Financial crises, regulation and sovereign debt
Published:Friday | June 24, 2011 | 12:00 AM
"A government that cannot care for its old and sick, that cannot provide work for the strong, that feeds its youth into the hopper of industry, and that lets the black shadow of insecurity rest on every home, is not a government that could or should endure. Any business unable to make a fair return except by child labour, long hours, dog's wages, lying and cheating, is not a business that this country wants or needs".
Altogether, some of us might reasonably think we hear in this quote, Michael Manley's mid-1970s effort to tackle poverty and inequality in Jamaica. We would be oh so wrong!
Actually, this is Franklin D. Roosevelt (FDR) at his indignant best. He is striving to rescue the United States economy and society from unbridled excess. From what he considered a terrible ascendancy of aberrant individualism and capitalist greed let loose on a yet emerging, infinitely variegated fabric of a United States of America he dearly loved.
The US, founded on the principle of all men created equal - a principle he internalised and exuded - which he saw starkly destroyed in unbelievable inequality. Well yes, men equal. Women even then, mattered little.
We can, however, move on without debate by admitting, circa 2011, the positive and necessary changes in both outlook and reality.
So why is it even useful to consider FDR and the policies he managed to have enshrined in law - to wit Glass-Steagall? It is useful because in our globalized world, the capacity to lift us all, out of the great recession—the worst economic catastrophe in 79 years, merely 21 short of a century - exists in the US.
The policy mix and legislative change we can easily figure out, simply describe and readily enumerate. They would be a variant of Glass-Steagall, forbidding Wall Street to mingle investment and commercial banking, stock brokerage and creation of unknowable financial derivatives that convert financial operations into a casino-gambling enterprise.
It would be almost impossible, however, to find strong voices in support of such policies. Moreover, the real solution to the problem - making the millions of duped and underwater homeowners whole - remains untouched.
If this were to be done though, consumer buoyancy would return, demand impulses re-emerge and confidence, that indefinable, untouchable glue which Keynes so succinctly and artfully brought to our attention in his 1936 published work, would spread, virally, across the globe.
President Obama, I conjecture, I daresay, knows this.
He is an unusual phenomenon whom Malcolm Gladwell might heartily define as an 'outlier'. I would add and submit, 'extraordinaire'.
How, you might wonder, could any US president be subjected to the indignity of Wall Street moguls telling him of their inability to attend a meeting he wants to convene, subsequent to his approval of a bailout of close to a trillion dollars for their rescue? C'est impossible!
The thing is President Obama has neither the class roots of an FDR, nor the attendant political 'backative' that FDR's depression-hobbled working class and their unions embodied.
In addition, today's Wall Street, putting it mildly, is a bit more powerful than it was in FDR's time and the Republican propaganda machinery superbly uses mass information technologies to spread its version of freedom, individualism and an altogether distorted philosophy of rational choice.
But here's the rub! Greece, Ireland, Spain, Portugal and here at home, the entire Caribbean region's economies, suffer shortfalls or potential shortfalls in their capacity to fund their government's fiscal necessities.
Much of this would change for us with an uptick in the US economy. Mind you, one need make no comment on the prudence or otherwise of some of these governments' behaviour over the years.
Yet, we must be aware of a rather simple fact: globalisation of international capital flows and perhaps more importantly, globalisation of perception, are fundamental realities.
Moody's and Standard and Poor - setting aside their perhaps actionable misdemeanours in the build up to the 2008 US meltdown - owe the world a duty of care.
They ought to sprinkle their prognostications with a vision of the need for the central core of the capitalist global economy to come to terms with the imperative of creating prudent and sensible regulation of the world's financial arrangements.
It is by no means easy. Owners of capital shall neither readily, nor immediately, see self-interest in any such endeavour. The point, however, is that if they do not, China notwithstanding, the phenomenal growth they desire to continue shall surely stall, with catastrophic effect.
Wilberne Persaud, Financial Gleaner Columnist