Tuesday, October 14, 2008

Economic Topsy-turvy - Chinese Curse

Is it not ironical that a few years back the world saw Russia privatizing its state-owned enterprises and activating its stock market thus increasing prosperity for atleast some Russians and now we see the Western World on a nationlising spree, coming to the aid of its' ailing banks and stock markets to preserve the wealth of few Capitalists.

Who will have the last laugh or will it only be crying for all concerned for the foreseeable future, both in the East and West ?

Asia which includes China, India and the Arab countries may be able to save the world with their enterprise, savings habits and oil wealth. But will they be given the chance or will they be hijacked by the corrupt capitalists of the Western World again ?

Also it is really sad that now all the renowned International Banks want everything guaranteed by governments, viz their lendings, their borrowings by way of deposits from Public, inter-bank borrowings and much everything else.

It seems Risk management has gone out of the window as far as Banks are concerned after they have played fast and loose in the last few years. Why should they then be rewarded with fees and interest and profits ?. No risk, no reward.

It appears that all banks have to be nationalised by their respective Governments and only Sovereign Risk will have to be assessed for lending for any purpose. What a come down for Banks. Thanks to USA's leading financial brains for making a mockery of all Banks.

Consider this.

Paulson as chief of Goldman Sachs pushed Congress to liberalise rules for Investment Banks so they can take on higher leverage to speculate and make more money betting on worthless loans and paper securities. His firm sold these to other Banks, etc. Then he becomes Treasury Secretay and sees the mess explode the financial markets. He allows Bear Stearns and Merryl Lynch to be taken over by bigger banks, lets Leehman collapse thus killing the opposition and that leaves Goldman Sachs and Morgan Stanley standing. They turn themselves into Banks. Meanwhile Paulson drums up the Bailout Plan of $700 billion to buy the toxic mortgages and another $250 billion to recapitalise Banks. Guess who benefits, his old firm Goldman Sachs. The Bailout is going to be administered by his ex-aide at Sachs, Neel Kashkari who is now the Bailout Czar. Shows how one of the Villains of the Crisis has morphed into the Hero of the Bailout.

God save USA.

To paraphrase a Chinese curse 'we are living in interesting times'"

Wednesday, October 01, 2008

USA-Crisis in the Financial markets

There is a pattern here.
Every few years USA has to get into a war, using its arms and ammunitions and weapons and then rebuild/buy again. It used to be called the Military-Industrial complex. Now one has to add the Finance-Business to that complex.
Because now every few years the finance guys rip off the economy and common citizen by blowing and bursting bubbles (S and L Crisis, Junk Bond Crisis, Dotcom Crisis, Sub-Prime/CDO Crisis etc) which cost the tax-payer ultimately in rescue and recovery and more taxes. There are many Industry/Business/Military/Finance executives and Politicians in USA who benefit by this cycle with rich pickings.
The average Joe is expected to bail out the economy and nation repeatedly by assuming more tax burden, boosting consumption by taking on more debt .Meanwhile the USA goes deeper and deeper into debt. USA should have been declared 'Insolvent and Bankrupt' years back and other nations should have stopped investing there.
Now the whole world is suffering and will continue to suffer yet again.
USA seems to have ‘lost the plot’ and in the process ‘lost its cash/wealth too’.

I also think a good percentage of the $700 billion will be siphoned off into the pockets of vested interests and individuals who will be tasked with designing and implementing the bailout being discussed.
It is ironical that the Goldman Sach's former chief Paulson is leading the bailout which helps firms like Goldman more than the average Joe.
And Warren Buffet after investing in Goldman is pushing for the bailout. A clear signal that the Wall street executives and the big money men are all interested in using Government funds for their own welfare and profit.
The money should not be used to bail out banks and firms which bet on paper securities not backed by any assets. They should be left to die on their own swords.
If the US government has $700 billion to spend it should be used to directly help the homeowners struggling to repay their mortgages, by way of loan write-downs, interest rate reductions, tax credits etc. Congress should not buckle and should stand firm on not helping the corrupt and inefficient finance firms/executives.
And finally the mere fact that George Bush is supporting and rooting for the bailout should give pause to the scheme. He has a lousy track record. He is leaving a costly legacy by way of Iraq War to the Americans. He should not be given another chance in the last stage of his Presidency to screw up further the lives and finances of Americans for many years to come.