In the red-golden glow of the global financial crisis, many are looking inwards to see how they allowed it to happen. Skeptics of globalization such as Korten, Stiglitz, Ralston Saul and Pilger envisioned the collapse and warned of the impending apocalypse fueled by consumerism and greed. Their warnings were left unheeded.
The very foundations of US capitalism seem to have been ravaged. Heidi Crebo-Rediker, Co-Director, Global Strategic Finance Initiative, New America Foundation and Former Managing Director/Head of European Debt Capital Markets, Bear Stearns catured the sentiment; “What happened over this past week to US capitalism is truly historic.” Since 1864, American banking has been split into commercial banks and investment banks. But now that’s changing. Bear Stearns, Lehman Brothers, Merrill Lynch, some of the biggest names on Wall Street have disappeared into thin air. Goldman Sachs and Morgan Stanley are the only giants still standing.
The idea of the free-market economy is challenged. The near nationalization of AIG, America’s largest insurance company, with an $85 billion cash infusion, a bill footed by taxpayers, was a staggering move. The sum is three times as high as the guarantee provided by the Federal Reserve when Bear Stearns was sold to JPMorgan Chase in March 2008. After intense pressure the Senate has approved the rescue package of US $ 700 billion to rescue the ailing US economy.
The US is still trying to understand what happened and what can be done to make a turn around. “Onward through the fog’ seemed like an apt description to me of where we are now”, was how Senator Byron Dorgan responded. Others were critical of the Bush administration. Ralph Gomory, Former Director of Research and Senior Vice President for Science and Technology, IBM, and President Emeritus Alfred P. Sloan Foundation argued, “The lack of policy direction, the lack of clear purpose…are present in our whole economic structure.” He warned that, “The last three decades are a testament to our progress in enriching the few, not the many.”
Now there is a paradigm shift in thinking in the US. The US Government has been called again and again to intervene to save Wall Street. Allan Mendelowitz, Member, Board of Directors and former Chairman of the Board, Federal Housing Finance Board and Former Executive Director, US Trade Deficit Review Commission points out, “What we need is a policy context in which the government will play a large and important role in managing the health of the economy.” This is a far cry fro previous trumpet calls asking Government to end all regulations and open up the markets.
Joseph Stiglitz, University Professor at Columbia University and recipient of the 2001 Nobel Prize in Economics asks some pertinent questions; If a quick consensus on a bailout plan is required, why not include provisions to stop the source of bleeding, to aid the millions of Americans that are losing their homes? Why not spend as much on them as on Wall Street? Do they still believe in trickle-down economics, when for the past eight years money has been trickling up to the wizards of Wall Street? Why not enact bankruptcy reform, to help Americans write down the value of the mortgage on their overvalued home?
Is this the end of market capitalism in its current incarnation? Will the role of Governments change with more Governmental intervention expected in the capitalist free markets? Will the laws, which supported large corporations and precipitated the crisis be challenged and changed in the US? Nothing is certain or easy but history has proven that times of crisis have activated the public to make hard choices and support changes.
This then is the time for change.