The financial tsunami that has swept across the United States and later reverberated through much of Europe has given rise to some fundamental questions about the viability of the American financial system as it has developed over the last few decades and, beyond that, about the future of capitalism itself.
Just as Fukuyama discovered, soon after making his famous remark, that history has a nasty habit of coming back and haunting its detractors, the neo-conservative arm-chair economists of the Bush administration and the smart-alecks of the Wall Street are finding to their utter dismay that the razzmatazz world of high finance and shadow banking that they built on the shifting sands of illiquid securities, toxic unsustainable subprime mortgages and an intricate web of debt swap and reinsurance has given way like a house of cards. The detritus and the debris left in the wake of the banking disaster are too big for the firefighters to handle and is now threatening to trigger a worldwide recession.
A deadly combination of financial indiscipline, greed, arrogance and hubris coupled with a misplaced belief in the infallibility of the market has brought the U.S. and the world face to face with the worst financial and economic meltdown since the 1930s depression. Predatory and reckless lending practices targeted the weak and the vulnerable with the subprime mortgages swelling to $12 trillions while the regulators looked the other way under the neocon doctrine of favouring the corporate rich at the cost of the common man.
As the CEOs and top executives lined their pockets on the basis of inflated figures of mortgages clinched, the system began creaking under the rising burden of risky loans, dubious debt underwriting, questionable insurance and ballooning derivatives whose notional value rose from $220 trillions in 2004 to $6oo trillions in 2007. It was like a castle built in the air.
Dominoes soon began to fall -Freddie Mac and Fannie Mae controlling half of $12 trillion US mortgage market, AIG the biggest American insurance company, Lehmann Brothers, Merryl Lynch, Washington Mutual and others down the line. The housing sector had already earlier crashed. The bubble US economy had burst sending shivers down the spine of the other markets linked to it through investments, reinsurance and other financial instruments.
The $700 billion bailout and other similar measures are no more than temporary palliatives designed to provide symptomatic relief. They do not address the basic issues of oversight, foreclosures, deregulation, growing unemployment and creeping impoverishment of large segments of American population. In the last 7 years 6 million Americans have slipped from the middle class into poverty and median family income has fallen by $2000. Seven million Americans lost their health insurance and over 4 million their pensions.
George Bush’s presidency will be remembered as much for accentuating income inequalities in America as for landing the country into disastrous foreign wars which may ultimately lead to the unravelling of Pax Americana. Many previous empires, including the most recent British, foundered on the rock of expensive, unsustainable foreign wars. Bush has squandered billions of dollars pursuing unwinnable wars in Iraq and Afghanistan and setting up colonial outposts in the Middle East and Central Asia to challenge the rising power of China and Russia. For many years the United States has been living beyond its means. The time of reckoning has now come.
Add to this the self defeating model of unfettered free-market capitalism which the Bush administration has tried to foist on the country and which has brought untold misery to the American people. Under Bush the American society has become less just and less egalitarian in socio-economic terms. The rich have been getting richer and the poor and the weak have been gradually pushed to the margins of daily existence.
The last few years have seen the wealth of the richest 400 Americans increasing by $670 billions who by 2007 owned a whopping $1.5 trillions. Bush’s myopic policies have accentuated income inequalities in America to such an extent that the top one per cent are now earning more than the bottom 50 per cent. Another mind blowing figure: top one per cent own more wealth than the bottom 90 per cent. Can a society with such glaring income disparities and utter degradation of large majorities sustain itself for long? But, for the newcons, the market is king and the rest is irrelevant.
The chickens have now come home to roost. The Bush administration is paying for its follies, but the major victim is the average American – and the ordinary man in the street in both developed and developing countries. What will ultimately happen? Will the US-led recession continue to deepen and gradually grip the whole world? Will the rising number of the poor and the dispossessed in the US destabilize the American society and trigger a new worldwide depression? Or is there still a way out to save the world from the approaching disaster?
One thing is clear: the present form of laissez faire capitalism is not sustainable. No economy, however strong, can survive and thrive if the state allows a minuscule minority to usurp and ride roughshod over the economic rights of the majority. This is what has been happening in the US and in most parts of the world. Globalization, trade liberalization and the free market economy have been making the rich richer and rendering life more miserable for the poor and the weak everywhere.
After the collapse of the Soviet Union and China’s adoption of the capitalist mode of production, the socialist model may not be acceptable to many. But the free market has also not been able to address the basic human need for equity and justice. Instead, it has created widespread disparities, spawned small islands of prosperity in a vast ocean of poverty, denied housing to the needy and food to the hungry and resulted in mass unemployment.
The capitalist model has failed. Is socialism the answer? Or some form of social democracy? Or capitalism with a human face, free market economy with built-in safeguards to cater to the education, health, housing and other basic needs of the people? Whatever the solution collective human wisdom ultimately comes up with, it is obvious that unbridled capitalism and the unregulated market economy are not the answer to humanity’s needs.
Source: The Post, 12/10/2008