Political Economy of Global Financial Crisis
Political Economy of Global Financial Crisis
Political Economy of Global Financial Crisis
GLOBAL
FINANCIAL CRISIS
1
Foreword
2
public enterprises an Indo British Comparative Study’ has
tremendous appetite for serious research in spite of the fact
that he is well known Chartered Accountant much sought
after.
3
For Forms of Government let fools contest;
What is best administered is best.
POPE
4
Contents
Preface
1. Political Economy
2. Made in USA
3. Europe
4. China
5. India
8. Economic Patriotism
References
Acknowledgements
Index
Preface
5
A tea vendor or a ‘chaiwala’ to remind you of Slumdog
Millionaire asked me in Belur Industrial Estate, a remote
place in India, “Sir, tell me why my tea sales has come down
all of a sudden? I stopped sipping the chai for a second and
started thinking how to explain him the effect of global
financial crisis. His issue was simple, the tea stall is next to a
steel factory which was doing brisk business before October,
2008, but due to slowdown, the employees were removed
and there were no takers for the ‘garam chai’ or hot tea.
This crisis has effected construction workers to big builders,
simple technicians to software giants, a small town beauty
parlor to Bollywood. Of course, I need not mention the fate
of investors, bankers and stock brokers. Even the doctors are
affected by this trauma. Psychologists are making more
money but the surgeons are loosing. When I was making a
presentation of GFC (Global Financial Crisis) to medical
students, one student asked me the difference between
‘global financial crisis’ and ‘global economic crisis’. I was
surprised to know that the medical students are also
becoming ‘Economics savvy’. Similarly the engineers and
engineering students, advocates and law students,
management consultants and management students were
curious to know the details of this crisis whenever I made a
presentation.
FAQ’s
The frequently asked questions are
6
What is a melt down?
Why it happened?
How it happened?
Who is responsible?
Which countries will be affected?
How it affects India and China?
Whose job it is to improve?
7
which were facing problems of inadequacy of capital, lack of
market competition, low technical expertise, huge population
and poverty, lack of basic infrastructure like drinking water,
roads, education etc were forced to accept the state
intervention as the only way out. Hence the state enterprises
went on to occupy ‘commanding heights’ and the state
enterprises became ‘temples of economy’.
8
to the extent of asking ‘whether capitalism is dead?’ United
States of America totally believed in brand capitalism. Free
market was its mantra. When the controlled economy of
USSR crashed and splintered USSR into a shattered nation,
everybody thought communist ideology is dead and Marxist
theory is not sustainable. But the evil face of capitalism is
more cruel than that of its counterpart.
9
The World economy having become a global economy, the
impact of this is throughout the globe. Unlike the depression
of 1920s, this is going to suck all the countries in this
financial vacuum. All the share markets have crashed, the
economies are slowing down, liquidity has evaporated,
people around the globe are losing their jobs, every body is
running for shelter.
10
are inseparable. Hence the name of the game is POLITICAL
ECONOMY.
11
Political Economy
ADAM SMITH
12
through price mechanism. Each purchase is a vote in favour
of continued production of the commodity.
This theory of ‘invisible hands’ has been criticized on
various counts. In certain cases, the criticism has been
considered serious enough to warrant a transfer of a
particular section of activity from the private sector to the
public sector. A few of the important criticisms are:
1. Certain goods and services would not be supplied
under pricing system. They are collective goods,
which must be provided for the community as a
whole. People who do not pay towards this provision
can’t be excluded from their benefit. For e.g.,
defense.
2. The monopolies form another bases of criticism of
the private sector because they provide the
opportunity for restrictive practices.
13
“It is not from the benevolence of the butcher, the brewer, or
the baker that we expect our dinner, but from their regard to
their own interest. We address ourselves, not to their
humanity but to their self-love, and never talk to them of our
own necessities but of their advantages.”
14
tend to free ride, thus leading to inefficient utilisation of
resources.
Among other factors which tend to ensure that private sector
‘agents’ (managers) behave in conformity with the wishes of
the ‘principals’ (shareholders), by maximizing profits in
private firms, are, for example the concentration of shares in
the hands of financial institutions; the emergence of M-form
of organisation which tends to ensure that ‘divisions’ operate
as profit centres; the possibility of ‘contestable markets’ that
is markets where competitive forces operate through
potential entry by new competitors, given free entry and cost
less exit conditions. It is assumed public sector enterprises
are not subject to such forces, not to the same degree
anyway, which implies the possibility that managerial
incentives for efficient use of resources and profit
maximisation may be less present in public sector firms.
Many of the above factors are linked to the concept of
competition and competitive forces, where again the claim is
that public sector enterprises may be more insulated from
such forces and are less likely to pursue efficiency and profit
maximization. The latter will also be true if public sector
enterprises simply do not aim at such policies for example,
because they are used as redistribution vehicles by the
government and/or other non economic reasons such as the
need for electoral support and/or because they aim at
correcting structural market failures (for example, the high
15
prices of private sector monopolies). All these factors tend to
establish the economic theoretical rationale for the efficiency
of private firms and therefore for privatisation (Vickers and
Yarrow – Kay et al offer extended discussion on the assumed
superiority of the private versus state firms).
Capitalism:
16
Some consider laissez-faire to be "pure capitalism." Laissez-
faire (French, "let it be"), signifies a policy of only minimal
intervention by the state in the economy, with the state
confined mostly to protecting property rights rather than
exercising control over the means of production. This has
never existed. Another approach, anarcho-capitalism, would
eliminate the state and replace it entirely by market processes
and private enterprise. However, because all large economies
today have a mixture of private and public ownership and
control, some feel that the term "mixed economies" more
precisely describes most contemporary economies. In the
"capitalist mixed economy", the state intervenes in market
activity and provides many services.
17
consequences of both rational and irrational actions are said
to be more readily apparent in a capitalist society.
J.M.KEYNES
J.M. Keynes was a British economist whose ideas, called
Keynesian economics have had a major impact on modern
economic and political theory as well as on many
governments' fiscal policies. He advocated interventionist
government policy, by which the government would use
fiscal and monetary measures to mitigate the adverse effects
of economic recessions, depressions and booms. He is one of
the fathers of modern theoretical macroeconomics and
considered among the most influential economists of the
20th century.
In his book, “The General Theory of Employment, interest
and Money” published in 1936 drew attention to the
probable causes of the “trade cycle” and pointed ways to
possible remedies. Private enterprise economies are subject
to periodic booms and slumps in trade. During the
depression phase of cycle there is considerable waste of both
human and non-human resources. During the boom phase,
inflation produces problems of different kind followed
eventually by the collapse of the prices which accompanies
the movement of the economy in the direction of slump.
Various kinds of activity in the public sector are necessary to
18
stabilize the economy on a steady course of expansion at full
employment.
His main contribution can be seen in establishing an
approach to macroeconomics that maintains its relationship
to the underlying microeconomic behaviors, but assumes a
form qualitatively different from microeconomic models.
19
excludable); and monopolies which tend to increase the
prices above the competitive norm.
20
Their superiority over the country gentleman is not so much
in their knowledge of the public interest, as in their having a
better knowledge of their own interest than he has of his.
21
most scrupulous, but with the most suspicious attention. It
comes from an order of men whose interest is never exactly
the same with that of the public, who have generally an
interest to deceive and even to oppress the public, and who
accordingly have, upon many occasions, both deceived and
oppressed it.
Communism:
22
Communism attempts to offer an alternative to the problems
with the capitalist market economy and the legacy of
imperialism and nationalism. Marx states that the only way
to solve these problems is for the working class (proletariat),
who according to Marx are the main producers of wealth in
society and are exploited by the Capitalist-class
(bourgeoisie), to replace the bourgeoisie as the ruling class in
order to establish a free society, without class or racial
divisions. The dominant forms of communism, such as
Leninism, Stalinism, Maoism and Trotskyism are based on
Marxism, but non-Marxist versions of communism (such as
Christian communism and anarcho-communism) also exist.
23
Marxism-Leninism
24
2
25
economy produces. This is enhanced by relatively low levels
of regulation and government involvement, as well as a court
system that generally protects property rights and enforces
contracts.
26
were immigrants from Europe, their immediate descendants,
or African Americans who were mostly slaves taken from
Africa, or slave descendants. Beginning in the early 20th
century, many Latin Americans immigrated; followed by
large numbers of Asians following removal of nation-origin
based immigration quotas. The promise of high wages brings
many highly skilled workers from around the world to the
United States.
27
Government intervention
Regulation and control
Economic regulation
28
Bank regulation in the United States is highly fragmented
compared to other G10 countries where most countries have
only one bank regulator. In the U.S., banking is regulated at
both the federal and state level. The U.S also has one of the
most highly regulated banking environments in the world;
however, many of the regulations are not safety and
soundness related, but are instead focused on privacy,
disclosure, fraud prevention, anti-money laundering, anti-
terrorism, anti-usury lending, and promoting lending to
lower-income segments.
Monetary Policy
29
The dollar used gold standard and/or silver standard from
1785 until 1975, when it became a fiat currency.
Public finances
Source : Wikipedia
30
have already begun withdrawing from their Social Security
accounts, corporate debt, mortgage debt, a low savings rate,
falling house prices, and a large current account deficit. As
of June 2008, the gross U.S. external debt was over $13
trillion, the most external debt of any country in the world.
The 2008 estimate of the United States public debt was 73%
of GDP. In January 2009, the total U.S. federal debt
exceeded $10.6 trillion, about $34,700 per capita. As of
October, 2008 the bailout package that is “The Emergency
Economic Stabilization Act of 2008” raises the current debt
ceiling to US $11.3 trillion.
Statistics
31
(May 2008)
Source : Wikipedia
32
As the major epicenter of world trade, the United States
enjoys leverage that many other nations do not. For one,
since it is the world's leading consumer, it is the number one
customer of companies all around the world. Many
businesses compete for a share of the United States market.
In addition, the United States occasionally uses its economic
leverage to impose economic sanctions in different regions
of the world. USA is the top export market for almost 60
trading nations worldwide.
External
33
Export goods Production machinery and equipment, 31.4%;
industrial supplies, 27.5%; non-auto consumer goods,
12.7%; motor vehicles and parts, 10.5%; aircraft and
parts, 7.6%; food, feed and beverages, 7.3%; other,
3.0%. (2007)
Exports Imports
34
Cumul Cumul
Million Millions
Percen ative Percen ative
Nation s of Nation of
tage Percen tage Percen
dollars dollars
tage tage
United
35,960 4.40% 47.71% Japan 129,595 8.82% 50.22%
Kingdom
United
Germany 31,381 3.84% 55.79% 46,402 3.16% 58.63%
Kingdom
South South
26,333 3.22% 59.01% 46,163 3.14% 61.77%
Korea Korea
35
ROC
Singapor
19,601 2.40% 69.63% Italy 28,089 1.91% 70.12%
e
Hong
15,809 1.93% 73.63% Venezuela 24,962 1.70% 73.69%
Kong
36
nd
Dominica
4,343 0.53% 88.47% 9,144 0.62% 88.10%
n Philippines
Republic
37
United
4,064 0.50% 88.97% 8,514 0.58% 88.68%
Arab Iraq
Emirates
100.00 100.00
Others 67,023 8.19% Others 136,661 9.30%
% %
Total Total
817,939 1,469,667
Exports Imports
Source : Wikipedia
38
The effect of military expenditure
40
national economies had been greatly weakened by the war
itself, by war debts, and, in the case of Germany and other
defeated nations, by the need to pay war reparations. So once
the American economy slumped and the flow of American
investment credits to Europe dried up, prosperity tended to
collapse there as well. The Depression hit hardest those
nations that were most deeply indebted to the United States,
i.e., Germany and Great Britain. In Germany, unemployment
rose sharply beginning in late 1929, and by early 1932 it had
reached 6 million workers, or 25 percent of the work force.
Britain was less severely affected, but its industrial and
export sectors remained seriously depressed until World War
II. Many other countries had been affected by the slump by
1931.
41
presidency in late 1932. Roosevelt introduced a number of
major changes in the structure of the American economy,
using increased government regulation and massive public-
works projects to promote a recovery. But despite this active
intervention, mass unemployment and economic stagnation
continued, though on a somewhat reduced scale, with about
15 percent of the work force still unemployed in 1939 at the
outbreak of World War II. After that, unemployment
dropped rapidly as American factories were flooded with
orders from overseas for armaments and ammunitions. The
depression ended completely soon after the United States'
entry into World War II in 1941. In Europe, the Great
Depression strengthened extremist forces and lowered the
prestige of liberal democracy. In Germany, economic
distress directly contributed to Adolf Hitler's rise to power in
1933. The Nazis' public-works projects and their rapid
expansion of munitions production ended the Depression
there by in 1936.
