|
| V V: The gathering storm | |
| V V / New Delhi June 13, 2009, 0:56 IST | |
“Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and mechanical products, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the state will have to take the road which will eventually lead to communism.”
—Karl Marx: Das Kapital
Though literature on the global financial crisis grows by leaps and bounds, no one really knows how long the current recession will last or how deep it is. But financial analysts are agreed that the root cause is “deregulation.” That, it is the lack of state oversight of financial markets for having permitted the perilous over-leveraging of financial institutions, based on weakly securitised debt, that brought about the present debacle. The diagnosis of the crisis leads, ipso facto, to a particular solution: if deregulation allowed markets to get out of control, then we must look to re-regulation as the way out. All experts see the subprime crisis as a result of decades of laissez-faire policies resulting in excessive financial growth and instability: now that financial capitalism has suffered a fundamental reverse, we must get back to Keynesian regulatory policies. Give or take a little, this is what all the analysts have been saying in a nutshell in the opinion columns of the financial press which they go on to elaborate in their books. Which is what Vance Cable has done in The Storm: The World Economic Crisis and What it Means (Atlantic Books, Rs 650).
Vance Cable is currently the economic spokesman for the Liberal Democrats in Britain and was earlier the Chief Economist for Shell. Described as “the sage of the credit crunch”, he is widely respected because he had warned about the collapse of the housing market before prices began to fall; he had also argued for the nationalisation of Northern Rock before the government was committed to do so after a run on the bank (the first since 1866); he had predicted the banking crisis before the banks woke up and stopped lending money; and for years he was alarmed by the growing amount of personal debt. What Cable has done in The Storm is to have compressed his rich experience in a short account of what happened and why, free of academic jargon, while being authoritative in its range and detail.
And he does this in seven chapters: ‘Trouble on the Tyne’ (on Northern Rock); ‘The Great Credit Contraction’; ‘The Latest, or Last, Oil Shock?’; ‘The Resurrection of Malthus’; ‘The Awkward Newcomers’; ‘The Reaction, the Reactionaries and the Response’; and ‘The Future: A Road Map’. At the end, Cable provides a Bibliographic Note, which is really a chapter-wise summary that will give an overview you can dip into before you dip into the book itself.
When you read Cable’s recommendations of what’s to be done, they are really commonsensical which you can’t object to: avoid protectionism; internationally coordinated fiscal stimulus (in a globalised world, this is absolutely necessary); bank reform which is another way of saying recapitilisation of the banking industry as a sine qua non for economic recovery; banks also need to clean up their act by mopping up all toxic assets. As for the future, monetary authorities must do more to make sure ‘excessive exuberance’ is kept under control when the next boom comes around and new rules need to be drawn up to assess the capital adequacy of banks. Cable also points out that bankers’ bonuses (these could be staggering) need to be paid in stock, redeemable only after several years and mortgages to be conditional on down payment of substantial amounts. Given the ‘casino capitalism’ of the last few decades and the mess it has landed the world in, no one could possibly object to these ‘restrictions’—the wonder is why the so-called economic dynamism of the West was allowed to get away with easy credit for so long. It was nothing but living on borrowed money and borrowed time as if there was no tomorrow.
But the big question still remains: Can these financial reforms come about? Doubtful. At best, as a financial analyst put it, “We will learn an enormous amount in a very short time, quite a bit in the medium term, and absolutely nothing in the long term.” Of course in the long term, to paraphrase Keynes, you and I would be dead. Mindsets can’t be changed so easily.
|
|
Content Guide
|