Stock Options Financial Crisis

Krisis Finansial BREAKING DOWN Krisis Keuangan Krisis keuangan dapat terjadi sebagai akibat dari institusi atau aset yang dinilai terlalu tinggi, dan dapat diperburuk oleh perilaku investor. Serangkaian aksi jual yang cepat dapat menyebabkan harga aset lebih rendah atau lebih banyak penarikan tabungan. Jika dibiarkan, krisis bisa menyebabkan ekonomi mengalami resesi atau depresi. Bagaimana Krisis Keuangan 2008 Terjadi Krisis Keuangan 2008 adalah bencana ekonomi terburuk sejak Depresi Besar tahun 1929. Akar penyebabnya tidak terlacak tanpa adanya satu peristiwa atau alasan tunggal. Sebaliknya, itu adalah hasil dari rangkaian kejadian, masing-masing dengan mekanisme pemicunya sendiri yang menyebabkan hampir runtuhnya sistem perbankan. Telah diperdebatkan bahwa benih krisis ditaburkan sejauh tahun 1970an dengan Community Development Act, yang memaksa bank untuk melonggarkan persyaratan kredit mereka untuk minoritas berpenghasilan rendah, menciptakan pasar untuk hipotek subprime. Jumlah hutang hipotek subprime, yang dijamin oleh Freddie Mac dan Fannie Mae, terus berkembang ke awal 2000an, kira-kira saat Federal Reserve Board mulai memotong suku bunga secara drastis untuk menangkis resesi. Kombinasi persyaratan kredit yang longgar dan uang murah mendorong ledakan perumahan, yang mendorong spekulasi, yang mendorong harga perumahan. Sementara itu, bank investasi, yang mencari keuntungan mudah setelah kegagalan dotcom dan resesi 2001, menciptakan kewajiban pembayaran hutang (CBO) dari hipotek yang dibeli di pasar sekunder. Karena hipotek subprime dibundel dengan hipotek prima, tidak ada cara bagi investor untuk memahami risiko yang terkait dengan produk tersebut. Sekitar saat pasar CBO sedang memanas, gelembung perumahan yang telah dibangun selama beberapa tahun mulai meledak. Seiring turunnya harga perumahan, peminjam subprime mulai gagal membayar pinjaman yang nilainya lebih mahal daripada rumah mereka, mempercepat penurunan harga. Ketika investor menyadari CBO menjadi tidak berharga karena hutang beracun yang mereka wakili, mereka mencoba membongkar, tapi tidak ada pasar untuk mereka. Hal ini menyebabkan sejumlah kegagalan pemberi pinjaman subprime, yang menciptakan penularan likuiditas yang berhasil mencapai tingkat atas sistem perbankan. Dua bank investasi utama, Lehman Brothers dan Bear Stearns, ambruk di bawah beban eksposur mereka terhadap hutang subprime, dan lebih dari 450 bank gagal dalam lima tahun ke depan. Beberapa bank besar berada di ambang kegagalan jika bukan karena bailout yang didanai pembayar pajak. Manfaat Dari Pilihan Sebagai Windfall untuk Bisnis Mel Karmazin, chief executive SiriusXM, diberi opsi saham pada bulan Juni 2009. Mereka sekarang Senilai 165 juta. Kredit Pasar Modal rebound dari krisis keuangan tiga tahun yang lalu telah menciptakan potensi rejeki nomplok bagi ratusan eksekutif yang diberi paket opsi saham yang luar biasa besar sesaat setelah pasar ambruk. Kini, perusahaan yang memberi penghargaan dermawan itu mulai mendapat keuntungan juga dalam bentuk penghematan pajak. Berkat sebuah permainan kata-kata dalam hukum pajak, perusahaan dapat mengklaim pengurangan pajak di tahun-tahun depan yang jauh lebih besar daripada nilai opsi saham ketika mereka diberikan kepada eksekutif. Penghentian pajak ini akan mencabut pemerintah federal dengan pendapatan puluhan miliar dolar selama dekade berikutnya. Dan ini adalah salah satu dari sekian banyak ketentuan yang tidak jelas yang terkubur dalam kode pajak yang memungkinkan sebagian besar perusahaan Amerika membayar jauh lebih sedikit daripada tarif pajak perusahaan teratas sebesar 35 persen dalam beberapa kasus, hampir tidak ada bahkan dalam tahun-tahun yang sangat menguntungkan. Di