42
Prior to the Great Depression, governments traditionally took
little or no action in times of business downturn, relying
instead on impersonal market forces to achieve the necessary
economic correction. But market forces alone proved unable
to achieve the desired recovery in the early years of the Great
Depression, and this painful discovery eventually inspired
some fundamental changes in the United States' economic
structure. After the Great Depression, government action,
whether in the form of taxation, industrial regulation, public
works, social insurance, social-welfare services, or deficit
spending, came to assume a principle role in ensuring
economic stability in most industrial nations with market
economies.
43
New Deal represented the culmination of a long-range trend
toward abandonment of "laissez-faire" capitalism, going
back to the regulation of the railroads in the 1880s, and the
flood of state and national reform legislation introduced in
the Progressive era of Theodore Roosevelt and Woodrow
Wilson.
What was truly novel about the New Deal, however, was the
speed with which it accomplished what previously had taken
generations. In fact, many of the reforms were hastily drawn
and weakly administered; some actually contradicted others.
And during the entire New Deal era, public criticism and
debate were never interrupted or suspended; in fact, the New
Deal brought to the individual citizen a sharp revival of
interest in government.
44
were imposed upon the sale of securities on the stock
exchange.
Unemployment
Agriculture
45
would be generated by a tax levied on industries that
processed crops.
47
must be limited to ensure soundness and competition in the
market for funds, whether loans or investments.
48
answers for these questions, one should understand the
political economy of Bretton Woods Agreements.
The political basis for the Bretton Woods System was in the
confluence of several key conditions : the shared experience
of the Great Depression, the concentration of power in a
small number of states and the presence of a dominant power
willing and able to assume a leadership role in global
monetary affairs.
According to Hull, United States Secretary of State from
1933 to 1944, fundamental causes of the two world wars lay
in economic discrimination and trade warfare. Specifically,
he had in mind the trade and exchange controls (bilateral
arrangements) of Nazi Germany and imperial preference
system practiced by Britain (by which members or former
members of the British Empire were accorded special trade
status)
Capitalism And Bretton Woods
A high level agreement among powerful on the goals and
means of international economic management facilitated the
decisions reached by the Bretton Woods conference. The
foundation of that agreement was a shared belief in
capitalism. Although the developed countries’ governments
differed somewhat in the type of capitalism they preferred
for their national economies (France, for example, preferred
greater planning and state intervention, whereas the United
49
States favoured relatively limited state intervention), all
relied primarily on market mechanisms and on private
ownership.
Planners at Bretton woods all favoured a regulated system,
one that believed in a regulated market with tight controls on
the value of currencies. Although they disagreed on the
specific implementation of this system, all agreed on the
need for tight control.
The principal architect of the Bretton Woods system Harry
Dexter White put it:
“The absence of a high degree of economic collaboration
among the leading nations will …. inevitably result in
economic warfare that will be but the prelude and instigator
of military warfare on an even vaster scale”.
US allies – economically exhausted by the war accepted the
leadership of US. They needed U.S. assistance to rebuild
their domestic production and to finance their international
trade; indeed, they needed it to survive.
Before the war, the French and the British were realizing that
they could no longer compete with US industry in an open
market place. During the 1930s, British had created their
own economic bloc to shutout the US goods. Churchill did
not believe that he could surrender that protection after the
war, so he watered down the Atlantic Charter’s “free access”
clause before agreeing to it.
50
Yet, the US officials were determined to open their access to
the British Empire. The combined value of British and US
trade was well over half of all the world’s trade in goods. In
order for the US to open global markets, it first had to split
the British (trade) empire. While Britain had economically
dominated the 19th century, the US officials intended the
second half of the 20th to be under US hegemony.
According to one commentator, “one of the reasons Bretton
Woods worked was that the US was clearly the most
powerful country at the table and so ultimately was able to
impose its will on others, including an often-dismayed
Britain. At the time, one senior official at the Bank of
England described the deal reached at Bretton Woods as “the
greatest blow to Britain next to the war” Largely because it
underlined the way in which financial power had moved
from the UK to the US”.
In the 19th and early 20th Centuries gold played a key role in
international monetary transactions. The gold standard was
used to back currencies; the international value of currency
was determined by its fixed relationship to gold; gold was
used to settle international accounts. The gold standard
maintained fixed exchange rates that were seen as desirable
because they reduced the risk of trading with other countries.
51
Supplementing the use of gold in this period was the British
Pound. Based on the dominant British economy, the pound
became a reserve, transaction, and intervention currency. But
the pound was not up to the challenge of serving as the
primary world currency, given the weakness of the British
economy after the second World War.
The architects of Bretton Woods had conceived of a system
where in exchange rate stability was a prime goal. Gold
production was not even sufficient to meet demands of
growing international trade and investment. And a sizeable
share of the Worlds known gold reserves were located in the
Saviet Union, which would later emerge as a cold war rival
to the United States and Western Europe.
The only currency strong enough to meet the rising demands
for international liquidity was the US dollar. The strength of
the US economy, the fixed relationship of the dollar to gold
($ 35 an ounce), and the commitment of the US government
to convert dollars in to gold at that price made the dollar as
good as gold. In fact, the dollar was even better than gold : it
earned interest and it was more flexible than gold.
52
parity. Thus, the U.S. dollar took over the role that gold had
played under the gold standard in the international financial
system.
The U.S. dollar was the currency with the most purchasing
power and it was the only currency that was backed by gold.
Additionally, all European nations that had been involved in
World War II were highly in debt and transferred large
amounts of gold into the United States, a fact that
contributed to the supremacy of the United States. Thus, the
U.S. dollar was strongly appreciated in the rest of the world
and therefore became the key currency of the Bretton Woods
system.
55
available market for IBRD bonds was the conservative Wall
Street banking market, the IBRD was forced to adopt a
conservative lending policy, granting loans only when
repayment was assured. Given these problems, by 1947 the
IMF and the IBRD themselves were admitting that they
could not deal with the international monetary system's
economic problems.
56
political deterioration of a very grave character.
57
trade at a tremendous profit with developing nations,
expanding industry and acquiring raw materials. It would use
this surplus to send dollar to Europe, which would then be
used to rebuild their economies, and make the United States
market for their products. This would allow the other
industrialized nations to purchase products from the Third
World, which reinforced the American role as the guarantor
of stability.
John Vandele said (Democracy comes to world institutions
slowly, inter press service, October, 27, 2008) “The most
powerful international institutions tend to have the worst
democratic credentials : The power distribution among
countries is more unequal, and the transparency, and hence
democratic control, is worse”.
Milton Friedman
One of the great influencing economist of the US Capitalism
was Milton Friedman. The Economist hailed him as ‘The
most influential economist of the second half of the 20 th
Century .…possibly of all of it’. He argued that a steady
expansion of the money supply was the only wise policy, and
58
warned against efforts by the treasury or central bank to do
otherwise.
59
economists. He thus lived to see some of his laissez-faire
ideas embraced by the mainstream, especially during the
1980s. His views of monetary policy, taxation, privatization
and deregulation informed the policy of governments around
the globe, especially the administrations of Augusto Pinochet
in Chile, Margaret Thatcher in Britain, Ronald Reagan in the
US, Brian Mulroney in Canada, Roger Douglas in New
Zealand, and (after 1989) in many Eastern European
countries.
Krugman
61
interest-group politics where each group is seeking to benefit
itself at the expense of another and the consumer. They
oppose government funding or regulation of schools,
hospitals, industry, agriculture, and social welfare programs.
REAGANISM
62
shift from left to right and back again in generation-long
cycles.
Reaganism (or, in its British form, Thatcherism) was right
for its time. Since Franklin Roosevelt’s New Deal in the
1930s, governments all over the world had only grown
bigger and bigger. By the 1970s large welfare states and
economies choked by red tape were proving highly
dysfunctional. Back then, telephones were expensive and
hard to get, air travel was a luxury of the rich, and most
people put their savings in bank accounts paying low,
regulated rates of interest. Programs like Aid to Families
with Dependent Children created disincentives for poor
families to work and stay married, and families broke down.
The Reagan-Thatcher revolution made it easier to hire and
fire workers, causing a huge amount of pain as traditional
industries shrank or shut down. But it also laid the
groundwork for nearly three decades of growth and the
emergence of new sectors like information technology and
biotech.
Internationally, the Reagan revolution translated into the
“Washington Consensus,” under which Washington-and
institutions under its influence, like the International
Monetary Fund and the World Bank – pushed developing
countries to open up their economies.
Like all transformative movements, the Reagan revolution
lost its way because for many followers it became an
63
unimpeachable ideology, not a pragmatic response to the
excesses of the welfare state. Two concepts were sacrosanct:
first, that tax cuts would be self-financing, and second, that
financial markets could be self-regulating.
Prior to the 1980s, conservatives were fiscally conservative
that is, they were unwilling to spend more than they took in
taxes. But Reaganomics introduced the idea that virtually
any tax cut would so stimulate growth that the government
would end up taking in more revenue in the end (the so-
called Laffer curve). In fact, the traditional view was correct:
if you cut taxes without cutting spending, you end up with a
damaging deficit. Thus the Reagan tax cuts of the 1980s
produced a big deficit; the Clinton tax increases of the 1990s
produced a surplus; and the Bush tax cuts of the early 21 st
century produced an even larger deficit. The fact that the
American economy grew just as fast in the Clinton years as
in the Reagan ones some how didn’t shake the conservative
faith in tax cuts as the surefire key to growth.
More important, globalization masked the flaws in this
reasoning for several decades. Foreigners seemed endlessly
willing to hold American dollars, which allowed the US
government to run deficits while still enjoying high growth,
something that no developing country could get away with.
That’s why Vice President Dick Cheney reportedly told
President Bush early on that the lesson of the 1980s was that
“deficits don’t matter”.
64
The second Reagan – era article of faith-financial
deregulation – was pushed by an unholy alliance of true
believers and Wall Street firms, and by the 1990s had been
accepted as gospel by the Democrats as well. They argued
that long-standing regulations like the Depression-era Glass-
Steagall Act (which split up commercial and investment
banking) were stifling innovation and undermining the
competitiveness of US financial institutions. They were
right-only, deregulation produced a flood of innovative new
products like collateralized debt obligations, which are at the
core of the current crisis. Some Republicans still haven’t
come to grips with this, as evidenced by their proposed
alternative to the bailout bill, which involved yet bigger tax
cuts for hedge funds.
66
Causes of Financial Crisis
Markets
What is
Street.
Too big
67
Legal Changes
68
2. Conflicts of interest can be prevented by enforcing
legislation against them, and by separating the lending and
credit functions through forming distinctly separate
subsidiaries of financial firms.
Unregulated Regulators:
71
easier to implement and more robust, and more resistant to
regulatory capture.
Technological Developments
73
Investment Bankers
74
America’s financial system failed in its two crucial
responsibilities: managing risk and allocating capital. The
industry as a whole has not been doing what it should be
doing … and it must now face change in its regulatory
structures. Regrettably, many of the worst elements of the
US financial system … were exported to the rest of the
world”.
75
products are beyond the control and even comprehension of
the Federal Reserve Bank, Security Exchange Control,
Credit Rating Agencies and Accounting Standards.
Joseph Stiglitz (the guardian, September 26, 2008) said, “It
was all in the name of innovation and any regulatory
initiative was fought away with claims that it would suppress
that innovation. They were innovating, all right, but not in
ways that made the economy stronger. Some of America’s
best and brightest were devoting their talents to getting
around standards and regulations designed to ensure the
efficiency of the economy and the safety of the banking
system. Unfortunately, they were far too successful and we
are all – homeowners, workers, investors, tax payers paying
the price”.
Credit Default Swap (CDS)
77
2004-2008 CDS deals default on $ 14 billion CDS
policies.
Derivatives
78
conditions, or other derivatives). Credit derivatives are based
on loans, bonds or other forms of credit.
79
Credit Default Swap 6 58 805
Unallocated 26 71 175
80
50% of the trading was taking place in North America. Over
46% of the money invested in major derivatives came from
“other financial institutions”, which are investment banks,
hedge funds, private equity funds, etc. So now we know why
it is the US-based investment banks like Lehman and Merrill
Lynch that have gone under – because such banks were
exposed to the tune of trillions of dollars to the fickle
derivative market.
Super Leveraging
Unofficial tripartite deal between deep pocketed client,
broker and NBFC. It allows client to buy more shares by
putting reduced margin. The rest is financed by broker
affiliated NBFC. In falling market, brokers offload the shares
to protect their money.
