a question for our times

15 October 2008

The global financial crisis caused by banks in the free-market capital of the world (US) through excessive debts, leveraged speculation, toxic financial instruments, credit default swaps and 'casino-capitalism' which the "banksters" engaged in - is of much bigger scale and is likely to last longer than economic-crises the world has seen before. Trust got eroded, banks stopped lending money to each other causing panic, and no one really knows the magnitude of the problem and even if they knew are unwilling to disclose the true extent of damage or causes of implosions and explosions that are unfolding everyday. One thing is certain - that it runs in trillions of dollars and there is widespread disagreements over how the crisis can be managed or overcome.

The meltdown of financial system caused by adopting "one-model-fits-all" single paradigm economic hegemony taught primarily in US business schools for several decades is now under the scanner in several "developed" and "developing nations". It is in our interest to know what is happening when some financial leaders of the world discuss about "stability of system as a whole" or taking "coordinated action within a common framework".

On 11 October 2008, finance ministers from G7 countries met, deliberated and took decisions on dealing with the global financial crisis that is unfolding.

While there was a consensus on the severity of the problem, there were rifts and differences of opinion on 'coordinated action' between major economic powers. The US Treasury Secretary Henry Paulson called for coordinated action within a common framework. His appeal was, "We must continue to closely coordinate our actions and work within a common framework so that the action of one country does not come at the expense of others or the stability of the system as a whole."

The French Economy Minster seems to have served the first diplomatic volley of disagreement on 'coordinated action based on common framework' by stating, "We should not imagine that we will have a harmonized response that will be the same for everyone, quite simply because you cannot apply the same method to market situations that are different." The French position reveals their aversion to a 'common framework model' and insisted on reaching "agreement on common principles."

The German Finance Minister Peer Steinbrueck also voiced similar disagreement to the "common framework model' by stating, "We will have to coordinate internationally, but beyond that there should be room for nation-specific solutions."

The US position was supported by Britain and the Chancellor of the Exchequer, Alistair Darling, said governments needed to "move on from simply agreeing on a general approach". Britain also pledged 50 billion pounds to recapitalize its banks and offered guarantee of 250 billion pounds interbank lending to get credit flowing again.

However the German Finance Minister clearly stated that "What Great Britain has been doing is one approach, but that does not mean that it should be transferred to any other country."

While the G7 nations diplomatically negotiate agreements on how to deal with the crisis, the less economically powerful nations need to be asking some serious questions. A question that many nations need to be asking now is, "Can the mantra of deregulation, liberalization and privatization be questioned, critiqued and deliberated upon in our respective parliaments and other public forums, now that we have enough evidence that excessive deregulation can and has caused a disaster of this magnitude?"

Perhaps it is time to question the fundamentals the economic fundamentalists have been propagating and preaching.