Washington, di mana gaji eksekutif dan pajak dikenai biaya tinggi, beberapa kritikus di Kongres telah lama berusaha untuk menghilangkan manfaat pajak ini, dengan mengatakan bahwa ini adalah kebijakan yang buruk untuk membiarkan perusahaan mengklaim potongan besar tersebut untuk opsi saham tanpa harus mengeluarkan uang tunai. Apalagi, kata mereka, kebijakan tersebut pada dasarnya memaksa pembayar pajak untuk mensubsidi gaji eksekutif, yang telah meningkat dalam beberapa dekade terakhir. Kelemahan itu diperbesar, menurut mereka, sekarang para eksekutif dan perusahaan menuai keuntungan yang besar dengan memanfaatkan harga saham yang tertekan sekali. Opsi saham memberi hak kepada pemiliknya untuk membeli saham perusahaan dengan harga tertentu selama periode tertentu. Pengambilan pajak perusahaan berasal dari kenyataan bahwa eksekutif biasanya mencairkan opsi saham dengan harga jauh lebih tinggi daripada nilai awal yang dilaporkan perusahaan kepada pemegang saham saat mereka diberikan. Tapi perusahaan kemudian membiarkan pengurangan pajak dengan harga lebih tinggi. Misalnya, di hari-hari gelap Juni 2009, Mel Karmazin, chief executive Radio Sirius XM, diberi opsi untuk membeli saham perusahaan dengan harga 43 sen per saham. Pada harga sekarang sekitar 1,80 per saham, nilai opsi tersebut telah meningkat menjadi 165 juta dari 35 juta yang dilaporkan oleh perusahaan tersebut sebagai biaya kompensasi untuk buku keuangannya saat diterbitkan. Jika dia berlatih dan menjual dengan harga itu, Mr Karmazin tentu saja berhutang pajak pada 165 juta sebagai pendapatan biasa. Perusahaan, sementara itu, berhak untuk mengurangi 165 juta penuh sebagai kompensasi atas pengembalian pajaknya, seolah-olah telah membayar jumlah tersebut secara tunai. Itu bisa mengurangi tagihan pajak federalnya sekitar 57 juta, dengan tarif pajak perusahaan tertinggi. SiriusXM tidak menanggapi permintaan berulang untuk berkomentar. Puluhan perusahaan besar lainnya membagi-bagikan hibah luar biasa dari opsi saham pada akhir 2008 dan 2009 termasuk Ford, General Electric, Goldman Sachs, Google dan Starbucks dan mungkin akan memenuhi syarat untuk potongan pajak yang sesuai. Pakar kompensasi eksekutif mengatakan bahwa selain ambruknya pasar lain, pembayaran kepada eksekutif dan tunjangan pajak bagi perusahaan akan berjalan dengan baik hingga miliaran dolar di tahun-tahun mendatang. Memang, dari miliaran saham senilai opsi yang dikeluarkan setelah krisis, hanya sekitar 11 juta yang telah dilakukan, menurut data yang dikumpulkan oleh InsiderScore, sebuah perusahaan konsultan yang mengumpulkan pengajuan peraturan mengenai penjualan saham orang dalam. Pilihan ini memberi eksekutif taruhan yang sangat leverage bahwa harga saham akan pulih dari posisi terendah 2008 dan 2009, dan sekarang memberi mereka imbalan untuk pasang surut daripada kinerja, kata Robert J. Jackson Jr. seorang profesor hukum di Columbia yang bekerja sebagai Penasihat kantor yang mengawasi kompensasi eksekutif di perusahaan yang menerima uang bailout federal. Kode pajak tidak melakukan apa pun untuk memastikan bahwa penghargaan ini hanya diberikan kepada eksekutif yang telah menciptakan nilai jangka panjang yang berkelanjutan. Bagi beberapa perusahaan, pemberian opsi saham bisa tampak seperti tawar-menawar yang menggoda, karena tidak ada pengeluaran tunai dan manfaat pajaknya bisa melebihi biaya asli. Berdasarkan peraturan akuntansi standar, perusahaan menghitung nilai wajar dari opsi pada tanggal pemberian dan melaporkan nilai tersebut sebagai biaya, yang diungkapkan dalam pengajuan peraturan. Namun Internal Revenue Service memungkinkan perusahaan untuk mengklaim pengurangan pajak atas kenaikan nilai saat opsi tersebut dilakukan, biasanya bertahun-tahun