarisation of
world both militarily and financially and the financial order slanted
favourably towards US.