Column : We the greedy people

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: Every crisis (financial or otherwise) generates more confusion than clarity; more heat than light. When financial in nature, it induces proselytising about moral hazard and more retrospection than insight. It triggers a torrent of comment, but few pearls of genuine wisdom. Only after the fog of crisis has cleared do we understand what happened, how and why. This crisis is no different. Those who are quite rightly incensed about the ‘privatisation of profit and the socialisation of cost’ are having a field day. But, such knee-jerk reactions offer little by way of either insight or remedy.

To many, this crisis marks the end of market capitalism, investment banks, excess leverage, etc. To the French, it signals the demise of Anglo-Saxonism, which they suspected all along. To anti-Americans, like the Indian Left, it shows up the chimera of American market liberalism. What this crisis actually marks is the end of yet another period of egregious excess, of serial asset bubbles being blown since 2000 in technology-stocks, property, emerging markets, and commodities. It is not that new.

Between 1980 and 2000, similar bubbles were blown by developing country governments first in Latin America and Africa, then in Asia and Eastern Europe. These governments were unmindful of their fiscal excesses (like India is now) yet financed by bankers like Walt Wriston of Citibank who asserted that countries could never go bankrupt.

The ongoing crisis was encouraged, if not instigated, by loose-money federal regulators in the US whose state-level cohorts, for the third time in the last half-century, forgot how to monitor the simplest financial contract: i.e. the home loan mortgage. To be sure, this crisis will curb some peculiar tendencies; but it is not the end of financial history as we know it. It is merely the end of another chapter in a book on human greed and folly whose ending will never be written.