kemudian dengan harga yang jauh lebih tinggi. Penghematan pajak dicatat dalam bentuk pengarsipan karena kelebihan manfaat pajak dari kompensasi berbasis saham. Bagi kebanyakan perusahaan, keuntungan utama penggunaan opsi adalah opsi memberi mereka bonus besar tanpa benar-benar menipiskan uang mereka, kata Alan J. Straus, pengacara pajak dan akuntan New York. Tapi perlakuan pajaknya bagus sekali, katanya. Ini satu-satunya bentuk kompensasi dimana perusahaan bisa mendapatkan deduksi tanpa harus menghasilkan uang tunai. Beberapa kelompok pengawas perusahaan, dan beberapa anggota Kongres, menyebut pengurangan pajak perusahaan sebagai celah yang mahal. Banyak pengacara pajak dan akuntan menganggap bahwa pengurangan pajak dapat dibenarkan karena pilihan tersebut merupakan biaya nyata bagi perusahaan. Dan karena para eksekutif yang menggunakan pilihan mereka dikenai pajak dengan tarif tinggi, perusahaan mengatakan bahwa sebuah perubahan akan menghasilkan bentuk pajak berganda yang tidak adil. Senator Carl Levin telah mencoba untuk menghilangkan keringanan pajak. Namun, bahkan mereka yang mendukung kebijakan pajak yang ada mengatakan bahwa oportunistik adalah kesempatan bagi para eksekutif untuk memanfaatkan kenaikan opsi saham yang seharusnya merupakan penghargaan berbasis kinerja ketika keruntuhan marklines berarti bahwa sebagian besar harga saham perusahaan sepertinya ditakdirkan. naik. Kenaikan nilai opsi yang diberikan selama krisis keuangan tidak hanya membebani Departemen Keuangan. Para pendukung pemegang saham dan pakar tata kelola perusahaan mengatakan bahwa mereka datang dengan mengorbankan investor lain, yang sahamnya di perusahaan diencerkan. Jauh sebelum kemerosotan pasar, ratusan perusahaan Amerika mengurangi tagihan pajak mereka dengan miliaran dolar setahun melalui penggunaan opsi saham mereka yang cerdik. Satu dekade yang lalu, perusahaan seperti Cisco dan Microsoft banyak dikritik karena opsi saham mereka menciptakan deduksi besar seperti itu, dalam beberapa tahun, mereka sama sekali tidak membayar pajak federal. Ketika pemegang saham dan regulator mengeluh tentang penggunaan opsi saham yang berlebihan, Microsoft menghentikan sementara penerbitannya pada tahun 2003. Terima kasih telah berlangganan. Sebuah kesalahan telah terjadi. Silakan coba lagi nanti. Anda sudah berlangganan email ini. Dari tahun 2005 sampai 2008, Apple melaporkan bahwa opsi yang dijalankan oleh karyawannya memotong tagihan pajak pendapatan federalnya lebih dari 1,6 miliar. Opsi saham mengurangi tagihan pajak pendapatan federal Goldman Sachss sebesar 1,8 miliar selama periode tersebut, dan Hewlett-Packards oleh hampir 850 juta, menurut pengajuan oleh perusahaan. Perusahaan mengatakan bahwa perlakuan pajak dibenarkan karena mereka mengurangi biaya untuk membayar karyawan, sama seperti jika mereka membayar gaji secara tunai. Senator Carl Levin, seorang Demokrat Michigan, telah mencoba selama hampir satu dekade untuk menghilangkan jatah pajak, yang mempengaruhi opsi saham yang paling umum diberikan. Dia telah memperkenalkan sebuah RUU yang akan membatasi pengurangan pajak perusahaan untuk opsi dengan jumlah yang sama yang diumumkan di buku finansialnya. Usulannya juga akan menghitung pilihan maksimal 1 juta yang bisa dipotong perusahaan untuk dibayarkan setiap tahun (di luar bonus berbasis kinerja). Panitia Bersama Perpajakan bipartisan memperkirakan bahwa jika proposal senator diundangkan, akan menambah 25 miliar pada Departemen Keuangan selama dekade berikutnya. Opsi saham menjadi hadiah populer bagi eksekutif puncak pada 1990-an setelah Kongres memberlakukan 1 juta cap tersebut. Mereka kehilangan sedikit daya tarik mereka setelah perubahan akuntansi pada tahun 2005 memaksa perusahaan untuk mulai