Friday 1 May 2009

The Great Bail Out

Ever since the economic recession started, trillions of dollars have been injected into the banks to bail them (and hence the economy as a whole, we were told) out.

Why? Because these banks, along with some other financial institutes, were facing total meltdown as a result of their lack of judgement and poor decisions over the past few years.

OK. So they took some bad business decisions and hence are facing the consequences now. Is that not what happens in any business in the capitalist world? Did that not happen many a times in the past in small and big businesses alike? From the small sandwich bar round the corner to the multinational giants, all went bust before due to similar reasons. That’s how the private business function, we thought; when they make good decisions then they enjoy the profit, when they make bad ones, they go bust. At least the first part, i.e, enjoying the profit bit, was similar for these banks, too. They did not share their profit with us, the common taxpaying public then. Why it then suddenly becomes our responsibility to “bail them out” of the financial mess they created, thanks to their greed and myopic vision? Especially when these bail outs do not come cheap; costs an eye watering amount that hogs up almost the entire GDP of even the wealthiest nations?

This is necessary, we were told in grim voice, the only thing left to do, to save the world form complete collapse. How? Well, the banks will then have money to function and they will lend to businesses, we were told. These loans are essential for almost all businesses and with no banks ready to lend they all face closure sparking huge job losses. With this money, we will effectively bail the whole economy out of a potentially deep recession.

Fine, let’s take that in face value, we thought, and let us expect there would be no recession, not a very painful and deep one at least.

So our respective governments took the decision on our behalf to hand out the big bucks to the banks to save the world. Each of us taxpayers became a share holder of big high street banks over night. We felt a sigh of relief and went home to watch our favourite soap or football match, happy avoiding the cruel recession monster narrowly.

But as the weeks went by a different story unfolded; more and more businesses started going bust or posting hefty losses opening the floodgates of job losses. Banks had no money to lend either to businesses or to individuals. Everyone was cash strapped and the economy was sliding fast in a downward spiral moving deeper and deeper into the recession.

But hang on a second; was that not THE thing that we specifically wanted to avoid…the deep, painful recession affecting everybody? Is that not why we footed the multi trillion dollar bill and burdened ourselves (and possibly our children, too) with huge debts for next few decades? And what happened to those astronomical sums of money the banks received, for God’s sake? How come the banks DO NOT HAVE money to lend to?

Well, the banks did not use the money for fresh lending but used it to make for the losses they made. They kept the blunder-making lot with their same obese pay packets. Where this was not at all possible they let them go either with a huge pay off or a fantastic pension or both. Some were even awarded with hefty bonuses, for their spectacular achievement in helping their companies to go bust. The rest they just kept to themselves so that they are not cash strapped like everybody else in these difficult times!

Our governments now tell us though they do not like it, they have nothing in their power to stop it. Really? Are we not the major share holders in those banks? Surely we can make them act the way we like? Apparently we can not; these greedy bankers are shielded by the law. We thought that our law makers could change the flawed laws which protects the dishonest and penalizes the honest, hard working people.

But then we thought so many things to be true which are in fact not. For one thing, we thought we have been able to ditch the recession by injecting all those cash into the banks. It is clear now that we did not. Recession is there and is spreading like a forest fire. And yes, it is quite deep; I can not see the bottom of this pit, can you?

Could we have handled things differently? May be we could have set up a fresh bank with no legacy of loss, with all those cash and that bank could lend the money to businesses and individuals to keep the economy rolling. The recession would have been confined in the sector which has created it and would have ended finishing it up for good. Instead of giving the money to the failed and corrupt banks and just hoping (with no gurantee, as we see now in retrospect) that they will lend to others we could have pumped a fraction of those trillion dollars directly into the businesses in manufacturing and agricultural sectors. Unlike the financial services sector,at least these sectors actually produces something tangible and useful; and hence could have payed back the debts in future. Laws could have been passed to pass on the interest rate cuts in full to the mortgage holders.

But these did not happen. What started as a melt down in a small, mostly private sector has blown into a deep, wide spread recession affecting all industries in every country. The economy was not bailed out, not even the financial sector. It is the handful of inefficient, greedy and corrupt people, who created this utter mess, have been bailed out. They are off to Hawaii and Tahiti to enjoy their millions where you and I toil extra hours to make sure that our jobs are not in line for next phase of cuts.