American capitalism unravelling
Dr David KL QuekPublished: Sep 29, 2008 5:19 AM | Updated: Sep 30, 2008 1:43 AM
I have always wondered how financial markets work.
How is it that when one 'invests' big or bigger, one creates bigger volumes of trade? Frequently these so-called 'hedged' speculations are supposedly to help stabilise wilder fluctuations in volatile markets, well... what now?
I have always wondered how financial markets work.
How is it that when one 'invests' big or bigger, one creates bigger volumes of trade? Frequently these so-called 'hedged' speculations are supposedly to help stabilise wilder fluctuations in volatile markets, well... what now?
Hedge funds and derivatives trading (and other so-called structured financial options) have now shown their true colours - and they are now in the deep red!
Then, the soaring crude oil and commodities price hike triggered and unravelled the tenuous hold on liquidity. Savings and loans banking entities as well as insurers were all caught in a vicious web of interlocking downward spiral of near worthless returns. Then, Bear Sterns went under, the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) collapse, the Lehman Brothers chapter 11 protection, Merrill Lynch, Washington Mutual shock and worst of all the huge AIG collapse.
Now, the hapless President George W Bush, is trying to cobble together the biggest bail-out the world has ever seen—USD 700 billion. This, purportedly to forestall the collapse of the world's largest economy and potentially triggering a global economic meltdown.
Some ten years ago during the Asian financial crisis, respected economists - Americans included - were pushing battered economies to accept the collapse and rapid-fire restructuring with the IMF and World Bank calling the shots. Terrible social upheavals and shocks ensued.
Many home-spun corporations were quickly sold to foreign fund managers and multinationals. Huge numbers of the local population were bankrupted and impoverished, with some of the most traumatised resorting to rioting with ethnic overtones - all accepted as a change phase for the better.
Thus, it is so ironic now for Americans to change their tune and ask for a blatant domestic bail-outs. By protecting these huge corporations, it may be earnestly helping to prevent a severe meltdown. However the flip side remains - protecting those who wallowed in profligate and wanton greed.
Large disagreement
More than 90 percent of Americans don’t agree to bailing them out, however they do want to protect their mortgage, savings and pension. And conservative Republicans oppose government oversight of the free-market system.
Betrayed Asian economists see this as a “Do as I say but not as I do”
Perhaps, it is time for the US to eat humble pie and acknowledge that it alone cannot provide all the answers and solutions to our immensely complex and chaotic world. Perhaps, the US can help to finally strengthen its own flawed institutions by reinforcing more institutional oversight guidelines and regulations (not less). In so doing, America might then recover its vaunted capacity to export good ideas and ideals.
Perhaps the free trade agreements so aggressively pushed with many countries, should be revisited or even revised to acknowledge each and every country's inflexible interests - since countries agreed to just so they can access the US market.
Gross excesses during the past few decades were often apologetically rationalised away by the weight of US-trained and US-indoctrinated economists worldwide, such that alternative models have been left by the wayside. Socially-conscientious or directed mechanisms, safety net issues are almost taboo in the modern paradigm of this now shaky economic model. Continental European economic models with stronger social protections appear to have withstood better the current financial storm.
Thus, perhaps older Europe can play a bigger role in today's world in helping to reshape and restructure the world's economy. Perhaps, the Asian model of guided and government-regulated free-market models can find a more respectable place where control and regulations still exact a modicum of fear and responsibility from the crass extremes of unbridled greed and speculation.
Not being trained as an economist, helps to picture in my simple mind that there really is no free lunch. That one plus one may be 2, 3 or even 5, may be plausible. But 100 or 10,000, this seems just too far-fetched.
Rise in the middle class
The past two decades or so have seen a mentality of voracious greed to reap enormous profits and pay-outs. This belief has spurred that exponential urge to spend, speculate, guesstimate or gamble beyond one's monetary worth or capacity...
Following the 1987 global recession, we seemed to have embarked on a roller coaster ride of mainly positive growth of exponential proportions, with a spectacular rise in a middle class population worldwide.
Free market capitalism and mass consumerism swept the world in an unprecedented success story which saw the demise of the communist-socialist model beginning with the 1989 dismantling of the Soviet Union.
Excesses and poor judgements by many aspirant developing countries on fast track growth led to the Asian Tom Yam crisis of 1997-98—this disaster crippled and decimated many third world nations and led to enforced hugely unpopular infusions of IMF and World Bank measures and funds.
Governmental bail-outs were frowned upon, and this 'shock and awe' model was proposed as the necessary bitter medicine which will eventually salve all economic hurts and wounds, notwithstanding the social upheavals which were unleashed in nations such as Indonesia, Thailand, South Korea and even in Malaysia.
In the long run, this approach was supposed to enhance economic strength and stability of the individual countries involved, where freer markets with foreign funds and investments, inflows or outflows, would be unhampered.
Yet most nations found that they could not accept the unvarnished practicality in toto. Pitiable safety nets had to be set up, often placed at the bottom rung of economic need or even consciousness.
Danger to global harmony
This growing destitute class seethes with anger and envy - ingredients for urban anarchists, religious fanatics, jihadists and others opposed to the 'western' model of the world.
Extreme wealth disparity which breeds social dystopia—where an increasing populace feels miserable, dispossessed, disempowered and oppressed—is a real danger to a peaceful, progressive harmonious world.
Notwithstanding the ascendancy of economics and finance in the world today, the recent financial meltdown is a timely reminder that economics is never a hard science if ever, and whichever economic model cannot be the one and only foolproof unchanging model for the world.