Subprime Lending
81
who have a history of loan delinquency or default, those with
a recorded bankruptcy, or those with limited debt experience.
82
Borrowers may use this credit to purchase homes, or in the
case of a cash-out refinance, finance other forms of spending
such as purchasing a car, paying for living expenses,
remodeling a home, or even paying down on a high-interest
credit card. However, due to the risk profile of the subprime
borrower, this access to credit comes at the price of higher
interest rates, increased fees and other increased costs.
Subprime lending (and mortgages in particular) provides a
method of "credit repair"; if borrowers maintain a good
payment record, they should be able to refinance into
mainstream rates after two to three years. In the United
Kingdom, most subprime mortgages have a two or three-year
tie-in, and borrowers may face additional charges for
replacing their mortgages before the tie-in has expired.
Subprime Mortgages :
83
such as charge-offs, judgments, and bankruptcies. They may
also display reduced repayment capacity as measured by
credit scores, debt-to-income ratios, or other criteria that may
encompass borrowers with incomplete credit histories."
84
mortgage loans and are priced based on the risk assumed by
the lender.
85
hybrids include the "2-28 loan", which offers a low initial
interest rate that stays fixed for two years after which the
loan resets to a higher adjustable rate for the remaining life
of the loan, in this case 28 years. The new interest rate is
typically set at some margin over an index, for example, 5%
over a 12-month LIBOR. Variations on the "2-28" include
the "3-27" and the "5-25".
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Borrowers have also been criticized for entering into loan
agreements they could not meet.
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budget. For the fiscal year 2009, the deficit may cross $ 1
trillion. In terms of rupees it is equal to Rs. 50,000/- crores
assuming exchange rate of Rs. 50 per dollar. Trade deficit
for the year 2007 was little over $ 700 billion. For years, the
US has been funding its imports from China and other parts
of Asia through a massive current account deficit. There
have been fears that unwinding of the current account deficit
could cause further crisis. The emerging markets continue to
fund the US deficit by investing in Treasuries that is
Treasury bonds issued by Federal Reserve. For decades the
United States has attracted massive amounts of capital – 80%
of the surplus savings of the world – which has allowed it to
live beyond its means. The total public debt of US is $ 11.3
trillion. It is estimated that 10% of this is held by China.
Thereby China has become its biggest creditor and literally
its banker. The US treasury has issued $ 4.4 trillion dollars
worth US Treasury bonds (IOUs issued by American Federal
Bank). More than 25% of this is held by foreign countries;
China alone accounting for $ 414 billion.
China’s foreign exchange reserves are $ 2 trillion. Whereas
US reserve are just $ 73 billion. To come out of the crisis,
US needs China’s support and co-operation. US is a
consumer; China is a supplier (to sustain its growth atleast)
US spends; China saves. US borrows money and China
finances it. To some extent they need each other but still
China can survive without US but it is not true the other way
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round. To quote the Noble Laureate in Economics Joseph
Stiglitz, “People often say that China and America are
equally dependent on each other. But that is no longer true.
China has two ways to keep its economy growing. One way
is to finance the American consumer. But another way is to
finance its own citizens, who are increasingly able to
consume in large enough quantities to stimulate economic
growth in China. They have options, we don’t. There is not
really any other country that could finance the American
deficit”.
‘Greed is good’ was the mantra for all these days. Easily
available credit almost at zero interest fuelled the
imagination of the people. They thought that they deserve
whatever they imagine. To illustrate this, multimillionaire
Michael Hirtenstein used to say “I collect homes because I
enjoy it”. His properties included a $ 27 million apartment
on 76th floor of Manhattan’s Time Warner Centre. He had a
desire, as he told New York Post that, he will have a house
of $ 35 million glass enclosed duplex in Manhattan’s Tribeca
neighborhood, replete with suede-covered walls, 3 living
rooms and heated pool with built in underwater video screen.
With the financial crisis of 2008, his dreams ended up in
smoke. In February 2007 Schwarzman of private-equity firm
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Blackstone Group spent $3 million for celebrating his 60 th
birthday which he regretted in October, 2008.
Vicious Circle
The US economy believes in consuming more and more so
that there is demand for goods and services. As the demand
increases huge investment is attracted in creating capital
assets. Between 1990s to 2000 US attracted 22% of all
global inbound FDI which has come down to 13% in 2006.
This in turn increased employment opportunities. Bigger and
better salaries, bonus and stock options. Thereby the
purchasing power is increased to consume more and more.
This consumption is hugely supported by credit. Credit for
buying big houses and big cars (with almost negligible down
payment), tution fees on loans, food, gasoline and all other
purchases on credit cards fueled the economy. US citizens
carry on an average 13 credit cards and 40% of them carry
balances. US citizens’ savings are almost zero. Hospital
expenses are covered by health insurance, otherwise, they do
not have money to pay their huge hospital bills. Unless they
are covered by social security system, they have no fall back
whatsoever. Credit is cheap (US Federal Reserve announced
almost zero percent interest in December 2008) and
consumer goods are cheaper. Household debt increased from
680 billion dollars in 1974 to 14 trillion dollars in 2008. US
consumers were spending 800 billion dollars more than they
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earned every year. Now due to subprime loans in housing,
credit default swaps, super leverage deals, huge collapse in
share value on Wall Street, this great US show has come to a
grinding halt. Consumerism and credit which fueled the US
economy is no more a sustainable model. The policy makers
went on fueling consumerism since they were aware any fall
in demand will affect the supply side. Any fall in supply side
will collapse the whole economy. That is why credit was
pumped in to the system without realizing to what extent it
can sustain. Whatever crisis that US is facing is built over a
period of time. The attempts that are being made are pure
knee jerk reactions. Nobody has seriously studied the depth.
Everyday few trillions are added. Tons of advice is given to
Obama from all parts of the globe. Obama is not looking in
to the eye of the storm. He is more concerned about
convincing the senators to pass the bill whether it is $ 700
billion or $ 800 billion. Nobody wants to know the depth
since it is scary. Every body is looking for a quick fix. It is a
bottomless pit.
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4) Multinational companies of US and their
financial institutions have invested heavily in
other countries.
5) Most of these multinational companies of US
have huge global network in the field of banking,
software, business process outsourcing, real estate
investment, trade and manufacturing.
6) Foreign debt of US in the form of US treasury
bonds has bulged in to trillions of dollars and
according to an estimate China is holding 10
percent of all US public debt and has become
Washington’s largest creditor. It has become
America’s banker.
7) Total foreign investment in US is also substantial.
Right through the 1990s and up to 2000, the US
accounted for 22 percent of all global inbound
FDI. Over the years, this share has fallen to 13
percent in 2006, according to the latest World
Investment Report 2007 published by the United
Nations Conference on Trade and Development.
8) Many foreign companies have listed their
companies on US stock exchange.
9) The commodity trading and crude oil pricing
have become important economic inputs in
controlling the economy of many countries.
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10) The global economy is highly intertwined and
coupled.
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Germany’s Angela Markel remarked, “A few years ago, it
was fashionable to say that governments would be ever
weaker in a globalized world. I never shared that view”.
Germany’s Finance Minister Steinbruck said the crisis will
lead to “The end of America as a financial superpower”. He
also said that “Unrestrained capitalism like the kind we’re
experiencing right now with all its greed will in end devour
it-self”.
Putin in Russia is blaming American Contagion for this
financial crisis.
The Chinese have come to conclusion that, “Something is
wrong with the teacher”.
Ecudaor’s Rafael Correa Said, “The US economic model is
terminally ill”.
The philanthropist and investor George Soros is of the
opinion that “At fundamental level, the model of
globalization and deregulation has blown up, and that is what
caused the current crisis”.
The Noble laureate Joseph stiglitz said “By allowing even
commercial banks into this riskier territory, and encouraging
stock options as pay, you had an increasingly short-sighted
focus on immediate profits. It created a culture of gambling”.
Warren Buffett of Berkshire Hathway had called the exotic
financial products as “Financial weapons of mass
destruction.”
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Princeton University economist and Nobel laureate Paul
Krugman, while regarding Milton Friedman as a great
economist and a great man, has criticized him by writing :
“In the aftermath of the Great Depression, there were many
people saying that markets can never work. Friedman had
the intellectual courage to say that markets can too work, and
his showman’s flair combined with his ability to marshal
evidence made him the best spokesman for the virtues of free
markets since Adam Smith. But he slipped all too easily into
claiming both that markets always work and that only
markets work. It’s extremely hard to find cases in which
Friedman acknowledged the possibility that markets could
go wrong, or that government intervention could serve a
useful purpose”.
Alan Greenspan who believed in easy money supply and
“market know best” was chairman of Federal Bank for an
unreasonably long period of 18 and half years. In testimony
prepared for the House Government Oversight and Reform
Committee, he voiced shock over the present turn of events
and called conditions deplorable. He said that he and others
who believed lending institution would do a good job of
protecting their shareholders are in a “state of shock and
disbelief”. And Greenspan also blamed the problems on
heavy demand for securities backed by sub-prime mortgages
by investors who did not worry that the doom in home price
might come to crashing a halt. Greenspan said, “Given the
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financial damage to date, I can’t see how we can avoid a
significant rise in lay-offs and unemployment”. He also said
“Fearful American households are attempting to adjust as
best as they can, to rapid contraction in credit availability,
threats to retirement funds and increased job insecurity. The
present global financial crisis is a “once in a century credit
tsunami” according to Greenspan.
Greenspan’s critics charge that he left the interest rates too
low in the early part of the decade 2000-2008, spurring an
unsustainable housing boom, while also refusing to exercise
the Fed’s powers to impose greater regulations on the
issuance of new type of mortgage, including sub-prime
loans. It was the collapse of these mortgages and raise of
default in the year 2007 that triggered the current crisis.
Government Intervention :
Bill Clinton claimed in 1996 State of the Union address that
“The era of big government is over”. Thatcher also believed
in rolling back the state’s role in the economy. Reagan
believed in “less government”. During this period economy
was booming – whatever may be the reason for that. Every
politician on both sides of the Atlantic believed in total
capitalism with less government intervention. Economists
like Milton Friedman believed in this kind of governance.
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The bubble of capitalism burst in 2008. Within a week’s
time, all the governments around the globe swung in to
action to save their banking system. They went on a spree of
nationalization, takeovers, bailouts and planned to spend
hundreds of billions to save the economy. From US to China
irrespective of the “isms” they preach or practice every
country swung in to action to protect the economy. US
government may have to spend in trillions of dollars. The
country which exported the idea of capitalism and free
market to various countries around the globe came out with a
huge government support for its ‘Too big to fail’
multinational corporations. When Mexico suffered the crisis
few years back it was advised by the US treasury that
Mexico should cut government spending, raise the interest
rates and allow the loss making corporations to die. But now
the US Government is doing exactly the opposite. It is
spending in trillions, has reduced the interest to zero percent
and is bailing out the corporations instead of allowing them
to die. All big Corporations in and around the world
privatized profits in good times. Now they want the
governments to socialize their losses. It only goes to prove
that, it is the government intervention which is the anchor in
this sea of financial tsunami.
Government role essential to ease crisis: Bush
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Bush had said that extensive federal intervention in financial
markets was both warranted and essential to hold the worst
financial crisis in decades and that the risk of not acting
would be far higher.
“America’s economy is facing unprecented challenges. We
are responding with unprecedented measure”. When he said
this at the White House Rose Garden on 19th September
2008, he was accompanied by Treasury Secretary Henry
Paulson, Federal Reserve Chairman Ben Bernanke and
Christopher Cox, Chairman of Securities and Exchange
Commission.
Bush had said, “This is a pivotal moment for America’s
economy”. He said that a financial contagion that began with
low quality home mortgages had spread throughout over
financial system. This has lead to an erosion of confidence
that has frozen many financial transactions including loans to
consumers and to businesses seeking to expand and create
jobs. As a result we must act now to protect over nation’s
economic health from serious risk. There will be ample
opportunity to debate the origins of this problem. Now is the
time solve it”. He also said “These measures will require us
to put a significant amount of tax payer dollar on the line.
This action does not entail risk, but we expect this money
will eventually be paid back. The risk of not acting would be
far higher. Further stress on our financial markets would
cause massive job losses, devastate retirement accounts and
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further erode housing values, as well as dry up loans for new
homes and cars and college tuitions. These are risks that
America cann’t afford to take”.
US Bailout Packages
Citi Splits
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Citi group to be restructured in to citi group and city
Holding.
Citi group will have core assets of around $1.1
trillion.
Core assets include corporate and investment bank.
City Holding to own troubled businesses including
Citi Financial, brokerage and asset management,
local consumer finance and the special asset pool.
Citi Financial India has over 2000 employees.
