Wall St and Greece: Convergence of indulgence and debt
Published:Friday | November 4, 2011 | 12:00 AM
Gloomy predictions on the fate of capitalism in the 21st century come from not only fringe elements, the extreme right wing, anti-Obama fanatics, would-be revolutionaries and conspiracy theorists, but also the mainstream, 'ordinary people' contemplating their life chances.
The list of 'predictions' range from what appear loony - US becomes an underdeveloped country by 2012 - through more plausible or likely scenarios of food riots, tent cities that could potentially lead to squatter rebellion, marches protesting lack of jobs and the like.
Some of these 'predictions' have been with us for at least half a decade. Today, however, they take on added significance in light of a potential double-dip recession and the Occupy Wall Street (OWS 99 per cent) movement.
The most important aspect of discontent in the US seems to be identification of a 'bull's eye' target to confront - Wall Street.
It emerges that the disaffected 99 per cent have come to view Wall Street as a parasite on the body-economic and politic of the US.
They see the 'street' as having organised and completed a 'greenback' takeover of Washington, leaving them in complete control.
The movement has no charismatic leader, no Martin Luther King Jr, no FDR to champion their cause through leadership.
Yet, it is a force to reckon with.
This column is not in the prediction business but there are such things as probabilities and likely outcomes.
We have, since the September 2008 Wall Street meltdown, occasionally sought to focus attention onto the pressing need to fix the regulatory arrangements governing the financial-services industry.
The repeal of Glass-Steagall in 1999 was a major error. This is not a conclusion arrived at with the clarity of hindsight.
At least one US Senator, Byron Dorgan, voiced his opposition to the new bill replacing Glass-Steagall - the Gramm-Leach-Bliley Act. His remarks seem today almost prophetic.
a bad experience
We should remember, too, that in 1999, Jamaica was trying to cope with the collapse of its indigenous financial-services sector.
At the same time, Wall Street's firewalls were demolished and carted away like so much debris, we were trying to separate activities of building societies, merchant banks, investment banking, brokerage and the like. Our experience with 'groups' and interconnected party activity was decidedly, very bad.
Wall Street's experience with this regime is also very bad. Nevertheless, there appears no concerted effort by lawmakers to fix the problem. It is from the grassroots that we find emerging, the call for fundamental reform. So what are the potential or likely outcomes?
News from Brussels gives us a small clue. European leaders last week had nudged their banks to an agreement to take a 50 per cent loss on the Greek debt they hold.
They agreed to mandate their banks to raise new capital as a shield against potential, if not anticipated sovereign debt default.
They also contemplated and agreed enlargement of their emergency or bailout fund to US$1.4 trillion, anticipated as the amount needed to cushion Italy and Spain.
After all the wrangling that must have gone on prior to this summit meeting, it seems elementary to figure out that the backdrop of Occupy Wall Street and visions of European capitals under 'popular siege' must have concentrated the minds of leaders and negotiators.
President Nicolas Sarkozy of France claimed the results of their summit would "be a source of huge relief to the world at large, which was waiting for a decision".
German Chancellor Angela Merkel patted herself on the back: "I believe we were able to live up to expectations, that we did the right thing for the Eurozone, and this brings us one step farther along the road to a good and sensible solution." True.
The only question is whether the fix is timely enough or too little too late. How shall the US Congress and Wall Street respond? OWS absolutely refuses to consider a friendly merger and certainly not a hostile takeover by Congressional politicians. Something has to give.
negativity before stability
Some fixes are easy, student loan rules may change, easing out intermediaries, making the process less onerous to borrowers. Underwater homeowners may finally benefit from the bailout contemplated and promised by Washington from as early as 2009 - just as the Europeans convinced their banks to take the Greek 50 per cent haircut, so, too, may the major US banks agree to share in the losses they had such a big hand in creating.
It might be, though, that some of the likely bad outcomes will have to play out before stability can return for the long haul.
Squatting and food riots remain distinct possibilities and Christmas may not be the same even with Wal-Mart's efforts to guarantee lowest price.
What of Jamaica in this scenario? Our new Prime Minister, Andrew Holness, has his hands full. His party sensibly elevated him with little or no public rancour and acrimony. Yet, he must emerge as true leader by his own efforts.
This task is not as easy as it may seem. He may achieve it not by verbal bravado, bluster and the big, perhaps ill-considered statement, but rather, by exercise of sound judgement in light of advice, advice he should seek not purely from partisans and yes-men. One good thing he has going for him is that he was eyewitness to the pitfalls his predecessor was unable to avoid.
For a number of reasons, anointment by elders and party financiers, though necessary, is never sufficient foundation and scaffolding for building on a vision, even if that vision is a shared one, understood to be good, innovative and pragmatic.
We have to look at our IMF agreement, our fiscal condition and regulations that continue to render Jamaica a place that provides too many disincentives to investment by both nationals and foreigners.
Some of the latter are easy to identify but difficult to change primarily because of vested interest, but also because of ignorance and inertia. We must still consider the new Parliament building, creation of the seat of government around Heroes Park as initially envisaged - symbols do matter.