How is it that when one 'invests' big or bigger, one creates bigger volumes of trade? Frequently these so-called 'hedged' speculations are supposedly to help stabilise wilder fluctuations in volatile markets, well... what now?
Hedge funds and derivatives trading (and other so-called structured financial options) have now shown their true colours - and they are now in the deep red!It began with the sub-prime loans debacle where unqualified and risky borrowers were given uncharacteristically preferential mortgage interest rates well below market levels.
Many therefore were borrowing more than they can afford to remortgage or pay back, but were holding on to such 'cheap' holdings as investments in lieu of hard cash and other more volatile stocks and shares.Then, the soaring crude oil and commodities price hike triggered and unravelled the tenuous hold on liquidity. Savings and loans banking entities as well as insurers were all caught in a vicious web of interlocking downward spiral of near worthless returns. Then, Bear Sterns went under, the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) collapse, the Lehman Brothers chapter 11 protection, Merrill Lynch, Washington Mutual shock and worst of all the huge AIG collapse.
Now, the hapless President George W Bush, is trying to cobble together the biggest bail-out the world has ever seen—USD 700 billion. This, purportedly to forestall the collapse of the world's largest economy and potentially triggering a global economic meltdown.
Some ten years ago during the Asian financial crisis, respected economists - Americans included - were pushing battered economies to accept the collapse and rapid-fire restructuring with the IMF and World Bank calling the shots. Terrible social upheavals and shocks ensued.
Many home-spun corporations were quickly sold to foreign fund managers and multinationals. Huge numbers of the local population were bankrupted and impoverished, with some of the most traumatised resorting to rioting with ethnic overtones - all accepted as a change phase for the better.Thus, it is so ironic now for Americans to change their tune and ask for a blatant domestic bail-outs. By protecting these huge corporations, it may be earnestly helping to prevent a severe meltdown. However the flip side remains - protecting those who wallowed in profligate and wanton greed.
Large disagreement
More than 90 percent of Americans don’t agree to bailing them out, however they do want to protect their mortgage, savings and pension. And conservative Republicans oppose government oversight of the free-market system.
Betrayed Asian economists see this as a “Do as I say but not as I do”
Perhaps, it is time for the US to eat humble pie and acknowledge that it alone cannot provide all the answers and solutions to our immensely complex and chaotic world. Perhaps, the US can help to finally strengthen its own flawed institutions by reinforcing more institutional oversight guidelines and regulations (not less). In so doing, America might then recover its vaunted capacity to export good ideas and ideals.Perhaps the free trade agreements so aggressively pushed with many countries, should be revisited or even revised to acknowledge each and every country's inflexible interests - since countries agreed to just so they can access the US market.
Gross excesses during the past few decades were often apologetically rationalised away by the weight of US-trained and US-indoctrinated economists worldwide, such that alternative models have been left by the wayside. Socially-conscientious or directed mechanisms, safety net issues are almost taboo in the modern paradigm of this now shaky economic model. Continental European economic models with stronger social protections appear to have withstood better the current financial storm.
Thus, perhaps older Europe can play a bigger role in today's world in helping to reshape and restructure the world's economy. Perhaps, the Asian model of guided and government-regulated free-market models can find a more respectable place where control and regulations still exact a modicum of fear and responsibility from the crass extremes of unbridled greed and speculation.Not being trained as an economist, helps to picture in my simple mind that there really is no free lunch. That one plus one may be 2, 3 or even 5, may be plausible. But 100 or 10,000, this seems just too far-fetched.
Rise in the middle class
The past two decades or so have seen a mentality of voracious greed to reap enormous profits and pay-outs. This belief has spurred that exponential urge to spend, speculate, guesstimate or gamble beyond one's monetary worth or capacity...
Following the 1987 global recession, we seemed to have embarked on a roller coaster ride of mainly positive growth of exponential proportions, with a spectacular rise in a middle class population worldwide.
Free market capitalism and mass consumerism swept the world in an unprecedented success story which saw the demise of the communist-socialist model beginning with the 1989 dismantling of the Soviet Union.Excesses and poor judgements by many aspirant developing countries on fast track growth led to the Asian Tom Yam crisis of 1997-98—this disaster crippled and decimated many third world nations and led to enforced hugely unpopular infusions of IMF and World Bank measures and funds.
Governmental bail-outs were frowned upon, and this 'shock and awe' model was proposed as the necessary bitter medicine which will eventually salve all economic hurts and wounds, notwithstanding the social upheavals which were unleashed in nations such as Indonesia, Thailand, South Korea and even in Malaysia.
In the long run, this approach was supposed to enhance economic strength and stability of the individual countries involved, where freer markets with foreign funds and investments, inflows or outflows, would be unhampered.
Yet most nations found that they could not accept the unvarnished practicality in toto. Pitiable safety nets had to be set up, often placed at the bottom rung of economic need or even consciousness.
Danger to global harmony
This growing destitute class seethes with anger and envy - ingredients for urban anarchists, religious fanatics, jihadists and others opposed to the 'western' model of the world.
Extreme wealth disparity which breeds social dystopia—where an increasing populace feels miserable, dispossessed, disempowered and oppressed—is a real danger to a peaceful, progressive harmonious world.
Notwithstanding the ascendancy of economics and finance in the world today, the recent financial meltdown is a timely reminder that economics is never a hard science if ever, and whichever economic model cannot be the one and only foolproof unchanging model for the world.
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