An agenda for the G-20 summit

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: “Some in clandestine companies combine; Erect new stocks to trade beyond the lines; With air and empty names beguile the town, And raise new credits first, then cry ‘em down; Divide the empty nothing into shares, And set the crowd together by the ears.”

—Defoe

When Charles Mackay wrote his Memoirs of extraordinary popular delusions and the madness of crowds, more than two centuries earlier, little was he aware that his chronicling of the Mississippi Scheme, the South Sea Bubble or Tulip mania would be a near perfect description of Wall Street in the early 21st century. While narrating the behaviour of crowds, Charles Mackay wrote, “Men, it has been said, think in herds, it will be seen that they go mad in herds, while they only recover their senses slowly and one by one”.

The world has witnessed, in the last month and a half, financial turmoil and economic carnage of a level and scale not seen since the Great Depression of the 1920s. It is only in the last week that there is now a feeling that we may perhaps be at the beginning of the end, or that the “bottom may have bottomed out”. Even with that, the clouds of recession and deflation loom large and dark on the economic horizon. World leaders from G-20 countries will be meeting in the US on November 15 in this background.

The world economy, and the economies of all nations, both developed and developing, will need to recover, and this, at a very elementary level, will require rebuilding faith, trust and confidence, in themselves, and in each other.

If successful, this recovery will enable building further on the strength of a global economy, or a borderless world, as the world has witnessed in recent years. If not, and that in itself is a dismal and bleak prospect, the world will see not merely the specter of recession and deflation, but also increasingly protectionist trends, leading to isolationism, and loss of the advantages and advances that globalisation has enabled and facilitated.

The financial crisis that is now plaguing the world economy originated in the failure of the subprime mortgage market in the US. The real crisis, however, descended with almost no abatement, when financial stalwarts like Bear Stearns and Lehman Brothers collapsed and vanished from the directory of Wall Street firms.