menghitung nilai opsi sebagai biaya. Skandal mengenai opsi backdating juga membuat beberapa perusahaan waspada. Stok terbatas dan bentuk ekuitas lainnya terkadang menggantikan opsi. Begitu pasar saham turun pada musim gugur tahun 2008, bagaimanapun, ada lonjakan jumlah opsi yang diberikan oleh perusahaan. Menurut pengajuan peraturan yang disusun oleh Equilar, sebuah perusahaan konsultan kompensasi eksekutif, jumlah opsi yang dikeluarkan oleh perusahaan di Standard amp Poors 500 melonjak menjadi 2,4 miliar di tahun 2009 dari 2,1 miliar di tahun 2007, meskipun mereka telah mengalami penurunan sejak tahun 2003. Goldman Sachs memberikan 36 juta opsi saham pada bulan Desember 2008, 10 kali lipat dari tahun sebelumnya. General Electric, yang memberikan 18 juta opsi pada tahun 2007 dan 25 juta opsi pada tahun 2008, memberikan 159 juta pada tahun 2009 dan 105 juta di tahun 2010. Beberapa perusahaan mengatakan bahwa penghargaan pilihan mereka pada tahun 2008 dan 2009 diputuskan sebelum pasar saham tersebut dipulihkan. . Yang lain mengatakan bahwa karena harga saham telah turun, mereka harus mengeluarkan lebih banyak opsi untuk mencapai target kompensasi bagi eksekutif puncak mereka. General Electric mengakui bahwa ia mengeluarkan lebih banyak pilihan setelah pasar ambruk karena mereka menawarkan cara yang lebih murah untuk membayar eksekutif daripada saham yang dibatasi dan bentuk kompensasi lainnya. G. E. Juru bicara, Andrew Williams, mengatakan bahwa pertimbangan pajak tidak berperan dalam keputusan tersebut. Yang pasti, beberapa eksekutif yang nilai opsi telah melejit dapat menunjukkan pencapaian penting. Howard Schultz, chief executive Starbucks, diberi opsi senilai 12 juta pada November 2008 yang saat ini bernilai lebih dari 100 juta. Pada tahun-tahun sebelumnya, Starbucks telah memberhentikan ribuan karyawan, menutup ratusan toko dan memperlengkapi kembali rencana bisnisnya. Strategi tersebut membalikkan slide perusahaan dalam pendapatan. Saham Starbucks, yang diperdagangkan pada 30an selama sebagian besar tahun 2008 dan turun di bawah 8 setelah keruntuhan, ditutup pada hari Kamis pukul 46.45. Tetapi perusahaan lain yang eksekutifnya telah menguangkan beberapa opsi yang dikeluarkan selama krisis belum dilakukan dengan baik dibandingkan dengan rekan-rekan mereka. Perusahaan pengeboran minyak Halliburton adalah satu. Dan beberapa perusahaan jasa keuangan yang telah melihat nilai opsi yang mereka keluarkan setelah keruntuhan pasar meningkat secara signifikan termasuk Goldman Sachs dan Capital One Financial mampu mengatasi krisis tersebut, di beberapa bagian, karena miliaran uang talangan federal yang mereka terima. Alasan dewan C. E.O. s dan perusahaan memberi semua opsi selama krisis ini karena mereka memperkirakan pasar akan pulih dan karena ekonomi bersifat siklis, semua orang tahu akan pulih, kata Sydney Finkelstein, seorang profesor manajemen di Dartmouths Tuck School of Business. Dan seluruh permainan dimainkan dengan uang orang lain uang pasar dan uang pembayar pajak. Versi artikel ini akan dicetak pada tanggal 30 Desember 2011, di halaman A1 edisi New York dengan tajuk utama: Manfaat Pajak Dari Pilihan Sebagai Windfall untuk Bisnis. Order Reprints Todays Paper SubscribeGlobal Financial Crisis Penulis dan Informasi Page Krisis keuangan global, pembuatan bir untuk sementara, benar-benar mulai menunjukkan pengaruhnya pada pertengahan tahun 2007 dan memasuki tahun 2008. Sekitar pasar saham dunia telah jatuh, lembaga keuangan besar telah ambruk atau Telah dibeli, dan pemerintah di negara-negara terkaya sekalipun harus menghasilkan paket penyelamatan untuk menyelamatkan sistem keuangan mereka. Di satu sisi banyak orang khawatir bahwa mereka yang bertanggung jawab atas masalah