Citi has assets of $ 7.77 billion in its consumer
finance business, including credit cards and consumer
banking.
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$17.4 billion Bailout for Automakers
Federal Reserve has taken over Fannie Mac with asset write
down of $ 87.1 billion over three quarters and Freddie Mac
with asset write down $ 4 billion over three quarters.
Other Take-overs :
Bear Sterns with asset write down of $ 3.2 billion was taken
cover by JP Morgan.
Merrill Lynch was taken over by Bank of America.
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Bank of America was rescued by the US Government in
January, 2008 through $ 20 billion bailout and guarantee for
almost $ 100 billion of potential losses of toxic assets to
cushion the blow from a deteriorating balance sheet at
Merrill Lynch.
According to Barry Ritholtz, author of forthcoming book
“Bailout Nation”, the bailout reaches as high as $ 8 trillion, a
figure that represents more than half of US GDP and is more
than the sum of every major US Federal project in the past
century, including the invasion of Iraq, the new deal and
Marshall Plan to save Europe after the war. It is more than
the total the United States spent on World War II - $ 3.6
trillion in today’s dollars.
So far, banks have written off nearly a trillion dollars in
losses, but estimates of the bad loans still on their books run
about $ 1.7 trillion. As mentioned by Jeffery Garten in
Newsweek.
The Governments have intervened in this global crisis by
infusing capital, by nationalizing, by guaranteeing the loans.
They are also applying fiscal and monetary policies to come
out of this crisis. Unfettered capitalism has become crony
capitalism. In effect few of these countries ended up in
‘socializing losses and privatizing profits’. It is the ultimate
responsibility of the government in saving the country from
going bankrupt. In the name of capitalism, no government
can shirk its responsibility.
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Are Bailouts Successful ?
These bailout plans are knee jerk reaction to the crisis. These
countries have announced the package in a hurry to restore
the confidence in the public. But none of them have studied
the total impact since the depth of the impact has not yet
reached the bottom. It is also not known whether these
bailout packages really succeed. They have not even planned
how it should be implemented. Initially Paulson, Secretary of
Finance said, that the money will be used for buying bad
loans thereafter he said they will not buy loans but infuse
funds in to banks so that they can lend. How it is going to be
infused? By buying shares of the banks? What will be
percentage of holding? A monitory stake or a majority stake?
A majority stake leads to nationalization. Many other
governments in Europe are already taking over the banks.
The government in Iceland has nationalized three of its
biggest banks.
Business World, October 2008 said that here is a troubling
number: while only 11 banks have failed since the beginning
of the crisis, the number on the Federal Deposit Insurance
Corporation’s watch list has grown to 117. And by all
accounts, it could get worse.
Two International Monetary Fund economists, Luc Laeven
and Fabian Valencia, studied a new dataset of 124 banking
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crisis. Their paper, Systematic Banking Crisis: A New
Database, reviews some of the features of the current crisis
and the global policy response by government agencies in
light of crisis history.
According to the study, in 71 per cent of the cases, liquidity
support has been used; as events unfold, the likelihood of
new ways of providing liquidity may actually increase. For
instance, on 29 September 2008, the US Federal Reserve
extended dollar swap lines with other central banks.
Another method used in crises is regulatory forbearance. For
instance, in 67 per cent of the cases, banks were allowed to
overstate their capital. In the Savings and Loans Crisis, for
instance, some banks, though technically insolvent, were not
subject to intervention. But that is unlikely in the present
circumstances, says Alex Patelis, economist at Merrill
Lynch. In 73 percent of the cases, prudential regulation has
been suspended or not implemented fully. Some of that is
evident in the current episode too, and there may be more on
a case by cases.
The authors point out that such measures may not necessarily
accelerate the economic recovery. Besides, they can also
prove to be fiscally costly. Even without the $700 billion
bailout package, US government debt has crossed $10
trillion. And if some people are to be believed, the worst is
yet to come.
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However, as former Nobel prize winner for Economics,
former Chief Economist of the World Bank and university
professor at Columbia University, Joseph Stiglitz, argued,
the plan “remains a very bad bill:”
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Themes from Bailouts
From the many bailouts over the course of the 20th century,
certain principles and lessons have emerged that are
consistent:
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words, the government becomes the owner and can
later obtain funds by issuing new common stock
shares to the public when the nationalized institution
is later privatized.
A special government entity is created to administer
the program, such as the Resolution Trust
Corporation.
Prohibit dividend payments, to ensure taxpayer
dollars are used for loans and strengthening the bank,
rather than payments to investors.
Interest rate cuts, to lower lending rates and stimulate
the economy.
Strong oversight.
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Instills a corporatist style of government in which
businesses use the state's power to forcibly extract
money from taxpayers.
Bailout Costs
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White House and the Democrats who control the US
Congress were at odds on the ‘issue of viability.’
US president George Bush said, that “the definition of
viability is open to discussion. Viability means that all
aspects of the companies need to be re-examined to make
sure that they can survive in the long term. It includes an
analysis of business plans, dealerships, product lines and
labour contracts as well as the internal dealings of the
company”. This amounts to government doing business by
sitting in driver’s seat.
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Political Economy of Reforms:
1) Market Structure
Are there any barriers to entry? Are prices state
controlled?
2) Ownership.
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What is the level of private ownership in public
sector?
3) Management
What is the level of freedom the managers of
PSU enjoy?
4) Finance
What is the level of freedom the PSU has in terms
of raising funds?
These are the same factors on which one can decide the
maturity profile for government intervention in US.
Market Structure:
Even though there are no barriers to entry, there are barriers
to exit. ‘Too big to fail’ have been converted into ‘Too big
not to be allowed to fail’. Bailout packages at the cost of tax
payers money has created a unhealthy market. In a healthy
market structure, entry as well as exist should be
unrestricted.
Management Issues
Ownership:
The level of ownership in US corporations before the
financial crisis was hundred percent private ownership.
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Government ownership did not exist. US was a brand
capitalism. But now after the crisis, the Federal Reserve has
taken over banks Fennie Mae and Freddie Mac. Many more
may follow. The way in which divestment (instead of
privatization) is a politically palalatabe term in India, in US
it is bailout (instead of nationalization). Government
ownership or active intervention almost akin to
nationalization may take place. The statements made by
Bush and Obama clearly indicate that the government desires
to be in drivers’ seat or may do backseat driving.
Management:
It is assumed that, higher the level of freedom for managers
the public sector is more adaptable to privatization. In case
of US, it is the excessive managerial freedom that spoiled the
party. The investment banker or any multinational
corporations or auto majors had total freedom in managerial
decisions. They were paid millions of dollars in the form of
remuneration, bonus and stock options. It was totally
unchecked, unquestioned managerial freedom. Excessive
freedom lead to different kind of allocative efficiency.
Managers allocated benefits to themselves at the cost of the
shareholders and other stakeholders. It is proved in case of
British privatization, that the managerial remuneration of top
management increased disproportionately after privatization
(the details of the study is mentioned in British Experience
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of Privatization). Freedom for managers and manager using
that freedom for the benefit of stakeholders is a utopian
concept which the capitalistic model exploits. When the
going is good – even at the cost of manipulation by managers
– every body enjoys the so called benefits of efficient
management and argue for privatizing profit. When the
going is bad, the managers cry for socializing the loss.
Finance:
The level of freedom in raising finance from the market is
another criteria for privatizing. In US, company has total
freedom to raise finance from the market. US stock markets
were booming before the collapse. This unrestricted access
to market works wonders when the companies are making
profits, declaring high dividends for the shareholders and
when the future is rosy. The moment this situation changes,
stock markets dry up and these so called successful
companies end up with hugely reduced market caps. The
share value of the top 10 blue chip companies in US during
financial crisis were being quoted below $ 10 each. Even
though they have freedom to raise finance, the market is
totally dried up. Now this freedom to market has turned into
freedom to access government for huge bailout. So it is the
responsibility of the government in this capitalistic economy
to bailout these companies. Captains of capitalism have lost
faith in market mechanism.
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Regulatory Authorities:
Regulatory Authorities are the pillars of the capitalistic
economy of free market. They are the eyes and ears. They
are the anchors of this free market ship. The government and
the investors and even citizens believe that regulators are
working. If they sleep on the steering wheel, it is a disaster.
Exactly this is what happened in USA. Federal Reserve and
SEC slept on the wheel. They believed that market knows
best. They had faith in least government intervention. They
failed the US capitalism. Instead of becoming the saviours of
free market mechanism, they become puppets. Role of
regulators are well established in various cases of British
experience of privatization.
Stock Markets
The stock markets are the barometers of the economy in free
market. In US more than 50% of US citizens have invested
in stock markets. Investment bankers are the major players.
Manipulations in share markets have become order of the
day. Management is more concerned about its hourly report
of its share prices but not the hourly report of production and
sales. SEC has lost all its controls over the stock markets.
Rating Agencies are not controlled by SEC or any other
regulator effectively. They have created ‘make believe’
world. When the market was booming every body played in
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the hands of the market. No body stood up and applied the
break. The losers in the stock markets are small investors.
The big players fish even in the muddy water of collapsed
market. Latest Fraud of $ 50 billion Ponzi schemes
committed by Madoff is the biggest fraud in the world. Fraud
of this size does not happen overnight. This has grown over a
period of few years. Why the regulatory authorities did not
question Berni Madoff? Being a past chairman of NASDAQ,
he was aware of all manipulation skills.
Corporate Governance:
126
These ‘Too big to fail’ corporations seems never practiced
this well known management practice called Corporate
Governance. US being the land of this well known
management practice, its corporations failed in implementing
corporate governance which ended up in huge socio
economic loss to US and other countries.
Risk Assessment
127
make it very difficult to come with large stress scenarios and
get management to consider them to be creditable.
Compliance Mechanism:
Corporate governance, risk assessment and compliance are
the well known GRC triad. Compliance with rules and
regulations of the regulatory bodies is a mandatory
requirement in the interest of the stakeholders at large. The
investment bankers invented ways to go around the
compliance requirement thereby failing this important
mechanism of safety. The regulators like Federal Reserve
and SEC were watching this as if they were helpless.
Fraud-is-a-fraud-is-a-fraud:
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investors and tax payers will pay the price for the fraud not
committed by them.
Federal Governance:
133
Political Economy of
Global Financial Crisis and Europe
134
production units engage in free market exchange of
goods and services with one another as well as with
final consumers, e.g. mid twentieth century
Yugoslavia, Two more theoretical models are Prabhat
Ranjan Sarkar's Progressive Utilization Theory and
Economic democracy.
Public Enterprise Participatory Planning, an
economy featuring social ownership of the means of
production with allocation based on an integration of
decentralized democratic planning. An incipient
historical forebear is that of Catalonia during the
Spanish revolution. More developed theoretical
models include those of Karl Polanyi, Participatory
Economics and the negotiated coordination model of
Pat Devine.
Western Europe
135
Nevertheless, many Western European countries tried to
restructure their economies away from a pure capitalist
model. Elements of these efforts persist throughout Europe,
even if they have repealed some aspects of public control and
ownership.
136
Redistribution of wealth, typically by progressive
taxation of high earners.
Minimum wages, employment protection, and trade
union recognition rights for the benefit of workers.
There were a number of different models of
protection and trade union protection which evolved.
Germany, for instance, appointed union
representatives at high levels in all corporations and
had much less industrial strife than the UK, whose
laws encouraged strikes rather than negotiation. The
objectives of these policies were to redistribute and to
help produce full employment.
National planning or state capitalism for industrial
development.
Demand management in a Keynesian fashion to help
ensure economic growth and employment.
138
Although New York and London are pre-eminent, other big
cities play important international roles of their own. Some
have prospered as the financial capitals of big national
markets (Tokyo and Sydney) or the gateways to emerging
regions (Hong Kong, Singapore and Dubai). Others have
found success in niches. These include Geneva (private
banking), Zurich and Bermuda (insurance and reinsurance),
Chicago (futures and options), Qatar (infrastructure finance)
and Bahrain (Islamic finance). Yet many of these too are
trying to diversify.
Governments are paying more attention than ever to wooing
and keeping financial firms because of the benefits they
bring with them, such as highly paid jobs, large tax revenues
and international connections. In New York and Hong Kong
the financial sector accounts for more than one-third of total
city tax revenues. In smaller centres it often makes up a large
chunk of total employment.
Aside from the political and economic gains to the host
countries, economists and investment banker point to two
wider benefits from having a range of financial centres
around the world. One is the increase in overall liquidity as
new countries and regions become integrated into the global
financial system. The second is increased efficiency as
competition between centres drives down the cost of trading
and other financial transactions. New and developing
financial centres are knocking down protectionist barriers
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and emulating the regulatory practices of the more
established hubs.
