Tuesday, September 30, 2008

privatise profits and socialise losses .. !!

Privatise profits and socialise losses !!

The Bush Mantra ( not at all capitalist and open market mantra..) got a major set back today in the House of Reps.

American lawmakers are not allowing its financial institutions which thrived on greed and foul play to survive, while policy makers want such foul practices to continue thrive on public money ..

In a free market economy, market forces decide whether companies survive or die. If the government interferes to prop up selective companies, it is worse than socialism .. It is propping up immoral and inefficient companies working on the basal instincts of its top brasses, who will contiue such practices in future , putting the whole financial system at great risk. By resorting to such inefficient market intervention policies, it is only going to spell doom for an inefficient financial market not founded on strong financial fundamentals..

With the foundations itself shaking so badly, only a matter of time before the final crumble..

The law makers have done a good service to the country by rejecting the $700 billion bailout plan at the expense of the ordinary tax payer .. They can take other positive steps to bail out the economy, which has already started seeing the end of the day, though people are not wise enough to admit it will happen so early..

With the Dow Jones slipping 600 points, what is coming next ??

If international investors understand the futility of investing in a bubble economy like the US, and withdraw their money, it is end of the day for 300 million of the 6000 million inhabiting planet earth .. an insignificant and inconsequential event...

Open up to market forces, do not be a cry baby .. Be bold to face the consequences.. Some day one has to own up for one's good and bad deeds and stop running behind mamma's petticoat ..

Hope the House of Reps take some other steps to set right a tottering financial system from the rot it has found itself in..

ge..

1 comment:

  1. The bailout failed not because the lawmakers did the right thing! If they had their way, they would have bailed out Wall Street without batting an eyelid. The reason the bailout failed is because of something that would have been well nigh impossible in our own country - citizens phoning up their representatives' offices and writing emails to them stating their opposition to the deal as it was being presented to Congress and threats to vote them out of office. A lot of these representatives are up for re-election come November and a threat of losing their seats mobilised them to do what the majority of the public wanted - which was to refuse to bailout Wall Street thereby rewarding their irresponsible behaviour. Henry Paulson, the Treasury Secretary, who requested the blank cheque without oversight of $700 billion is himself a Wall Streeter, having stepped down from the post of CEO of Goldman Sachs and taking a severence pay of more than $500 million! Talk of the fox guarding the chicken coup!
    There has not been a true free market economy in the US for over a couple of decades - just an illusion of one. It started with Reagan (though most Americans like to mistakenly, or maybe not, think of him as a friendly and good president) and has progressively deteriorated since, including through Democratic administrations. Corporations, through their lobbyists, have been extremely successful at passing legislation that stripped out the requirements of free market economies and sought to dip more and more into the public coffers for handouts or to shirk off the responsibility of providing healthcare for their employees. (The vast majority of Walmart's employees are paid so low that they qualify for government provided healthcare - Medicaid - thereby taking the burden and responsibility off of Walmart's shoulders).

    The vast majority of America's corporations are fat, top-heavy and inefficient. All those Operations Research classes that the CEOs and others in upper management learnt in their MBA programs aren't even used to wipe their asses with.

    As for the market indices dropping, well that is a correction that has been long overdue (for over a decade now). But that is a healthy sign, though there will be short-term pain. For most of the people in the four lower quintiles of the earnings spectrum, this is nothing new, but just a continuation of what they have been experiencing the past 10 years or more. The first highest quintile may be immune, though I suspect the lower end of that group will find themselves resorting to some amount of belt tightening to stay afloat.

    Unfortunately, international investors cannot drop their stake in the American economy that easily. Around 25% of the US's $9 trillion national debt (in the form of treasury bonds and other treasury securities) is held by foreign countries, primarily Japan and China. Other than this, large mutual funds and other investment funds around the world have loaded themselves up with mortgage and credit based securities in sufficiently large volumes that they probably cannot divest themselves off of these without considerable pain. True, the current crisis will make foreigners wary about investing in the US for a while. And credit availability within the US will probably also be affected. But if the lawmakers in the US have even an ounce of gray matter in their skulls, they will sit down together and put in sufficient regulatory bodies and machines in place to prevent such uncontrolled abuse. I personally don't buy the crap that Paulson has been putting out - that the consequences of not approving the bailout would lead to even bigger pain for the taxpayer. He hasn't come forward to explain his position, except to simply make that broad statement.

    Rajan.

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