This is something, which they do not teach you at Harvard or LSE. It is financial imperialism of another kind. How the big wigs of economics and politics excel in tricks that erode a country’s economy to lead it to the brink of disaster; and how the systems learn to live with it. It appears that at the back of bailouts are politicians, corporations, lawmakers and international money manipulators, all of who work in Unison. Is bailout the beginning of an end?
A country of rich tycoons, Greece or a fashion design leader of the world, Italy, suddenly plummets from affluence to recession right in the vigil of the world, in amazingly short period. Big corporations such as Lockheed, General Motors or Chrysler kneel on their knees to beg borrow or steal, and the government comes to their help by what, in decent terms, is called bail out. When such rock solid companies who support travel all around the world and are considered more or less shock proof, tremble like a dry leaf, people ask questions. No wonder they all get the much needed, but not deserved, shot in the arms.
When financial wizards like Goldman Sach, Morgan Stanley, UK Banks, Irish Banks, Swedish Banks, Citigroup, those who are guiding billions on how to create billions, themselves crumple like a house of cards, one starts to wonder if the principles of economics are only for the books or for preaching. Fannie Mae and Freddie Mac mortgage moneylenders too were subjected to this humiliation. There is something deeper here, than what meets the eyes.
The malady is even more dismaying when countries get affected. Greece, Spain and Cyprus are recent examples of failures of economy. A few decades back Russia demonstrated how ordinary citizens could be shaken from slumber by an overnight decision. It is stated, and the seniors cannot digest or forget, that just overnight, the entire life savings of people were returned to ashes, to the cost of one shoe, from a pair.
India cannot claim seclusion or protection from this event. Who knows when the firewall of illusion will crumble or the slowly ticking time bomb would detonate? The signs of deterioration have already appeared when Air India, Kingfisher Airlines, Satyam Computers, were found wanting in their accounting and auditing practices. Auditors Pricewaterhouse Coopers too were tainted. In most of the cases, the central government showed a stern attitude before melting down and helping the so-called ailing corporation. We have forgotten all, but we should not forget that something is going on behind the scenes.
These are just paltry examples from the humongous set of catastrophes around the world. We need not be too small like Cyprus or too big like Russia to fall into this trap. But one thing is certain, only rich conglomerates go through this route of routing.
Technically speaking, bailout is a term for giving loan to a company or country that faces serious financial difficulty or bankruptcy. It is strange that such a powerful instrument, a tool that can influence the country’s economy so powerfully and adversely affect people, has never been formally explained by any discipline of education, management, politics, economics or what have you. It is only when millions cry, that the others take a yawn and look at it with half closed eyes.
A bailout is latent, but certainly present
- When an investor resurrects a floundering company by buying its shares at dead low prices
- When a wealthy philanthropist converts a loss making enterprise into a so called non-profit making establishment and evades all taxes
- When the government helps a dying corporation, on the pretext that this help is needed to prevent greater socio-economic failure like millions of jobs lost
Generally, and certainly, bailout is caused by the mismanagement of a company or by collusion between interested parties that works towards achieving such failure. It stinks of inefficiency, politics, non-performance or non-governance. Coercion by the government of diluting the subsidies, carrying out so-called financial reforms on pensions, insurances and health care etc are instruments that open the flood gates for such mismanagement.
Those against it, consider bailout as an unacceptable passing-of-the-buck to taxpayers. They consider that bail out in essence is robbing Peter, a profit contributing individual taxpayer or a company to pay Paul, a worthless establishment. They consider it better that the ill performing company fails and resurrects itself from ashes. Large-scale bailout is an instrument of consolidating power in the hands of a few in the central government. Those in favour, cite socio-economic miseries of the employees as unacceptable, particularly when the affected population is very large.
In any case, bailout is a technique of converting distributed functioning to centralised control. It must be examined with considerations of dangers of a free market’s volatility versus the dangers of socialist bureaucracy.
As elders, we have to educate our children and grand children about the volatility of stability in the country’s economics that is possible when controls are centralised, because in this case the volumes are large. The next generations must be advised about the tricks that leading financial institutes play, that include banks, insurance companies, housing loans companies, and government owned financial establishments like UTI. This is one reason why the future generations must learn to save for the rainy day. Yet the question is what mode must be adopted for savings, gold, real estate or deposits.