Two-way traffic
The rivalry between New York and London is merely the
most tangible sign of a booming transatlantic business in
financial services. Both centres benefit from their
interconnection with each other, as well as with the rest of
the global financial network. Financial flows between
America and Europe have surged in recent years, propelled
by forces such as mergers and acquisitions and alternative
investments. America’s big pension funds and other
institutional investors are still some of the biggest investors
in Europe’s hedge-fund and private-equity markets. Many
financial transactions in London are denominated in dollars.
And as American exchanges have increased their business in
Europe, their European counterparts-first Deutsche Borse’s
derivatives arm, Eurex, and more recently Euronext’s LIFFE
exchange-have been trying to grab a bigger share of
American securities trading.
The 2001 attacks also helped to change the way America
thought about regulation. Coupled with financial scandals
such as that over Enron, the events increased political
pressure for acting on potential abuses by executives and
greater scrutiny by investors. At the same time Eliot Spitzer,
then New York’s attorney-general (and now its governor),
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embarked on a mission to hunt down financial wrongdoing
in corporate and financial markets. His zeal won over many
consumers in New York, but it did not go down well in
international capital markets.
A string of reports released earlier this year-by groups
ranging from McKinsey, a consultancy (at the behest of Mr.
Bloomberg and Senator Charles Schumer) to the pro-
business US Chamber of Commerce has pointed to problems
in America’s capital markets ranging from regulatory
scrutiny to accounting standards and obstacles to
immigration. The worry is that rival hubs, notably London,
are attracting some of the financial business that New York
would like for itself. “Facts are facts,” says Mr. Doctoroff of
the reports, which involved extensive interviews with chief
executives of big financial firms. “Few people are disputing
the analysis we’ve done.” But many of the changes
suggested by the reports will need to come from
Washington, DC, where America’s regulators sit.
Three things that changed the system
John Thain, head of the New York Stock Exchange, notes
three key trends in the evolution of modern exchange,
demutulisation, diversification and globalization. These are
already having a profound effect on the global financial
system -and are linking financial centres more closely
together than ever before.
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Demutualisation is an industry term for the end of market
ownership by a small, privileged group of “seat owner”. Seat
ownership typically confers not only the right to trade but
also a say over the way an exchange is governed.
The second trend, diversification, means the exchanges are
trading a broader range of products. For most of their
history, stock markets traded companies’ shares in the
countries of regions where they were based. Derivatives
exchanges grew up offering contracts for the future delivery
of commodities that were often produced, imported or
widely traded nearby. These days exchanges trading
derivatives are highly imaginative in creating new products.
They have expanded well beyond commodities to offer
contracts tied to anything from foreign currencies to the
weather.
The third trend, globalization, is really another sort of
diversification. This can involve the listing of foreign shares
or depository receipts, alliances to exchange information or
technology, or cross-border mergers. By reaching across
national boundaries, exchanges are offering their customers a
new mix of products as well as reducing costs and increasing
profits. However, as in any cross-border merger they run the
risk of over-complexity and integration difficulties. They
also expose themselves to issuers who may not be governed
by the robust accounting standards of the world’s leading
financial centres.
142
Whereas financial markets have undergone huge changes,
regulation has often lagged behind.
Financial innovation has proceeded at a head-spinning rate in
recent years. Hedge funds have ballooned to account for
more than $ 1.3 trillion in assets worldwide. They also bear
some responsibility for the growing volatility of global
financial markets and pose difficult questions for regulators.
Complex new products that are created in one financial
centre involve assets in another and are sold to investors in a
third, so who is supposed to keep an eye on them?
“It’s almost a virtual system,” says one regulator in a leading
financial centre. Increasingly capital markets are racing
ahead of the regulators, which remain rooted in their national
systems, thus creating problems for financial firms straddling
borders. Technology may have made electronic transactions
faster and cheaper than ever, notes an international banker,
but it is also making regulatory barriers less visible to clients.
That lack of visibility raises worriers over risk, too. Many
argue that risk is now dispersed more widely than ever
before, across geographical areas, financial institutions and
investors. This dispersion, the argument goes, allows the
financial system to absorb the stresses of a rapidly growing
system.
Others are less certain. It is hard to know exactly where the
risks are when they have been divided up, repackaged and
sold off. This may seem a concern only for financial
143
institutions and large investors. But with a growing number
of individuals exposed to capital markets from Americans
through their mutual funds and retirement accounts to small
investors in Shanghai taking out loans to buy shares-
governments cannot afford to ignore those risks.
It is up to regulators, who are generally appointed by and
report to government, to sort out the balance, but the
complexities of rapid trading, particularly across multiple
borders and asset classes, are stretching the capacity of even
the most sophisticated regulators.
145
significant role in the global economy, given its large Gross
Domestic Product and the financial importance that its
capital, London, possesses in the world.
Statistics
146
Labour force 31 million (includes unemployed) (2007 est.)
External
Public finances
147
Revenues $0.97 trillion (2007)
FRANCE :
148
Despite significant liberalisation over the past 15 years, the
government continues to play a significant role in the
economy: government spending, at 53% of GDP in 2001, is
the highest in the G-7. Labour conditions and wages are
highly regulated. The government continues to own shares in
corporations in a range of sectors, including banking, energy
production and distribution, automobiles, transportation, and
telecommunications which differs from countries like the
U.S or U.K where most of these companies are privatised.
Statistics
Unemployment 8%
External
150
Import goods machinery and equipment, vehicles,
crude oil, aircraft, plastics, chemicals
Public finances
Source : Wikipedia
GERMANY:
151
German macroeconomic expansion. Germany is a strong
advocate of closer European economic and political
integration, and its economic and commercial policies are
increasingly determined by agreements among European
Union (EU) members and EU single market legislation.
Germany uses the common European currency, the Euro,
and its monetary policy is set by the European Central Bank
in Frankfurt, Germany.
152
Financial Services
Statistics
154
GDP per capita $31,400 (2006 est.)
Unemployment 7.3%
External
155
Belgium 5.3%, Spain 5% (2007)
Public finances
156
Global Financial Crisis: Impact on Europe
157
Germans are frightened by global financial turbulence are
turning to therapists, running to their banks. The hyper
inflation of the 1920s Weimar Republic that wiped away
their assets and paved the way for Adolf Hilter’s rise is
deeply embedded in the hearts and minds of Germans as is
the loss of wealth from World War II and Post War currency
reform.
2008 Recession
160
France BNP Paribas 104
Ireland Bank of Ireland 102
Belgium KBC 102
Ireland Allied Irish 99
UK HSBC 98
Source : financialtimes.com
They did right things which their competitors did not. They
did conservative, ‘boring business’ (traditional banking)
during the decade of financial engineering frenzy.
Banco Santander:
161
13,500 branches – the world’s biggest international
retail network.
No exposure to investment banking and funds itself
with predictable long term bonds.
Sold its real estate property before Spain’s bust.
HSBC
162
“If you do not know your customers very well don’t
lend them any money”
“If you do these things, you will be a better banker,
my son”.
Political Economy of
Global Financial Crisis and China
‘Let China Sleep, for when she awakens she will shake
the world’
Napoleon Bonaparte.
163
probably this may happen faster. The European economies
and US are facing recession and may slip in to depression.
Maoism
164
to as 'Maoism'), was adopted by many of these groups. After
Mao's death and his replacement by Deng Xiaoping, the
international Maoist movement diverged. One sector
accepted the new leadership in China; a second renounced
the new leadership and reaffirmed their commitment to
Mao's legacy; and a third renounced Maoism altogether and
aligned with Albania.
Since the late 1970s and early 1980s, the economic reforms
initially began with the shift of farming work to a system of
household responsibility to start the phase out of
collectivized agriculture, and later expanded to include the
gradual liberalization of prices; fiscal decentralization;
increased autonomy for state enterprises that increased the
authority of local government officials and plant managers in
industry thereby permitting a wide variety of private
enterprise in services and light manufacturing; the
foundation of a diversified banking system but with
overwhelming domination by state banks; the development
of stock market; the rapid growth of the non-state sector, and
the opening of the economy to increased foreign trade and
foreign investment. China has generally implemented
reforms in a gradualist fashion, although there is increasing
evidence that state control was increased in the 1990s, the
sale of equity in China's largest state banks to foreign
investors and refinements in foreign exchange and bond
markets in mid-2000s. As its role in world trade has steadily
grown, its importance to the international economy has also
increased apace. China's foreign trade has grown faster than
its GDP for the past 25 years. China's growth comes both
from huge state investment in infrastructure and heavy
166
industry and from private sector expansion in light industry
instead of just exports, whose role in the economy appears to
have been significantly overestimated. The smaller but
highly concentrated public sector, dominated by 159 large
SOEs, provided key inputs from utilities, heavy industries,
and energy resources that facilitated private sector growth
and drove investment, the foundation of national growth. In
2008 thousands of private companies closed down and the
government announced plans to expand the public sector to
take up the slack caused by the global financial crisis in the
capitalist world.
167
additional effort resulted in making 14 coastal cities and
three coastal regions "open areas" for foreign investment. All
of these places provide favored tax treatment and other
advantages for foreign investment. Laws on contracts,
patents, and other matters of concern to foreign businesses
were also passed in an effort to attract international capital to
spur China's development. The largely bureaucratic nature of
China's economy, however, posed a number of inherent
problems for foreign firms that wanted to operate in the
Chinese environment, and China gradually had to add more
incentives to attract foreign capital.
168
most significant was a proposal to provide protection for
private property rights.
Regulatory environment
171
administers the accounts, payments, and receipts of
government organizations and other bodies, which enables it
to exert thorough supervision over their financial and general
performances in consideration to the government's economic
plans. The PBC is also responsible for international trade and
other overseas transactions. Remittances by overseas
Chinese are managed by the Bank of China (BOC), which
has a number of branch offices in several countries.
External Trade
China's global trade exceeded $2.4 trillion at the end of 2008. It first
broke the $100 billion mark in 1988, $200 billion in 1994, $500 billion in
2001 and $1 trillion mark ($1.15 trillion) in 2004. The table below shows
the average annual growth (in nominal US dollar terms) of China’s
foreign trade during the reform era.
173
2007 +25.6% +20.8% +23.4%
Source : Wikipedia
174
time, the share of many other Asian countries' imports to the
United States fell, from 39% in 1996 to 21.1% in 2005.
Foreign investment
176
industries, while leaving China's services sectors
underdeveloped. From 1993 to 2001, China was the world's
second-largest recipient of foreign direct investment after the
United States. China received $39 billion FDI in 1999 and
$41 billion FDI in 2000. China is now one of the leading FDI
recipients in the world, receiving almost $80 billion in 2005
according to World Bank statistics. In 2006, China received
$69.47 billion in foreign direct investment.
Statistics
177
GDP (PPP) $7.099 trillion (ranked 2nd)
(2007)
Domestic 9.3%
demand growth
(2002-06 av)
178
(2007-12-20) 4.14%
One-year lending rate: 7.47%
Population 10%
below poverty
line (2004)
Industrial 22.9%
production
growth rate
179
(2006)
180
abroad (2006)
Commercial 6.7%
bank prime rate
(%; year-end)
(2007)
Trade
181
Imports (2007) $904.6 billion f.o.b.
Public finances
182
Expenditures $515.8 billion; including capital
(2006) expenditures of $NA
Source : Wikipedia
Business Environment:
Number of days to start business: 48 days.
Enforcing debt contract: 241 days.
To register the property: 32 days.
According for funds : 40 days
Resolving insolvency: 2.4 years.
Investment rate is 45% for 9.5% GDP growth.
Cost of capital i.e., interest rate is 4.5%.
Power cost just Rs. 2 per unit.
In engineering China’s productivity is 1:6 times that
of India. China enjoys 20-40% cost advantage over
India.
183
In IT and ITEs labour cost is 19% of US hourly
labour cost. Whereas it is 12% in case of India.
Extremely good physical infrastructure.
Highly investor friendly environment.
184
China : Biggest Creditor of US
Political Economy of
Global Financial Crisis and India
188
economy and transformed it into a fast-growing economy
with a growth rate of 9% in 2007.
India remains one of the poorest countries in the world. Although the Indian economy has grown steadily
over the last two decades; its growth has been uneven when comparing different social groups, economic
groups, geographic regions, and rural and urban areas. Unemployment rate is 7.2% (2007 estimate). The
percentage of people living below the new international poverty line $1.25 a day (PPP, in nominal terms
Rs 21.6 a day in urban areas and Rs 14.3 in rural areas in 2005) decreased from 60% in 1981 to 42% in
2005.. 85.7% of the population was living on less than $2.50 (PPP) a day in 2005, compared with 80.5%
for Sub-Saharan Africa. Even though the arrival of Green Revolution brought end to famines in India,
half of children are underweight, one of the highest rates in the world and nearly double the rate of Sub-
Saharan Africa.
