The last few weeks has been the most traumatic for the US and World economy. The sub prime mortgage industry bust, failure of Lehman Brothers, AIG, Merrill Lynch and Wachovia sent the stock markets reeling all over the world. The rejection of the bailout plan by the Congress, initially on last Monday, wiped out USD 1.2 trillion in the stock markets, making it one of the blackest days in recent times. The job losses in September 2008 was 159,000. This was the last straw on the Camel's back. The Congress approved the bailout plan for the President Bush to sign as a law. While it became absolutely necessary, it has been forced on the people by the financial services industry and lax controls by the regulators with the government as a passive spectator. There was no choice at all. This is not governance at all.
Now comes the implementation which is the hardest part. In management, implementation is the key. How far FRB will be able to regulate the economy in coordination with other federal agencies is to be seen. The main problem is Wall Street's greed. They will never learn. This was evident by the heckling done by the selfish traders on the NYSE floor at the honorable speaker Ms. Nancy Pelosi when she was addressing the congressmen on executive pay issue during the house debate. The executives will not agree to any ceiling on pay. They have tasted blood and are like Jim Corbett's wounded man eating tigers of India. We should not be surprised if they drive the economy back into the ground once again because the governments have no choice except to bail them out. It is often said that executives need to be paid very highly for performance otherwise it brings in mediocrity. Under the circumstances, I would rather choose mediocrity because it can be controlled.
The USD 700 billion package may appear to be very large but will be sucked out by the moribund system very quickly. Bailing out investment and merchant banks for their avarice and greed with the tax payers money is sickening and nauseating. The so called toxic assets have no value as on date. It will be interesting to see how FRB values the toxic assets. Apparently the tax payers have been promised that these assets will be sold for a higher yield at a later date. FRB should concentrate on those 6 million people who are not able to meet their housing mortgage commitments and are in danger of losing their homes. They must be helped. We should not care about the job losses in the financial services industry. We should help those people who have lost jobs in other industries for no fault of theirs. We should help the old people whose pension funds have been wiped out. The manufacturing and agricultural sectors are crying for help. The US government must focus on them. The real jobs are out there. They may not be high paying jobs but provide the basic bread. The Wall street is asking us to eat cake when the bread is not there like Marie Antoinette did. That started the French Revolution. FRB and Governments must focus on the Main Street and let the Wall Street fight its own battles. Wall Street and Stock markets should no longer decide the fate of the economy. They are part of the economy and should play by its rules. The economy should no longer play by the Wall Street's rules. The stock market indexes do not give a true picture of the economy. Who certifies those indexes ? How are they reviewed ? Who reviews it ? When was it last done ?
A strange aspect that became very apparent during this financial crisis is that many companies are not able to pay the staff salaries because of the credit crunch. This is a shame. While credit should be available for working capital and expansions to all, against sufficient collateral, salaries should be met out of current assets. If a company cannot even pay the staff salaries without borrowing, it has no reason to exist and it better close down. Such jobs are no jobs at all. For too long, credit has been easy. When it is not one's own money, who cares ? Businesses must learn to work under tight monetary conditions. That is what management is all about. People must earn their money through good hard work, not by means of some manipulations and complicated financial engineering creating toxic assets. Gearing or Leverage have their discretionary and prudent limits. It is time people learn that high leverage invariably leads to disasters and crisis's. If people and governments do not learn their lessons even after this incident, no bailout will help in the long run.
The people of USA must know that they are indebted by USD 11.3 trillion. This comes to USD 376,666 per person and is approximately equivalent to twice the per capita income of an average American. USA may be the richest and most powerful nation on the earth. It is also a nation that is most heavily into debt. The only saving grace is every other nation is also in debt. You may as well ask where has all the money gone ? The answer is very simple. Two percent of the people control 50% of the global wealth. 50% of the people have assets of around USD 2200 each and balance 48% have no assets at all. I will take leave now for you to ponder over it.
© Copyright, Oct 05-08 . Without prejudice. All rights reserved
Is it Bailout of the US Economy or Wall Street - To learn more about this author, visit Madhavan T Gopalachary's Website.
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Madhavan T Gopalachary
(Visit Madhavan's Website)
Madhavan Gopalachary, nick name "madgopes"
(g pronounced as in go) given by IIT
classmates, is a Mechanical Engineer and
an alumnus of Indian Institute of
Technology, Madras having passed out
specializing in IC Engines &
Thermodynamics.
He has nearly 35 years of experience in
the Corporate World. He started off as a
trainee and handled sales, marketing,
manufacturing, product management, profit
center management, strategic planning and
corporate development including R & D in
various organizations and at various
levels before becoming a CEO. His last two
professional assignments were at CEO level
before embarking to start management
consultancy business on January 01, 1998.
He has worked for British, Swedish MNCs as
well as very large Indian business houses.
He has spent a large portion of his time
from June 1998 till date in East African
Countries practicing as an independent
Management Consultant.
More details can be obtained at the
following web sites:
mmg.name
/mtg.html;
mmgconsu
lting.biz/
Madhavan's articles can be accessed at www.madgopes.com
.
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