(SANK ALONG WITH DREAMS OF MILLIONS OF PEOPLLE)
The collapse of financial institutions including Lehman Brothers, Merrill Lynch and a host of such Banks has raised the issue of regulation versus innovations in financial institutions across the world. The immense financial leverage, excessive and bottomless greed amognst the money managers of the financial markets are among the most important causes of the present global economic meltdown and subsequest recession.
According to one estimate, the financial leverage which hovered around 108% of the Global GDP in 1980s, swelled and balloned upto 600% in 2007-08. The global GDP in 2008 is estimated to be around 54 Trillion dollars, it means that the financial markets inflated this ammount to about 32400 trillion dollars. What a greed and what an illusionary state of affairs in the financial markets!
Anyway, the catastrophe in the financial markets has spread like contageion and the subsequent infections are taking tolls in sectors other than the financial market.The world is facing a situation which is even worse than that of 1930s, the first depression the world experienced. Jobs are being cut and rate of unemployement is soaring.The most robust economy of the world is begging money from China, the asian dragon. The financial ailment is menifesting in social and political spheres in forms of suicides, pychiac problems, social tensions, strikes and processions.
All these unrests have compelled the govt as well as civil society to recommend to and prescribe for certain restrictions and regulations in the financial sectors in particular and other sectors in general. The financial sectors especially Banking sectors and stock markets are averse to these regulations. They advocate against any regulation because, they say that it is against the principle of free market economy. They argue that regulations would stifle and nip the pace of innovations.
The questions which obviously everyone would like to ask that all innovations so far made, have they come from these instituions? Have these institutions been architect of any such innovation in the past? If it is true then they have a valid point in favour of their arguments. But the facts available with the financial history says that a very few or negligible number of innovations have come from these institutions. Conversely these institutions have prescribed for complications only. They do mame innovation, but not for the shake of common people or for the betterment of the nation as a whole, but for making money, fudging balance sheets as they have done it Satyam, enhancing the price of shares and above all for the overall interests of big corporate houses. The fat documents which one common investor has to sign before investing a penny in the stock market is beyond the understanding of even a savvy investor. The jargon of words printed in tinny alphabets which cannot be read without a magnifying glasses is certainly not an innovation, these institutions are talking about.
Moreover, there is no synchronisation whatsoever between manufacturing sector and financial sector. The amount of money involved in speculatory markets are much more higher than the real value of the manufactured goods at a given point of time. This over stretching of financial markets have been going on for years. This resulted in extremely inflated balloning of financial transactions. In fact it reached to a point of burst, because it was bound to burst as it happened in case of America or other parts of europe. We call it 'housing bubble.'
On the other hand the innovations per se have mostly or perhaps invariably come from government institutions rather than private commercial or investment banks. In India for instance, the new economic policy of 1990s propounded by Narsingh Rao govt with Manmohan Singh as finance minister had been architect of financial reforms. This came from govt not from private institutions. Infact the private commercial and investment banks in India and around the world also always innovate for their own monetary interests and not for private individuals.
In America, Eugene Fama's 'efficient market hypothesis'which later became the basis of less regulations in financial markets did not belong to any commercial or investment bank, rather Fama belonged to academia. Thus the very logic of these institutions that the regulation would stifle the pace of innovation sounds hollow and is without any merit.
The time has come that we should strive for framing rules that protect the interests of the common investors in general and poor citizen in general. After all the govt can not be allowed to be minimised to a titular authority and a hopeless and silent spectator. The manner in which AIG has spent the hard earned money of tax payers which it received as bailout package from the federal govt, has revealed the urgency of some statute which can prohibit such reckless, shameful and irresponsible actions on part of such financial institutions. Even after Obama's clearcut instructions and warnings with regard to bonus being paid by company which has received money from govt, AIG in an outright desregard spent or better call it misused the money on the executives at whose fault the catastrophe occurred. Thanks to Obama who lost no time and framed a law which would levy 90% tax on bonus given in the company which has received money by govt to bail them out.
Few months back, Man Mohan Singh made similar requests from the Corporate houses to trim the fat salaries being paid to executives, but it was laughed at by many CEOs saying that grams can attract only monkeys. Such nouns are utter disregard to our constitution and authority of the land. We too require such laws, after all how can we allow oasis to develope in the deserts. 600 millions have no electricity, similar number live in BPL, 700 million can not spend more than 12 Rs/ a day on them. These facts and figure are not only the statistics of economists but are the hardcore and harsh realities of our nation.
