We have been presented so many stories and facts about global financial crisis which was said initially rooted in subprime credits provided loosely in the United States. I have read in some websites explaining about what subprime credit means. Principally subprime credit means a credit provided by US mortgage banking to group of debtors called NINJA. In this case Ninja has no relationship to what we know as Japanese Ninja. NINJA stands for No Income No Job and No Assets. So evidently, the banking industrialists in US, especially the ones engaging as mortgage banks have committed irresponsible banking practices, i.e., evidently violated the 5C banking principles which every economy school student must have known. Anyway, subprime credit only one of many other causes of the financial market crisis in US and now global financial market.
Antony Mueller, founder of the
“The current economic disaster is the result of the combination of negligence, hubris, and wrong economic theory. For decades, an economic and monetary policy has been practiced based on the illusion of, "It doesn't matter." At first it was, "Deficits don't matter." From that, the policy of "it doesn't matter" got extended to money creation, the credit expansion, the stock-market bubble, and the housing boom. Now, we're being told that buying financial junk by the central bank to beef up banks and brokerages also doesn't matter.”
I am interested in finding the real cause of this financial market crisis. For I am neither a financial expert nor an economist, I tried to find all the information here and there. One of the references that really impressed me was a book written by Naomi Klein titled Shock Doctrine. This situation is exactly described well in her book. The difference is on the crisis spot, if most of the crisis detailed in the book happened in almost every place other than United States, now, it happened right in the core of the USA.
To me, this crisis is rooted from the combination of greediness, laziness, stinginess and selfishness. I am a believer of a theory where money and prosperity can be generated only by employment, people economic. The more employments, the better. As we may not forget that most people are living in sub-poor to middle class society, no exception for Indonesia or USA. No country on earth is able to eliminate poor level society to zero percent. I do not believe in money work mechanism as normally applicable under capitalism (which I suspect referred to as wrong economic theory by Antony Mueller) where the money put in the bank and let other people use the money somewhere and we receive handsome interest payment regularly.
To gain something we have to work, no doubt about it. It is the obligation of Government in every country to provide employment to its people. Now, what we can expect in Indonesia, no significant infrastructure has been developed. How can people generate income if they do not have work to do? No wonder criminal cases are increased, most drugs related business are very tempting to desperate people in this kind of situation.
After the cold war era, most countries have changed their faces from pink or red color regime to capitalist regime of economy. Under the capitalist regime as dreamt and urged by Milton Friedman, the guru of Chicago School Economy, the economy will find its balance if there is no intervention whatsoever from government. This idea has inspired the trend of privatization all over the world, affected and dictated by Friedmanist cronies, known as Chicago Boys in South part of America or popular as Berkeley Mafia here in Indonesia, of course.
It is hard for me to understand as to why we should accept the idea that privatization is the solution to the crisis while we all know that many of those state companies being privatized were money machines that support state finance. Anyway, I am just pretending naively, of course the more privatizations, the more controls those sharks will hold. The sharks called multi national companies. Of course there is interesting upside of certain amount of commissions for brokers known as international investment banks or more like piranhas. It is all about money, nothing else.
It is so ironical, that last time we have financial crisis in 1998, IMF has eventually successfully pushed some kind of financial rescue package or known as ‘structural adjustment’ which includes deregulations in investment law, tightening of monetary policy, deduction of subsidy and privatization of state owned companies. Many of our important and strategic state companies have been privatized, including banking sectors. Now we will see when those private sectors suffered from huge bad debts, it might be the time for government to step in, bail out the debt. Perhaps, when those companies become healthy again, then there will be another design to take over them by international private companies.
During my office at IBRA doing some debt restructuring before finally selling them off, I witnessed that the financial crisis in Indonesia and most Asia countries have weakened our economy which then weakened the political position of Indonesian government at that time. IMF showed up as the ‘hero’ in providing a loan to rescue the situation. Anyway, it came not without something. In line with shock doctrine theory the IMF saw the crisis as the opportunity to apply the theory in practice, such as deregulations in investment law, removing trade barriers, minimizing government interference in market, cutting out subsidy or lowering social spending and privatization.
Given the experience in 1998, I started to think maybe this time IMF will drop by to the United States and lend its powerful hands to the US government, with the cost and implications of course to be borne by lowest level of society in the USA. It will be interesting to observe how IMF will work its ‘structural adjustment’ in its homeland. Will it have a heart to hurt people of the country which have supported it since the beginning? or is it just another bad luck for American people, just as happened to us in Indonesia.
I think it is not totally untrue what Antony Mueller said:
“The current financial crisis is not of a cyclical nature. The financial turmoil is the symptom of the structural imbalances in the real economy. Over decades, expansive monetary policy has gone hand in hand with implicit and explicit bailout guarantees, and this has distorted the process of capital allocation. Under such perverted conditions, those investors will win most who cast away the restraints of prudence. It is a game that can go on for a long time — up to the point when the irrationality has become systemic.”
Is it really the phenomenon of the downfall of capitalism or is it the domino effects that ‘certain people’ wish to get in the end? We will find out later.
By: Nela Dusan (Gusnelia Tartiningsih)
Rasuna, 13 October 2008