Statistics
189
Labour force agriculture: 60%, industry: 12%, services: 28%
by occupation (2003)
External
Public finances
190
Expenses $172.6 billion (2007 est.)
Source : Wikipedia
Demography
INDIA CHINA
Population 1110 mn 1312 mn
Middle Class 50 mn 150 mn
Illiteracy 35.2% 24% (2003)
(2004)
Unemployment 9.9% (2005) 4.2% (2000)
Life expectancy 65 Years 71 Years
Pool of young university 14 million 9 million
grads
Active population engaged in 58% (2007) 47% (2007)
Agriculture
Daily News Paper (Per 1000) 60 59
Television (Per 1000) 320 890
Telephone (Per 1000) 45 269
Mobile Phones (Per 1000) 82 302
Personal Computers (Per 16 41
1000)
Internet users (Per 1000) 55 85
Business Environment INDIA CHINA
To start business 71 days 48 days
Registering Property 67 days 32 days
Arranging for funds 90 days 40 days
191
Resolving insolvency 10 years 2.4 years
Entering debt contract 425 days 241 days
Investment rate 29% (to 45% (to
achieve 8% achieve 9.5%
GDP) GDP)
Sources : Outlook Business
192
31.3.2005. Majority of this investment is in power and
transport sector. The total investment in public sector
undertakings (department and non department ) at the centre,
state and local level is Rs. 7,52,240 crores. In a developing
country like India this huge investment naturally attracts
attention because this money belongs to the public. Hence
optimum utilisation should be made or otherwise it can be
put to better use for providing basic necessities, upliftment of
the poor and other areas where the public is really benefited.
So, it casts an onerous duty on the Government to act swiftly
to stop further wastage of public money at the cost of human
and social development
Government having realised this made many attempts to
improve the performance of public sector in the last 10 years
but has miserably failed. In 1990, the investment in central
undertakings was Rs. 99,330 crores. But shockingly within
12 years i.e., by 2002 it was Rs. 3,24,614 crores.
193
highest at 51 percent followed by service CPSEs at
40 percent, mining CPSEs at 7 per cent.
The overall growth in turnover of CPSEs was 11.86
percent. The growth in the turnover of heavy
engineering and construction services’ group was the
highest at 39 per cent during the year.
In terms of capacity utilization, 51 percent of all
CPSEs operated at 75 percent or higher; 16 percent at
50-75 percent and the residual 33 per cent at less than
50per cent.
CPSEs had a near monopoly in the production of coal
(85.52 per cent), crude oil (85.87 per cent) and
petroleum refining (74.51 per cent). The aggregate
reserves and surpluses of all CPSEs went up to Rs.
3,59,077 crore.
The long term loans of CPSEs went up to Rs.
3,61,714 crore.
The accumulated losses of all CPSEs declined by
Rs.10,578 crore from Rs.83,725 crore in 2004-05 to
Rs.73,147 crore.
While the petroleum producing CPSEs ranked among
the top ten profit-making CPSEs were generally the
loss-making ones.
44 CPSEs are listed on the domestic stock exchanges.
While the shares of MTNL (ADR) are listed on the
194
New York Stock Exchange, the shares of GAIL and
SAIL are listed on the London Stock Exchange.
In net value addition of CPSEs at market prices, the
shares of ‘taxes and duties’ was the highest at 45 per
cent, followed by ‘net profit’ (26 per cent), ‘Salaries
and Wages’ (19 per cent) and ‘interest (9 per cent).
At end-March, 2006, the 239 CPSEs employed over
16.49 lakh people excluding casual workers. The
comparable figures in the previous four years were
19.92 lakh, 18.66 lakh, 17.00 respectively.
Source: Department of Public Sector Enterprises.
INDIA’S TOP 10 PRIVATE SECTOR COMPANIES
BY VALUE
Rank Company Value in Rs.
Crores
1 RIL 3,07,207
2 Bharati Airtel 1,48,728
3 Infosys 94,931
4 REL Communication 88,940
5 DLF 79,307
6 TCS 78,780
7 L&T 73,241
8 ICICI Bank 73,213
9 ITC 71,946
10 RPL 70,911
195
Based on market cap between April and Oct. 2008.
Source : Business World, November 30, 2008
196
State Bank of India 89,816.6 58,437.4 6,729.1
Bharat Heavy 76,935.8 23,463.5 2,859.3
Electricals
Steel Authority of 58,478.5 47,454.8 7,536.8
India
Indian Oil Ocrpn. 47,046.4 2,74659.6 6,961.7
Power Grid Corpn. 37,962.4 5,197.0 1,429.2
GAIL (India) 32,360.7 19,189.6 2,601.5
National Aluminium 25,607.8 6,053.0 1,631.5
Co.
Neyveli Lignite Corpn 18,150.8 3,743.4 1,098.9
Hindustan Copper 17,258.2 1,950.1 246.5
Punjab National Bank 14,847.6 16,291.5 2,048.8
Power Finance Corpn. 14,621.2 5,056.9 1,206.8
Bank of India 14,499.5 14,472.1 2,009.4
IDFC 13,503.5 2,588.0 669.2
Bharat Petroleum 11,445.7 1,23,250.3 1,580.5
Corpn.
Mangalore Refinery & 11,115.2 37,725.0 1,272.2
Petrochemicals
Container Corpn. Of 10,618.3 3,514.2 752.2
Ind
Source : Business World, November 30, 2008
197
STRENGTHS OF PRIVATE SECTOR
(i) Profit motive is the greatest strength.
(ii) Thrives in competition
(iii) Responds to market changes immediately. Fast
decision making.
(iv) Better productivity & cost controls.
(v) Efficient work culture and team spirit.
(vi) Free hand in dealing with employees.
(vii) Rewards efficiency and punishes inefficiency.
199
IV. The role of regulator is the most important one in the
privatisation process and privatised sectors. The
government should act as regulator by creating
independent regulatory authorities.
V. The experience of 20th century from Adam Smith to
J.M. Keynes to Margaret Thatcher proves that the
role of government in the economic development is
changing. In the first phase the role is that of creator,
initiator for the development. In second phase it is
the role of competitor with private sector. In the third
phase it is the complementary role or supportive role
to private sector. This can be compared to Hindu
Mythology i.e., role of lord Brahma, Vishnu,
Maheshwara. Lord Brahma is the creator, Lord
Vishnu is the protector and Lord Maheshwara is the
destroyer. In the first phase the government should
create a strong role for public sector (dominant role
in comparison with private sector i.e. “commanding
heights”) in the second phase as protector it should
develop and nurture private sector to take over and in
the third phase, reduce the role of the public sector
and play the role of regulator.
Public Sector:
1) India being a developing country, Government has an
important role to play in the economy.
2) Public sector in India has served the purpose for which it
was initiated through Industrial Policy Resolutions.
3) Indian public sector lost its purpose and focus when it
entered in to the area of manufacturing consumer goods
and service sector like hotels.
203
4) Public sector has become a political tool in the hands of
politicians. It has lost economic sense due to excessive
political interference.
5) Bureaucratisation has robbed the public sector
undertakings of its managerial talent, created sycophants,
rule ridden setup, non-responsive approach to consumers
and competition.
6) Public sector in India is in a state of coma due to lack of:
commercialisation, incentives for efficiency,
disincentives for inefficiency, technological upgradation,
funds to invest in expansion and upgradation and
political will to take economic decisions in the interest of
the undertaking as well as the country as a whole.
Private Sector:
1. Indian private sector has grown substantially compared
to its size and spectrum five decades back.
2. The licensing raj, draconian laws, lack of level playing
ground between public and private sector, lack of
availability of funds through capital markets were the
main reasons for the slow growth of private sector.
3. Family controlled industrial houses on one hand and fund
starved small-scale sector on the other dominate private
sector in India.
204
4. Family controlled industrial houses have not nurtured
managerial talent to occupy the top positions. The
decisions are often personal and whimsical to suit the
dominating family members. Family disputes have
affected the growth very badly.
5. Even though the small scale industries have contributed
substantially for employment and exports, they have
remained low tech due to lack of funds, scale of
operations make them unviable in the long run. Sufficient
managerial talent is not available with SSI and many
large industrial houses exploited these units for their
growth.
6. Sickness in private sector (large and small scale sector) is
alarming. Huge funds of public sector banks and public
is locked up in these sick units.
7. Private sector in India except in few cases is not known
for honesty, integrity and fair play in dealing with
consumers, employees, investors, government, bankers
and creditors.
8. Regulatory agencies have not discharged their duties
without fear or favour.
205
Global Financial Crisis – Impact on India
207
The Fall Out.
208
Goods for US are not getting cover from ECGC
(Export Credit Guarantee Insurance Corporation) or
ECGC is placing restriction on cover to single buyer
exports on fears that several US companies many fail
to pay up.
Many corporates which had rushed to take dollar
loans during the past few years are sitting on huge
mark to market losses because of sharp currency
movements. For the fiscal ended March 31, 2008,
Indian Corporates had borrowed $ 30.95 bn overseas.
Indian companies will find it hard to raise capital in
international debt equity markets.
If the crisis spills over to India’s real economy, there
is a danger of lower consumption, investment
declaration and slower job creation, even as inflation.
Fall in oil and commodity prices has benefited India.
210
6
211
authorities were set up to provide mass education to those
neglected by the private schools. Finally, to ensure a low
cost, reliable service, public utilities were established by
local councils providing public transport, water, gas and
electricity supply.
214
Public Sector Reforms In Britain
Thatcherism : Political Economy of Privatisation
215
Margaret Thatcher was not satisfied with these measures.
She thought unless the companies are wholly privatized,
these adhoc measures will not yield long term results. The
projective and methodology of British Privatization is well
explained by Mrs. Thatcher, the Champion of British
Privatization in her biography ‘MARGARET THATCHER –
THE DOWNING STREET YEARS’ “Privatization, no less
than the tax structure, was fundamental to improving
Britain’s economic performance. But for me it was also far
more than that: it was one of the central means of reversing
the corrosive and corrupting effects of socialism. Ownership
by the State is just that – ownership by an impersonal
legality: it amounts to control by politicians and civil
servants; and it is a misnomer to describe nationalization as
the labour party did, as ‘public ownership’. But through
privatization particularly the kind of privatization which
leads to the widest possible share ownership by members of
the public – the state power is reduced and the power of the
people enhanced”.
216
The drive of the three Thatcher Governments of the 1980’s
towards the commercialization and privatization of the
public sector has much more to do with ideological belief
than economic analysis and comparative assessment of
performance. The government regarded privatization a priori
as serving multiplicity of self reinforcing objectives,
economic freedom: The management of privatized
corporations would be free to invest in market opportunities
and the consumer free to choose; efficiency : the disciplines
of the product and capital market and the profit incentive
would enhance the pursuit of enterprise efficiency; Wider
Share Ownership : Privatization would promote popular
capitalism by dispersing shares widely.
Electricity
218
prices is published for this service. The regulations are in
the form of a price-cap.
220
alleged to have abused its monopolistic position then its
regulated activities may be investigated by Ofgas and its non
regulated activities, which are subject to the general rules of
competition policy by ‘Monopolies and Mergers
Commission. RPI –X was based on the recommendations of
Mr. Little child who envisaged such a regime of temporary
nature, saying: ‘Regulation is essentially a means of
preventing the worse excess of monopoly; it is not a
substitute for competition. It is a means of “ holding the fort”
until competition arrives (Little child)
221
Privatization Of Water Industry
222
on meter consumption as is the case with industrial and
commercial property.
224
essentially a means of preventing the worse excess of
monopoly; it is not a substitute for competition. It is a means
of holding the fort until competition arrives.” (Little Child )
225
industry’s evolution. The initial idea that regulation of the
utilities would wither away as competitive forces emerged
has turned out to be something of an illusion.
226
The question of whether any short and medium term
efficiency gains are sustained for any length of time remain
an open one. Anyway, the frequent intervention of the
regulators has clearly been a crucial factor in maintaining the
responsiveness of the privatized monopolies to customer
concerns. Anxieties concerning the behavior of privatized
monopolies supplying vital utilities to the public have not
been entirely assuaged. The UK privatization programme has
frequently been presented by politicians, industrial
consultants and by some academicians as a resounding
success and a major contribution to the revival of the
economic fortunes of the country. More analytical and
critical assessments have emerged particularly the influential
study of Vickers & Yarrow. However, much of the focus
within the economics literature has been upon the failure of
privatization policy to achieve the efficiency and
performance gains possible due to the failure to introduce
effective competition by restructuring public sector
monopolies into competitive concerns as an essential part of
privatization process.