keuangan adalah orang-orang yang diselamatkan, sementara di sisi lain, krisis keuangan global akan mempengaruhi mata pencaharian hampir semua orang di dunia yang semakin saling terhubung. Masalahnya bisa dihindari, jika ideolog mendukung model ekonomi saat ini sangat beralasan, begitu vokal, berpengaruh dan tidak berperasaan terhadap sudut pandang dan kekhawatiran orang lain. Artikel ini memberikan gambaran umum tentang krisis dengan tautan untuk cakupan lebih lanjut, lebih rinci, di akhir. Halaman web ini memiliki subbagian berikut: Krisis yang sangat parah, sistem keuangan dunia terpengaruh Setelah periode boom ekonomi, bubbleglobal keuangan dalam scopehas sekarang meledak. Keruntuhan pasar hipotek sub-prime AS dan pembalikan boom perumahan di negara-negara industri lainnya telah mengalami efek riak di seluruh dunia. Selanjutnya, kelemahan lain dalam sistem keuangan global telah muncul. Beberapa produk dan instrumen keuangan telah menjadi begitu kompleks dan terpelintir, sehingga ketika segala sesuatu mulai terurai, kepercayaan terhadap keseluruhan sistem mulai gagal. John Bird, John Fortune, Krisis Subprime. 14 Februari 2008 Meskipun ada banyak penjelasan teknis tentang bagaimana krisis subprime mortgage terjadi, komedian Inggris arus utama, John Bird dan John Fortune, menggambarkan pola pikir komunitas perbankan investasi dalam wawancara satiris ini, menjelaskannya dalam sebuah Cara yang terkadang hanya komedian bisa. Bersama dengan impresionis Rory Bremner, derivatif (sekuritas yang berasal dari sekuritas lain) juga dijelaskan: Taruhan dari sesuatu yang praktis membantu menciptakan sejumlah besar uang dari hampir tidak ada sama sekali. Namun, seperti mantan penulis pidato Presiden AS, Mark Lange. Catatan, karena derivatif sama sekali tidak diatur dan diperdagangkan tanpa pertukaran publik, pencetusnya dapat dengan sengaja menyembunyikan kerentanan mereka. Jonathan Jarvis menjelaskan penyebab krisis kredit dalam video pendek yang menarik: Jika Anda tidak dapat melihat videonya, atau untuk rincian lebih lanjut, dua bagian berikutnya membahas ini lebih lanjut. Sekuritisasi dan krisis subprime Krisis subprime sebagian besar terjadi karena instrumen keuangan seperti sekuritisasi dimana bank akan menggabungkan berbagai pinjaman mereka ke dalam aset yang dapat dijual, sehingga membebaskan pinjaman berisiko kepada pihak lain. (Bagi bank, jutaan dapat dibuat dengan pinjaman uang produktif, tapi sudah diikat selama beberapa dekade, jadi mereka berubah menjadi sekuritas. Pembeli keamanan mendapat pembayaran rutin dari semua hipotek yang dikeluarkan bankir dari risiko tersebut. Sekuritisasi dilihat sebagai Mungkin inovasi keuangan terbesar di abad 20.) Sebagai mantan editor dan presenter ekonomi BBC, Evan Davies mencatat dalam sebuah film dokumenter berjudul The City Uncovered with Evan Davis: Banks and How to Break Them (14 Januari 2008), lembaga pemeringkat dibayar Untuk menilai produk ini (mempertaruhkan konflik kepentingan) dan selalu mendapat peringkat bagus, mendorong orang untuk mengangkatnya. Berawal di Wall Street, yang lainnya diikuti dengan cepat. Dengan keuntungan yang melonjak, semua menginginkan, bahkan jika melampaui bidang keahlian mereka. Sebagai contoh, Bank meminjam lebih banyak uang untuk dipinjamkan sehingga mereka bisa menciptakan lebih banyak sekuritisasi. Beberapa bank tidak perlu mengandalkan penabung sebanyak itu, selama mereka bisa meminjam dari bank lain dan menjual pinjaman tersebut karena kredit macet akan menjadi masalah siapa pun yang membeli sekuritas tersebut. Beberapa bank investasi seperti Lehman Brothers masuk ke hipotek, membelinya untuk sekuritisasi dan kemudian menjualnya. Beberapa bank meminjamkan lebih banyak lagi alasan untuk melakukan