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US Financial Crisis – An Armchair Theorist from Calcutta tries to ‘explain’ his theories
[Editorial Note: Mr. Mohan, a man from far south but a Bengali Bhadrolok for two generations in Calcutta has agreed to our request for providing this piece. Our editor Pritam had a verbatim discussion and the transcript is vetted by Mr. Mohan. Mr. Mohan has been in banking industry since 1960s and after his retirement few years back, started his career as an arm-chair theorist. A truly Calcutta species and we celebrate this. ]
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Before we say banking crisis, we need to understand what banking in its core is. Banking, fundamentally is what the verb says – to bank on, to trust – to consider an institution as a custodian of value (money / share / order of money ) and valuables (gold / ming vases / Nobel citation – one’s own or stolen ). Value changes – with time, with people and the way people define value. A bank in its essential conceptual core is a repository of value and this repository is guided by certain ‘rules of the game’. These ‘rules of the game’ are within the framework of a greater and broader law which is called the Constitution of a Country. At all stages of its functioning, this larger Law called Constitution (written / unwritten / precedence) will have the sanction to interpret and override the ‘local rules of the game.’
To enter into the issue, as far as I could see: Financial Management Continues and US constitution is burning. Somehow, the local banking ‘rules of the game’ has subverted the Larger Law which is the US constitution. Our greatest worry should be this rather than the crisis. Because, liberty can be gained but seldom regained.
Why this has happened?
Answer to any ‘why’ is a deeper and deeper journey. Shallow intelligence gets satisfied quickly. Deeper the intelligence, deeper it asks. Hence, I would not enter into the ‘technical’ explanation of what has happened and how etc. I would rather try to put few theories – quite diverse in their nature and way of argument. I can take this liberty because the situation is so complex, there are so many gaps, there are so many interests and interpretational options that it is quite unlikely that a single comprehensive and all explaining theory can ever be found. Thos who attempt this way are either naïve or have some vested interest in doing so.
Theory 1: Cheap Credit Addiction syndrome (CCAS)
The primary premise of this theory is quite strong: Nothing can be sold unless the buyer has some psychological incentive (loosely desire) to buy this. From late nineties, ‘credit’ had become cheaper in US – progressively. This cheap credit created an environment where psychological incentive to ask why this is so became suppressed by the desire to take the best advantage of it. By advantage, I mean – to fulfil present ‘desires’ and to build ‘future value’. This was say buying a home at a price and extracting a higher value out of it. Since everybody, inspired by banks (repository of value) providing cheap credit started to participate with ever increasing ‘urge’ to be a part of it, the syndrome became epidemic. A time came when there was no time-gap needed to build value due to availability of cheap and cheaper credit. For example, why build a company for five years when speculation with cheap credit seems to multiply money any number of times. This frequency change caused the whole structure to wobble first and then bottoming out. The disc of greed which otherwise gets suppressed due to the pull of real economy got out and sat at the airy nothing of the ‘speculating economy’. This is what Joseph Stiglitz called ‘smoke and mirror’. What we are finding now is the fall out of the syndrome now manifesting itself as an epidemic. Since banks are all connected now – the epidemic spread faster than it was in earlier times.
This theory does not tell – explicitly any deliberate effort on this and its primary premise is based on ‘nature of things’ – like desire, incentive and collective effect. Although it tells that there was a high incentive in that sort of behaviour.
Theory 2: The Conspiracy Theory – Collapse of United States of America
There are many variants of this theory. But the common premise is this: a small elite group ( Illuminati, Knight Templers, Jewish Bankers, Rothschild, Rockfeller, global elite, Bilderbarger etc) – controlling high finance as well as US Federal Reserve want to dominate the world. First they put cheap credit into the market, getting people addicted into it and now pulling the plug – making millions homeless, jobless and anxious. They are the merchants of confusion and this confusion is leading to concentration of power – subverting democracy, liberty and freedom.
This theory’s greatest power is its limited capacity to explain many issues in the political arena – especially – seemingly capitulation of US Congress and Senate to ‘experts’ and ‘supreme executive.’ This theory tells that all are orchestrated and explains irrational greed and CCAS by introducing mind-control techniques as strange and bizarre as that of using shortwave microwave radiation from some hidden location.
This theory can clearly explain why US Government is nationalizing: to bail-out a few by the subsidy paid by the majority. The greatest subsidy – by so many for so few in history.
Theory 3: Stat Americana pristine Nomine – America is the new and collapsing Rome
America is disintegrating internally. Just like Rome became weaker due to debt, disease and war – so is happening in America. America is fighting a protracted war in Iraq (a private war for profit - according to some), debt (cheap credit) and disease (non-sustainable medi-care cost). Financial Collapse is a symptom and hence what made it is not obvious. What is important is that it is happening just like it happened in Rome.
This Theory has its appeal for the simple reason of having sufficient documentation to compare and finding interesting and almost complete parallels sometimes. A favourite of historians and poetically minded.
Theory 4: Machine Takeover – glimpse of things to come
Contemporary financial world is ruled by smart computational devices that make ‘bets’ in microseconds and go on crunching numbers and data on any financial parameter like currency, exchange rate, discount anything. These machines have actually taken over our financial system. What in effect has happened is that the whole financial world has believed these so completely and so regularly that the machines started to loom larger and larger and finally detected as being completely out of sync with real world.
A hard to take theory but it has one very crucial advantage: it absolves almost all participants from the ‘sin’ or ‘irresponsibility’. It will be now better to blame such a framework rather than those who surely made decisions that benefited them more rather than those who valued those advices.
Theory 5: Decline of West and…
This theory is truly holistic. It says that Western Civilization and its core pillars are crumbling – Free Market, Liberty, Democracy, Rule of Law, Hatred for Dictatorship, worship of individual worth and industry…
All are systematically collapsing or degenerating. The direct beneficiary are those elites (dictators and his military, economic and legal advisers – we can see some in present US administration) and indirect beneficiaries are other major powers – waiting in the wings. This collapse would make US Government deeper into debt and one day or other, the creditors (the whole world) would find that US is also ‘bankrupt’ and would foreclose. This would cause a major shift of power. US military is heavily engaged and home is always under threat from terrorism. Finance is crumbling and people are getting obese. Quality education is unaffordable for majority and health care is at unsustainable levels. There is no power in West which shows any sign of vitality.
Russia-China-India makes a formidable combination collectively but singularly each one is significantly hamstrung to claim for the position of dominant power. Hence what will happen is a triumvirate and eventually a clash.
Concluding Words:
As told earlier, there can be other theories as well due to the very nature of the subject and its interconnectedness. What is interesting in evaluating these theories is this: It tells us to be critical – on debt and the lure of many things.
It also re-teaches this important but always forgotten lesson of History: The termites of time always work. Nothing is safe from its incessant biting at the edifice. They remain hidden – subterranean and this might always delude us.
Eternal vigilance is the price of Liberty – I think Lehman Brothers video screen can easily be replaced by this line from one of the founding fathers of the American Nation. This change, other than anything will make people think more of ‘price’ in a way which they had earlier delegated to those great names that sat inside those offices only two weeks back.
Contact @ editor@pentasect.com