വെള്ളിയാഴ്ച, ജനുവരി 23, 2009
Economic crisis, who is responsible?
Now we are all familiar with the term economic crisis. How did it really started? Who is responsible? Will the bailout policy help to overcome this?
Actually it all started when the banks in U.S began giving home loans without considering the repayable capacity of the lenders. But why did they do so? Many insurance and financial companies such as Meryl Lynch and AIG began buying the right of these homeloans. That is, when the loan is repaid that money will go to the company which has the right of the loan and not to the bank. This is profitable for the bank since it sells the right for an amount that is larger than the loan itself. The financial companies who has the right of the loan will also get profit due to the high interest rate in U. S.
The basic assumption behind all these was that the price of houses will never go down. Hence even if the homeloans are not repaid, they can takeover the houses and other properties given as securities. hence probability to get profit is almost 100% . The banks began giving more and more loans without considering the repaying capacity. They will get sudden profit since rights for the loans are sold at high rate. The financial companies will cut this right into parts and began selling it all over the world as securities. This became very popular when famous insurance groups such as American Insurance Group ( A I G) began to insure these securities. The insurance companies thought of these securities as 100% secure based on the assumption mentioned above.
PROFIT, that is the only that matters for corporates. Home loan securities means profit without risk. whatever bush says, america is the no.1 consumer in the world. Americans considered these homeloans highly satisfactory for their consumer mentality. Profit from homeloan securities became the no. 1 talking point in Wall Street. Free market- the prime policy of Bush administration- prevented any interruption by the goverment on this large scale "Total For You" model money chain. The bubble began expanding until the inevitable happened.
Everyone took loans, but very few repaid it. This forced the owner of the securities for large scale takeover of homes given as securities for the loan. As the number of homes available for sale increased exponentially, demand decreased. Price of houses began to go down. There goes the basement. the basic assumption proved to be wrong. Then the castle made on this assumption began falling down. A person at one end of this chain has no chance know who is at the other end ie, who has actually borrowed his money as home loan. THE BUBBLE HAS BURST. Panic spread all over when this news was spread. The holders of securities understood that they are loosing their money. The banks themselves owned a large amount of securities for the right of homeloans for more profit. By the time they realized the bubble burst, all their money was gone. Empoyees in insurance companies became insufficient to attend the insurance claims. A large number of americans lost their home.
Banks and insurance companies are basement of liquidity or money flow in an economy. When they have lost all the money speculating in some money chain, the economy becomes static. That is just what is happening all over the world and we call it as ECONOMIC CRISIS. Who is resposible? FREE MARKET is the slogan and basis of neoliberal policies. They said privatisation is the only way for economic developement. Government shouldn't interfere on any of the activities of the economy, in U. S it is the Wall Street. Economic field is ruled by only one aim- Profit at any cost. Nothing else matters. Growth was exponential. But the base was not stong enough. And now.......
U. S government sought an easy way out- "bail out". That is gaiving the taxpayers money to the economic institutions in trouble. It was the leaders of these institutions have done the crime. but they are not getting any punishment. Instead they are given money from the taxpayers pocket all calls it as a rescue act. That is the same bush administration which was against any involvement of public sector on free economy is now directly involving in it. Instead of bailouts they could have bought the shares of these companies. But the U. S government and leading political parties can't accept that n-word, Nationalisation.
The biggest irony is that the corporate managements in Wall street who are responsible for these crisis are given more and more rescue packages. But the real victims are us, commom men like you and me. the unemployment rate in U.S is touching all time high. Now there are more than one crore unemployed people on U.S itself. certainly this is affecting the global finance sector. I. T boom has come down in no time. People are losing their jobs allover the world. And those who are responsible for this is still eating 6 times a day, watching news on t.v and sleeping pretty well.
The congress led Manmohan goverment continues to follow these neoliberal policies eventhough it was proved completely wrong at its own birthpalce, U. S. A. India economy was not much affected by this crisis only because of the involvement of public sector on all key areas banking, insurance etc. Even the congress leader Sonia Gandhi admitted this. But the million dollar question is that have they learned any thing from that? After the left withdraw their support, they have started employing their neoliberal policies faster than ever. For example, they are now intoduced a bill on rajyasabha to increase the foreign investment on insurance sectors from 26% to 50%. If AIG had 50% investment on TATA-AIG insurance compared to the 26% now it has, the impact of crisis would have been even higher. That was prevented only b'cause the bill mentioned above was delayed by four years since the goverment needed left's support. Will the congress led UPA goverment will learn anything from the crisis? Go with the old cliche, " Wait and see" or the newer one "left is right". It's upto you......... But remember, the choices you make makes you.
Anoop. S. R
"If you don't involve in politics, politics will involve on you. "