Comment

We know what whistling in the dark means. The other is dark humour, something that closed societies from communist-ruled east European countries before 1989 experienced, and which can be seen in the Iranian society under the surveillance of Shia clerics and others today.

Something similar seems to be happening with the United States even as it faces the sub-prime hurricane that blew off the top investment banks in its fury. So we get to hear about Comrade Bush, and the reign of socialism in the holy lands of capitalism.

But that does not really address the question as to what went wrong in the US housing sector and the finance system that underpinned it. Why did banks give housing loans to people who could not afford it? Why did investment banks accept mortgages of these risky loans? Did they all really hope to pull it off?

Is it something like the rope-walker, who would have evoked admiration if he had managed the risk-laden exercise, but becomes a laughing stock and an object of pity if he suffers the fatal fall from on high?

Economists appear to be clueless. They are supposed to know, or at least we believe they ought to know. But they are not offering much by way of clarification. Some are saying that the fault lies because there is no regulation. Others say that regulation is not the issue, and that excess and failure are part of the programme of the system. That is not much by way of insight.

We know that the capitalist system runs on the cycle of money spent on possessions — from houses to refrigerators, to cars and mobile phones. The banks play an important role in supporting this spending spree through credit channels. The flow of money through credit and other financial instruments is an important part of the capitalist system. There is no point in raging against it. The alternative is the primitive barter system, which is safe all right, but it does not make things happen.

Explanations however are not justifications. The wizards of Wall Street were playing hooky and that was it. Financial analysts at venerable investment banks like Merrill Lynch and Lehman Brothers were literally fooling around, and pretending things were fine. It was a cheap confidence trick. Credit agencies which were supposed to declare the financial worthiness of the companies just played along.

This is not very different from what happened at Enron as it collapsed in December 2001. The warning system in the case of Enron was compromised by public accountants, Arthur Andersen. Something similar has happened in the present instance as well.

So the American leadership will have to go beyond emergency financial bailouts. They will have to haul up all those who have contributed to the implosion.

Why are American corporate shenanigans of any interest to us in India? As an emerging market, with aspirations of being a capitalist economy — nothing unholy about that — it will be necessary to monitor all the wrong turns in the unfolding crisis in the US. The credit flows in the economy here will soon reach high tide, and the simmering problems will surface.

There is however extreme reluctance on the part of Indians to look at capitalism’s underbelly. The pro-reforms ideologues who have nothing but contempt for any move by the state and who blindly believe in the infallibility of the market forces are maintaining an embarrassing silence. Instead of asking questions about what went wrong, they are hoping that the US government bailout will restore confidence in the American markets which is seen as a vital factor in the growth of the Indian economy.

The anti-market lobby in the country does not understand the intricacies of what went wrong. Of course, they do derive satisfaction from the pell-mell in the American market.

The highpoint of the Wall Street crisis is not governmental intervention, nationalisation of Freddie Mac and Fanny Mae, and takeover of AIG. The real issue is that of danger signs ignored as the investment bankers teetered and keeled over.
Email: r_parsa@dnaindia.net