sekuritisasi pinjaman tersebut. Kehabisan siapa yang harus dipinjamkan, bank beralih ke orang miskin dengan subprime, pinjaman yang lebih berisiko. Meningkatnya harga rumah membuat kreditur menganggapnya bukan kredit berisiko yang terlalu berisiko berarti mengambil alih properti bernilai tinggi. Pinjaman subprime dan self-certified (kadang-kadang disebut pinjaman pendusta) menjadi populer, terutama di AS. Beberapa bank mulai membeli sekuritas dari yang lain. Kewajiban Hutang yang Dijamin, atau CDO, (bentuk sekuritisasi yang bahkan lebih kompleks) menyebarkan risikonya namun sangat rumit dan sering menyembunyikan pinjaman macet. Sementara hal-hal yang baik, tidak ada yang menginginkan kabar buruk. Catatan Samping Ketika ditanya bagaimana jika seseorang mengemukakan kekhawatirannya, Peter Harn, salah satu inovator CDO, versi sekuritisasi yang lebih kompleks lagi, mengatakan kepada BBC bahwa orang-orang seperti itu kemungkinan akan kehilangan pekerjaan mereka yang mencoba melambat akan melihat penurunan jumlah mereka. Pangsa pasar dibanding yang lain, misalnya. Bank-bank jalan tinggi masuk ke dalam bentuk investasi perbankan, pembelian, penjualan dan risiko perdagangan. Bank investasi, yang tidak puas dengan risiko beli, penjualan dan perdagangan, masuk ke pinjaman rumah, hipotek, dll tanpa kontrol dan manajemen yang tepat. Banyak bank mengambil risiko besar untuk meningkatkan eksposur mereka terhadap masalah. Mungkin ironisnya, seperti yang diamati oleh Evan Davies, bahwa instrumen keuangan untuk mengurangi risiko dan membantu meminjamkan barang bukti akan menjadi bumerang. Ketika orang akhirnya mulai melihat masalah, kepercayaan diri pun turun dengan cepat. Lending melambat, dalam beberapa kasus berhenti untuk sementara dan bahkan sekarang, ada krisis kepercayaan diri. Beberapa bank investasi duduk di atas pinjaman paling berisiko yang tidak diinginkan investor lain. Aset jatuh nilainya sehingga pemberi pinjaman ingin mengembalikan uang mereka. Tapi beberapa bank investasi hanya memiliki sedikit dana deposito yang tidak aman, sehingga beberapa orang terkoreksi dengan cepat dan dramatis. Masalahnya begitu besar, bank bahkan dengan cadangan modal yang besar habis, jadi mereka harus beralih ke pemerintah untuk mendapatkan uang jaminan. Modal baru disuntikkan ke bank untuk, pada dasarnya, memungkinkan mereka kehilangan lebih banyak uang tanpa bangkrut. Itu masih belum cukup dan rasa percaya diri tidak dipulihkan. (Beberapa orang berpikir mungkin butuh waktu bertahun-tahun agar percaya diri untuk kembali.) Menyusut bank menyedot uang dari ekonomi saat mereka mencoba membangun modal mereka dan merasa cemas dengan peminjaman. Sementara itu, bisnis dan individu yang mengandalkan kredit sulit didapat. Sebuah spiral masalah dihasilkan. Seperti yang Evan Davies gambarkan, bank-bank entah bagaimana menangkap peluru sekuritisasi ajaib dan melepaskannya pada diri mereka sendiri. Menciptakan lebih banyak risiko dengan mencoba mengelola risiko Sekuritisasi merupakan upaya pengelolaan risiko. Ada sejumlah upaya untuk mengurangi risiko, atau memastikan masalah. Meskipun ini adalah hal yang sah untuk dilakukan, instrumen yang memungkinkan hal ini terjadi membantu menimbulkan masalah saat ini juga. Intinya, apa yang terjadi adalah bank, hedge fund dan lainnya menjadi terlalu percaya diri karena mereka semua mengira mereka telah memikirkan bagaimana mengambil risiko dan menghasilkan uang dengan lebih efektif. Karena pada awalnya mereka menghasilkan lebih banyak uang untuk mengambil lebih banyak risiko, karena mereka memperkuat pandangan mereka sendiri bahwa mereka telah memahaminya. Mereka pikir mereka telah menyebarkan semua risikonya secara efektif namun jika benar-benar salah, semuanya beres. Dalam