Source: The Boholchronicle
This is an interesting article i have read, yet not fully understand. Hope u guys can help me out.
Little did we know – that by some people’s greed and our ignorance – the world was in the brink of a global disaster last week.
The “Crash of 2008” would have devastated the planet – both rich and poor nations – that would have made the Great Depression of 1929 (under another Republic President Herbert C. Hoover) a children’s party.
We had always feared that before a major ecological bombshell will pulverize the earth, a financial disaster will first spin the earth out of its orbit.
Had the Federal Bank (Central Bank) of the USA and the central banks of the other nations like Europe, Japan, Canada, Britain, Switzerland and Australia not inject cash into the global money market, the world would been knocked out senseless. Gordon Gecko of the “Wall Street” would have been disproved that indeed “greed is not good” and the plaintive mantra that “there is no bliss in ignorance” would still be true.
The Fed Bank (USA) announced a record-breaking US$700-billion “rescue plan” to buy all “toxic assets” of the US financial system – to address the root cause of the malady that bedeviled the economy. The other Central Banks, Thursday, added another US$200 billion.
Together with the Fed’s $85-billion bail-out of AIG Insurance (the world’s largest insurance company with 70 million clients) the $25 for Bearn Stearnes and $200-Billion earlier support to mortgage – holders Fannie Mac and Freddie Mac, the total injection could cost the American taxpayers over US$1 trillion.
That is not a trifling matter considering that the US economy is only worth US$13 trillion and the world economy at US$54 trillion.
But that singular act of political will and show of financial muscle brought back the “spinach that Popeye needed” – the confidence of overseas market – in the USA’s economy and stability. It is an act that Republicans and Democrats alike will jointly support to avoid converting the world into a howling financial wilderness.
It is a fact that it is Asian savings and partly Middle East petrodollars that have been bankrolling America spending. What if they both shy away now after America has shot itself on the foot?
The America is on a “survival mood” these days and the Asian financial behemoths like China (23% GDP growth rate per annum) Japan and Singapore can look at bargain-priced American assets and deepen the “Asianization of America.”
Besides America is still the biggest importer in the world – and it pays to cure this patient of cancer – rather than aggravate it towards metastasizing. That would also be financial suicide, for the rest of the world.
This financial – on the American reserves and the debilitating hemorrhage of an expensive and “winless” war in Iraq could weaken further the genie that America once was. One thing since, Robocop’s helmet will be challenged and his firepower becoming suspect.
The “unlucky” winner in the coming US November polls – whether the Republican’s McCain or the Democrat’s Obama – is going to have his hands full – and his head jagged by Tylenol – just dealing with this near catastrophe of the American economy.
For decades, the “Bush Gambit 2008” – costing US$1 trillion – will be talked about and debated. The impact on the American public – an awakened but weakened economy – will compromise taxpayers’ money since public funds here have been used to salve the acts of private greed and erroneous judgments of individuals and corporations.
The USA – a Cold War opponent Russia and China’s “State capitalism” – appears to have now behaved exactly what America used to condemn the socialist states to be in the past. The American Government is heading exactly where it shouldn’t be – ownership of private entities (de jure & de facto).
But does America really have a choice?
During the 1997 Asian crisis. America preconditioned its bailout package to Asian central banks if they (Asians) allow private firms to flounder and cleanse the system. Today, it does the exact opposite.
America talks about institutional reforms – financial and managerial – but every year the financial blowups just become larger. For how long that the once mighty America endure this wrenching episodes?
Bush had been beside himself shopping for justification that at this time, “government intervention is not only warranted but essential.” What happened to old-fashion capitalism, and free enterprise – clearly out of fashion now?
At least, America has been elective in its messianic mission to save private miscalculations.
It allowed the venerable 158-year old (America’s biggest investment house) Lehman Brothers, to go belly-up in bankruptcy. Lehman Brothers had recklessly over-leveraged (over borrowed) 35:1 and justas recklessly engaged in “derivatives” which Financial guru Warren Buffett had described once as “weapons of mass destruction.”
Talks there are of reforms like: keeping investment houses inside the fold of banks (to have safer liquidity base in deposits), make the bailout “consumer-friendly” (help the owners of houses being mortgaged) and keep obscene executive compensation modest (Lehman president made $US 500 million from 1993-2007: translate P20 billion).
The world could have been reduced to chaos a few days ago and the saying “ignorance is bliss” here rarely did apply to most of us mortals.
Time Magazine had called that period “Terra Incognita” (a place where no one expected to visit in its terrifying realities). We don’t know if the financial madness has indeed ended.
For now, it is bad enough that Juan de la Cruz fights for his three-square meals a day and hankers for a few pesos to get a ride just to be able to go to his Church – and ask his God for divine assistance.
Heaven can’t wait.
Vuthy CHEA 