Abromeit
Thomson
228
The government turned towards more overtly supply-side
policies. In this context the proceeds from the privatization
programme could be used to offset other expenditure and
finance the government’s tax reduction aspirations – all this
and the PSBR continuing to be reduced or becoming a
surplus. Thus the financial objectives changed somewhat, to
providing room for desired tax cuts in the name of their
supposed supply-side incentive effects.
Thomas Clarke
229
nationalized status and the only why to relax them would be
to set the industries ‘free in the market place’, life
unnecessarily unpleasant for the nationalized industries thus
became a convenient spur to a change in management
attitude towards denationalization. Nationalized industry
directors were prepared to do anything the government
required, as long their corporations were allowed to retain
their monopoly position.
Pliatzky
230
Competition And Efficiency
Prosser
Kirk Patrick
Cleggard Dunkerley
231
Max Weber and many other organization theorists have
argued.
Gretton et al
233
might be suggested significant loss to the public
purse of valuable assets that this difference represents
which were sold off cheaply in order to ensure the
privatization programme succeeded.
235
(II) The turn around may not have been through the hard
work of reducing costs, improving quality and
expanding sales. Cruder but effective devices such as
increasing prices, selling-off assets, reducing
manpower and cutting unprofitable services were
available as these companies capitalized on their
monopoly positions. Thus one survey of the
literature concludes, ‘a common consequence of
privatization is increased prices to customers’
(Marsh). If they had abandoned their commitments
to social responsibility, the former public
corporations could have recorded higher profits by
precisely these means at any time, though whether
this would have benefited the wider economy or
society is open to question.
236
their prices or failing to reduce prices by what
efficiency gains allowed; and the harmful effects
upon the performance of the rest of the industry of
having to pay higher prices for basic utilities.
5. Retention Of Shareholders
CLARKE
Massive inflation of the number of shareholders appears to
be very temporary phenomena. It is revealed that the
percentage of original shareholders who retained their shares
is an average significantly below the 66 percent claimed by
the government, and since this data was compiled by Bishop
and Kay in 1988 has drifted down towards 40 per cent
retention over all. The majority of those new shareholders
quickly disposed off their investment having secured the
benefit of the initial discount, and the government realized
that the number of shareholders could only be sustained at
this inflated level by the repeated issue of massive amount of
shares in new privatization. With the loss of several million
shareholders each year, eventually the government would
run out of public assets to privatize, at which point there was
real danger The number of shareholders would gradually
collapse back over a period of years in the direction of the
original figure.
237
6. Distrubution Of Shareholding Pattern
Marsh
238
Despite appearances to the contrary, the impact of
privatization has not served to reverse this trend: a great
majority of privatized shares have ended up with the
financial institutions. As a result of privatization there has
been a widening but not a deepening of personal share
ownership in the UK.
Buckland
7. Consumer Democracy
239
billion up 43% on 1991. Similarly in the water and telecom
industries rapidly escalating prices were accompanied by an
explosive growth in profits. In the mid 1980s BT faced
mounting public complaints about quality of service and
made only hurried efforts in 1987/8 to repair the 23 percent
of phone boxes out of order when offered entry in to the
phone box network; though they were only interested in the
prime city centre sites. Public disillusionment with BT
spread when it increased domestic tariffs where the
likelihood of competition was slight due to the extent of sunk
investment in order to reduce business tariffs, a market in
which Mercury were interested in. The worry about
privatization was the effect upon the quality and range of
provision, and access to it, as the elimination of cross
subsidization undermined a comprehensive service. These
tendencies have reached an extreme in the market based
society of the United States, whereas Goodman and
Loveman suggest, private sector managers may have no
compunction about adopting profits making strategies or
corporate practices that make essential services unaffordable
or unavailable to large segments of the population. A profit
seeking operation may not, for example, choose to provide
health care to the indigent or extend education to poor or
learning disabled children. (Goodman and Loveman)
240
The fear of the consumer bodies is that privatization of vital
utilities of water, gas, electricity and telephone will seriously
threaten the most vulnerable sections of the society as
directors demand higher profits and shareholders higher
dividends, both taking precedence over service, with falling
standards, higher prices and greater number of
disconnections. The worst fears of National Association of
citizen’s Advance Bureau were realized in 1991/2 with an
increase in water disconnection. With the evidence of
dysentery breaking out among those without a water supply
for washing and toilet facilities, Ian Gregory has claimed it is
clear why the 1985 Housing Act dubs any house without a
water supply as being unfit for habitation. But with ofwat
and the DSS doing too little to hate the water companies,
monopoly suppliers of the most essential commodity, seem
set to extend the drought to more of Britain’s poor.
Not only wages, but job security and conditions did not fare
quite so well in these industries, and the impact on the
morale of directors looking after themselves, whilst
neglecting the welfare of other employees should not be
242
under estimated. Invariably these were the same directors
who had managed the public enterprises prior to
privatization.
243
have increased. Those workers who have been subjected to
harshest changes have been the once affected by contracting
out of work from the public to the private sector. Often they
have found they have had to compete with others for the
work they were already doing, and the only way they have
been able to remain in employment in by accepting much
lower wages, more work and worse conditions.
244
Economy of Privatization’ the usefulness of the UK model
for other countries to adopt. According to him there was little
coherence or consistency to the UK governments approach
to privatization, and although it amounted to a fundamental
change in economic direction it was secured at some cost and
the strategy did not achieve what was claimed in terms of
transforming the efficiency of industry. The apparent success
in creating a shareholder democracy could prove a limited
and temporary phenomenon, there is little guarantee
consumers will benefit from the switch of public utilities to
the private sector and employees have not enjoyed the
benefits from the change which their directors have awarded
themselves. If privatization is not as successful as officially
insisted and if future privatization in the UK are likely to
prove more difficult to implement than greater emphasis may
be placed upon achieving a transformation of the remaining
public sector to attain more efficiency and customer
responsiveness. The solution to current economic and
organizational problems in the public sector does not lie
simply with the resort to private ownership and the market
system.
245
7
So far so bad:
246
Japan Recession Worsens
Japan sank deeper into recession with industrial output
tumbling and inflation slipping in to almost zero. Industrial
production fell a record of 9.6% in December 2008, with
companies forced to cut output as demand for their cars,
electronics and machinery waned.
US Economy Shrinks
US economy shrank at its fastest pace in nearly 27 years in
the fourth quarter, 2008 as the consumers and business cut
spending. The advance report from the commerce
department showed consumer spending which accounts for
two thirds of US economic activity fell 3.5% in the fourth
quarter, 2008.
247
Global Pensions lose $ 5 trillion in 2008
Global pension fund assets in the 11 major pension markets
fell by $5 trillion in 2008 hit by volatile markets, a Watson
Wyatt report said that over 2008, global pension assets fell to
$ 20 trillion from $ 25 trillion, a fall of 19% which took
assets below 2005 levels.
IMF Forecast
Britain is facing the deepest recession of any being
industrialized economy and the UK economy would
shrink 2.8% in 2009.
World economy would suffer its worst performance
for more than 60 years in 2009.
The world out put measured at market exchange
rates, would fall in 2009 for the first time since the
second world war.
Forecast for UK is 1.5 percentage points below its
previous estimate. Britain will grow by only 0.2
percent in 2010.
The US economy is forecast to contract by 1.6
percent, the euro zone by 2 percent and Japan by 2.6
percent.
Growth in Arab Gulf states will almost halve from
6.8 percent in 2008 to 3.5 percent in 2009.
248
ILO Forecasts – International Labour Organisation.
Recorded unemployment could rise by more than 50
million from baseline 2007 levels to 230 million or
7.1 percent of the world’s labour force by the end of
2009.
In the same scenario number of people in “working
poverty” earning less than $ 2 a day, could rise to 1.4
billion or 45 percent of all workers, from 1.2 billion
in 2007.
This would leave as many people below the poverty
line as there were in 1997, wiping out all the gains
over the past decade and marking a return to a
situation in which more than half of the global labour
force would be unemployed or counted as working
poor”.
249
The stock market crash, real estate downturn, job loss are
increasing the number of suicides. The recent incident of
Eervin Antorio lupoe of Los Angles killing self and wife
along with lovely 5 children is extremely disturbing.
251
Political Fallout
252
nationalizing banks as if it is a socialistic country and is
bailing out companies instead of allowing them to wind up.
If this is the state of affairs in USA, then one can imagine the
nationalistic fervor or retaliation measures in other countries.
253
France is paralyzed by a wave of strike action, the
boulevards of Paris resembled a debris strewn battle field.
The Hungarian currency sank to its lowest level ever against
euro, as the unemployment figure rised. Greek farmers
blocked the road leading to Bulgaria in protest against low
prices for their produce. Now figures from the biggest bank
in the Baltic show that the three post-Soviet states there face
the biggest recession in Europe. In Athens, students and
young people protested against lack of jobs prospects, the
failings of the education systems. In Riga, the old Baltic
Trading City, which kicked out Russians and over threw
communism faced for the first time unruly mob of more than
10000 people. They converged at the 13th century cathedral
to show the Latvian government. It ended up in late night
rampage as a minority headed for the parliament, battled
with riot police and crashed the part of old city. The
following day there were similar scenes in Vilnius, the
Lithuanian capital next door.
After Iceland, Latvia looks like the most vulnerable country
to be hammered by the financial and economic crisis.
In Iceland it is revolution time. This country was proud of its
status as world’s most developed, most productive and most
equal societies. The IMF bailout teams have moved in with $
11 billion. The national currency, the Krona, appears to be
finished. Iceland is a test case of how one of the most
successful societies on the globe suddenly failed.
254
Macro Micro Matrix
A Step towards effective solution.
Davos Meet
Davos meet 2009 turned out to be a talk shop but not a sweat
shop. Senior advisor to Obama said that, “Our economy is
global, our crisis is global and our solutions must be global.”
Gordon Brown, Prime Minister of UK said, that “This is a
global crisis. We need global co-operation and action to cope
with it”.
Premier of the people’s Republic of China, Wen Jiabao
summed up the crisis as “This crisis is attributable to variety
of factors and the major ones are: inappropriate
macroeconomic policies of some economies and their
unsustainable model of development characterized by
prolonged low savings and high consumption; excessive
expansion of financial institutions in the blind pursuit of
profit; lack of self-discipline among financial institutions and
rating agencies and the ensuing distortion of risk information
255
and asset pricing; and the failure of financial supervision and
regulation to keep up with financial innovations, which
allowed the risk of financial derivatives to build and spread”.
256
257
258
8
Economic Patriotism
259
1776, had warned about the greediness of the businessmen
leading to exploitation of the public in free market economy.
Milton Friedman’s Capitalism with least interference from
the Government is also not realistic model according to
Nobel Laureate Krugman.
J.M. Keynes said, private enterprise economies are subject to
periodic booms and slumps in trade. During the depression
phase of cycle there is considerable waste of both human and
non-human resources. During the boom phase, inflation
produces problems of different kind followed eventually by
the collapse of the prices which accompanies the movements
of the economy in the direction of slump. Various kinds of
activity in the public sector are necessary to stabilize the
economy on a steady course of expansion at full
employment.
Economic Patriotism
‘Economic Patriotism’ is convergence or confluence of
capitalism and communism in the interest of economic
development or dominance. In this economic process of
development, developing and developed countries think alike
to gain economic supremacy. This thinking of gaining
economic supremacy is fully aided, abated, accepted and
261
acknowledged through the process of globalization. If 17th &
18th centuries were feudal economy of kings, 19th & 20th
centuries were that of capitalism and communism. The 21 st
century is going to be dominated by economic patriotism.
All “Isms” will merge and give way for economic patriotism.
The process of “ism merger” is clearly evident in the way
China bends its communism fences to let in capitalists for its
economic development and dominance. US of America and
European countries are marrying BPO and moving towards
emerging economies to maintain their economic edge over
other countries. Country like India – a developing country
dreams and declares that it is going to be an economic
superpower. All this is a reality because of Economic
patriotism.
262
The second period is that of Vascoda Gama, Columbus and
British. East India Company played an important role in the
history. As a corporate entity, it headed the economic and
military invasion. This was the period when East India
Company entered India as a trader then spearheaded as a
military arm of British. This company was totally supported
by British Government and it was probably world’s first
multinational corporation. It was a period of British
Supremacy in all fields. It had attained global supremacy.
Then came the period of German invasion through Hitler and
ended up in second World War. In this period, Germany
progressed in various scientific and technological fields.
Germany ruthlessly started claiming the racial supremacy to
achieve global supremacy. But it could not succeed to great
extent because its supremacy in economic and military was
regionalized and was not having support in world forums.
After the second world war, USA occupied centre stage in all
the fields. British power started shrinking around the world.
Sun started setting in the land where sun was never supposed
to set. USA’s progress is truly capitalistic. Many of the
companies of USA who were mainly multinational in nature
started occupying various corners in the world through their
corporate dealings. These companies were and are supported
by US Government. Many of these MNCs are bigger than
many countries in their financial strength. US became
263
superpower in economy which contributed for its military
ambitions.
During this period another gaint in Asia woke up i.e. Japan.
Japan is recognized through its well known companies like
Sony, Toyata, Honda etc these companies or the Government
of Japan flexed their corporate excellence and piled up huge
trade surplus. Japan had no military ambitions.
USSR and USA – fought bitter cold war. But due to lack of
entrepreneurial skills, lack of capital and democratic
institutional support, USSR could not effectively challenge
and succeed against USA. Breaking up of USSR made USA
Numero Uno.
In the end of 20th century the world started shrinking due to
technological developments. World Trade started becoming
order of the day. Many developing countries started getting
into the cake of developed countries. The negative aspects of
developing countries like its manpower, cheap labour started
becoming its strength. In a capitalistic, competitive world,
corporate survival is most important than any thing else. To
retain competitive edge and to occupy the top positions
corporates go to any extent. The growing market of
developing countries, cheap skilled labour, eagerness of
these governments to invite multinationals to exploit their
assets created a huge market of BPO. The developed
countries in Europe are entering into recession. In this great
corporate churning China with its productivity and India
264
with its soft skills will occupy the centre stage in 21 st
century. Capitalistic economy of USA, socialistic economy
of China and mixed economy model of India will be growing
irrespective of their political and economic model. Every
country is working towards its own economic growth i.e.,
economic patriotism is at work.
Economic patriotism is not nationalistic fervor. It is broad
based. It is a team spirit. It is not ‘beggar thy neighbor
attitude’ It is growing together. In the present world, any one
country can’t grow at the cost of other country.
266
ambitions. Its military power is also well developed. China
will tilt the power equation to Asia.
India has many advantages like democracy, judiciary, free
press, soft skills, cultural and religious freedom. Its major
drawback is self serving politicians and corrupt bureaucracy.
This will eat away all the advantages.
Even though Russia looks like a mute spectator of all the
happenings around the globe, it is not a spectator but it is an
active player. US tries to ignore Russia but it cann’t afford to
do. This reality is known to US but has no courage to accept
and reconcile to new power equation. Russia being close to
China and India geographically as well as politically it may
initiate the process of forming East Block consisting of
Russia, China, India and other Asian countries.
The nationalistic fervor goes to another extreme in case of
crisis. After 2008 crisis the countries may take extreme step
to protect their economy and may stop importing and
exporting depending on their balance of payment position.
Instead of bending the fences they may raise the fences.
Which in turn will hurt other countries.
The nationalistic fervor may also create new blocks like
European Block, Anglo Saxon Block, Asian Block, East
Block and Islamic Block. In the interest of world trade, the
leaders should see that such block formation is avoided. US
and other G-8 countries have to soften their stand in trade
negotiations and should realize that their position of strength
267
is no more in existence. This softening also has to take place
in institutions like IMF, World Bank and UN. They have to
accommodate emerging economies and make these
institutions truly representative.
‘How to fix the world’ attitude of US should be changed. If
Obama means CHANGE, that change should come in the
form of democratization of these international bodies.
Economic embargo or military action should be exercised
by these truly representative (when it happens) international
bodies but not suo mota by US. Capitalism and democracy
should not be used as a tool to enrich and strengthen US at
the cost of others. That should CHANGE. World needs
CHANGE.
References
Wikipedia
Socialistic economics
Derivative (finance)
Subprime Lending
Communism
Credit Default Swap
Bretton Woods Systems
Joseph Stiglitz
Reaganism. The legacy of the 40th US President
About the Great Depression
Great Depression in the United States
Capitalism: A Treatise on Economics – George
Reisman
John Maynard Keynes
Glass Steagull Act
Adam Smith
269
Informal Sector
Economy of India
The Indian Economy
Economy of United Kingdom
Economy of Germany
Economy of France
Economy of People’s Republic of China
Economy of United States
US Economy
Brazil Economy
France Economy
German Economy
The US Economy
China Economy
Global Economics Paper No. : 99
Dreaming with BRICs: The path to 2050 – Goldman
Sachs
Gramm-Leach-Bliley Act
Milton Friedman
Capitalism
Laissez. Faire.
Non Performing loan deal in Europe losing steam
Natural Economy
Subsistence Economy
Global Financial Crisis, 2008
270
The global economic crisis: An historic opportunity
for transformation
Emergency Economic Stabilization Act of 2008
Socio-Economic Consequences of the Global
Financial Crisis – Marilon Uy, The World Bank
News Week
December 29,2008
The Neighborhood that wrecked the world: Matthew Philips
December 2008
MARKETS can’t Rule Themselves : Joseph E. Stiglitz.
December 22, 2008
The Age of Bloomberg: Fareed Zakaria
The Fall of American Inc: Francis Fukyama
Name that Economy: Jacob Weisberg.
The Monster that ate wall street- Mathew Philips
271
December, 2008
A path out of the woods: Fareed Zakaria
Who’s watching The Money?: Michael Hirsh and Daniel
Gross
Why Beijing is in a Risky Place: George Wehrfritz
Obama’s Third Way: Fareed Zakaria
November 24, 2008
Murder at the Drum Tower: Melinda Lin.
A Risk worth taking: Daniel Gross
November 3, 2008
We need a Bank of the World: Jeffrey E Garten
October 27, 2008
The First Disaster of the Internet Age: Paul Kedrosky
600,000,000,000,000? : Barret Sheridan
Not all has been lost: Stefan Theil and William Underhill
October 20, 2008
There is a silver lining: Fareed Zakaria
Awakening from the All-American Dream: Zachary Karabell
December 31, 2007
The Rise of a Fierce yet Fragile Super Power : Fareed
Zakaria
Mao to Now: L Milinda Lin
Time
February 16, 2009
272
How to spend the stimulus: Michael Grunwald
February 9, 2009
America’s Broken Banks: Stephen Gandel
Dec22, 2008
Wanted a new miracle: Bill Powell
Small man, Big Legacy : Michael Elliott
Reassessing Risk: Barbara Kiviat
December 15, 2008
Is this Detroit’s Last Winter: Bill Saporito
The Economist
September 15th, 2007
Magnets for Money : Julie Sell
Business World
9.2.2009
Made in America : Nayana Chanda
13.10.2008
None Too Big to Fall – Srikant Srinivas
Are Bailouts Successful?
Outlook Business
5th June 2006
The Asian Century- Ashish Gupta
The Engines of Global Economy- Vivek Gupta
Making Sense of China Inc-Mahesh Vyas
273
The Confucian Consumer – A Naidu
Business Today
Nov 2, 2008
Crunch Time: Puja Mehra
October 5, 2008
After Lehman, Who’s Next? – Rachna Monga.
Economic Times
5 Feb 2009
Leash ready for fat cuts - Reuters
4 Feb 2009
UK under pressure to nationalize banks
17 January 2009
Citi Splits
26 November, 2008
Fed Launches $ 800 Billion life line - Reuters
11 November, 2008
Asia will recover faster- Interview with Kathryn A.
Mathews.
26 October 2008
London now turns against hedge fund - Coroline and Elisa
274
15 October 2008
Wall Street Crisis: Implications for India
25 October 2007
Buffett finds Chinese Stock Market too hot to handle - Zhao
Yidi & KB Cho
13 October 2008
EU works on rescue act- Reuters
8 October 2008
Dominoes: Europe first, India later – SSA Aiyar
29 September 2008
US senate sends big : spending bill to Bush
25 September 2008
China Shuns Paulson’s free market push - Zhao Yidi &
Kevin Hamlin
20 September 2008
Lessons from Global Financial Crisis- AP Parigi
London hands back finance – hub status to New York-
Mathew Lynn
19 September 2008
The party’s over in Europe too - Jill Lawless
13.October 2007
Jittery Lenders call for higher collateral - Dev Chatterjee &
R. UnniKrishnan
275
Goods for US get no cover - Maya Shetty
25 May 2007
Is it time for the US to bolt from the World Bank?-Kevin
Hassett
Times of India
6 Feb, 2009
Slump Jolts Gulf: Jobless Indians Head Back Home - S
Parshar & others
30 September 2008
$ 2289 trillion derivatives bubble busts - Subodha Varma
3 February 2009
20m migrants jobless in China- Salbal Das Gupta
29 January 2009
Man loses job, kills wife, 5 children and self
19 September, 2009
What this means for Us - MK Venu
16 April 2008
Let’s Revisit Capitalism - Arun Maira
19 November 2007
US could face $ 2 trillion shock - Sachs
276
27 October 2008
The Corporatization of greed- Santosh Desai
Business Standard
13 October 2008
The Post-crisis financial system : some concerns- Abheek
Barua
Acknowledgements
277
The manuscript was read by Dr. Chachadi, Mr. Pawate, Mr.
Ananth Hombali and others. My staff Praveen Nargund and
Vikram did an excellent job of type setting the whole book.
278
Chapter wise subject index
Political Economy
Adam Smith
Private Ownership
Tragedy of commons
Dispersed Knowledge
Residual Claimant Theory
Capitalism
J.M. Keynes
Failure of the Market
Warning from Adam Smith
Communism
Marxism-Leninism
279
The Great Depression
Roosevelt and the New Deal
Unemployment
Agriculture
Industry and Labour
Glass Steagull Act, 1933
Bretton Woods
US Dollar as Reserve Currency
International Monetary Fund (IMF)
International Bank For Reconstruction And Development
(IBRD)
Milton Friedman
Krugman
Anglo-Saxon Capitalism
Laissez-faire Economic Philosophy
Reaganism
Causes of Financial Crisis
Legal Changes
Regulators
Technological Developments
Investment Bankers
Exotic Financial Products
Credit Default Swap (CDS)
Growth of CDS
Mortgage Backed Securities
Derivatives
Growth of Derivatives
Trading Value in Derivatives Market
Super Leveraging
Sub prime Lending
Sub prime Mortgages
Sub prime Credit Cards
US Sub prime Mortgage Crisis
Credit Rating Agencies
Consumerism and Credit Culture – Heart of US Economy
Vicious Circle
The Global Fall Out
Why the Crisis is Global
280
Political Economy of Bailout Packages and Takeovers
Government Intervention
US Bailout Packages
Federal Reserve Take-over
Other Take-overs
Are Bailout Successful ?
Themes From Bailouts
Reasoning Against Bailouts
Bailout Costs
Capitalism To Nationalism
Political Economy of Reforms
Political Desirability
Political Feasibility
Political Credibility
Free Market Fundamentals
Market Critical Factors
Market Structure
Management Issues
Regulatory Authorities
Stock Markets
Corporate Governance
Risk Assessments
Compliance Mechanism
Fraud is a fraud is a fraud
Federal Governance
Top B Schools of US
Biggest Pool of Economists
IMF and World Bank
Job Loss in USA
The American Problem
United Kingdom
Global Financial Centres
New York and London Financial Centres
281
The things that changed the system
United Kingdom : Economic Indicators
France
Dirigisme and decline of dirigisme
France : Economic Indicators
Germany
Financial Services
Germany : Economic Indicators
282
Demography
Business Environment
Public Sector Undertakings
Highlights of CPSE Performance
India’s Top 10 Private Sector Companies
Top 10 Net Exporters
Top 20 Public Sector Undertakings
Strengths of Private Sector
Weaknesses of Private Sector
Role of the Government in the Economy of the Country
Privatisation: Purpose and Process
India – A Case Study for Privatisation
Global Financial Crisis-Impact on India
The Fall Out
5 Lakh workers Axed
The Gulf Party Comes to an End
Lethargy Turned into Virtue
283
Kirk Patrick
Cleggard Dunkerly
Vickers and Yarrow
Bees Leyland and Little Child
Gretton et al
Cost Benefit analysis of Raising Government Revenue
Commercial Performance
Retention of Shareholders
Clarke
Distribution of Shareholding Pattern
Marsh
Buckland
Consumer Democracy
Post Privatisation Effect on Employees
Job Security
Political Fallout
Macro Micro Matrix – A step towards Effective Solution
Davos Meet
Economic Patriotism
Capitalism at Cross Roads
284
Economic Patriotism
New Power Equation
Consequences of Economic Imbalance
285