sebuah dokumenter tindak lanjut, Davis mewawancarai Naseem Taleb, yang pernah menjadi pilihan pedagang sendiri, yang berpendapat bahwa banyak manajer hedge fund dan bankir membodohi diri mereka sendiri untuk berpikir bahwa mereka aman dan berada di tempat yang tinggi. Itu adalah hasil sebuah sistem yang didasarkan pada teori-teori buruk, statistik buruk, kesalahpahaman tentang probabilitas dan, akhirnya, keserakahan, dia mengatakan Apa yang memungkinkan hal ini terjadi Seperti yang dijelaskan Davis, sebuah cara untuk mengelola, atau memastikan, risiko benar-benar dipimpin Untuk bangkitnya instrumen yang mempercepat masalah: Derivatif, futures keuangan, credit default swaps, dan instrumen terkait keluar dari gejolak dari tahun 1970an. Guncangan minyak, inflasi dua digit di AS, dan penurunan 50 di pasar saham AS membuat bisnis lebih sulit mencari cara untuk mengelola risiko dan memastikan dirinya lebih efektif. Industri keuangan berkembang karena lebih banyak orang mulai memikirkan bagaimana memastikan kerugian saat berinvestasi dalam sesuatu. Untuk mengetahui bagaimana harga asuransi ini, para ekonom menghasilkan opsi, sebuah derivatif yang memberi Anda hak untuk membeli sesuatu di masa depan dengan harga yang telah disepakati sekarang. Genius matematika dan ekonomi percaya bahwa mereka telah menemukan formula bagaimana cara memilih opsi, model Black-Scholes. Ini adalah pilihan sekali hit bisa harga, menjadi lebih mudah untuk perdagangan. Pasar baru yang terancam punah. Dikombinasikan dengan pertumbuhan telekomunikasi dan komputasi, pasar derivatif meledak sehingga membuat dan menjual risiko di pasar terbuka mungkin dengan cara yang belum pernah ada sebelumnya. Seiring orang menjadi sukses dengan cepat, mereka menggunakan derivatif untuk tidak mengurangi risikonya, namun mengambil risiko lebih banyak untuk menghasilkan lebih banyak uang. Keserakahan mulai menendang masuk Bisnis mulai masuk ke daerah-daerah yang belum tentu menjadi bagian dari bisnis mereka yang mendasarinya. Akibatnya, orang membuat spekulasi lebih banyak. Atau perjudian. Hedge fund, credit default swaps, bisa jadi instrumen yang sah saat mencoba mengasuransikan apakah seseorang akan gagal bayar atau tidak, tapi masalahnya terjadi saat pasar menjadi lebih spekulatif. Beberapa institusi membayar risiko pada margin sehingga Anda tidak perlu meletakkan nilai sebenarnya dari sebelumnya, yang memungkinkan orang menghasilkan keuntungan besar (dan kerugian besar) dengan sedikit modal. Seperti Nick Leeson (dari keruntuhan Barings yang terkenal) dijelaskan dalam dokumenter yang sama, setiap kerugian menghasilkan lebih banyak taruhan dan lebih banyak risiko dengan harapan bisa menutup kerugian sebelumnya, sama seperti perjudian. Derivatif menyebabkan penghancuran bank tersebut. Hedge fund telah menerima banyak kritik karena bertaruh pada hal-hal buruk. Dalam krisis baru-baru ini mereka dikritik karena shorting pada bank, menurunkan harga mereka. Beberapa negara melarang sementara shorting pada bank. Dalam beberapa hal, hedge fund mungkin telah memberi sinyal kelemahan mendasar dengan bank-bank, yang mendorong pinjaman melampaui kemampuan orang-orang. Di sisi lain semakin banyak semakin mereka bisa untung. Pasar untuk pasar swap default kredit (turunan asuransi saat default bisnis), misalnya sangat besar, melebihi seluruh output ekonomi dunia sebesar 50 triliun pada musim panas 2008. Hal itu juga diatur dengan buruk. Perusahaan asuransi dan jasa keuangan terbesar di dunia, AIG sendiri memiliki credit default swaps sekitar 400 miliar pada saat itu. Banyak paparan dengan sedikit regulasi. Selanjutnya, banyak credit swap AIGs ada pada hipotek, yang tentu saja mengalami penurunan, dan begitu pula AIG. Perdagangan dalam swap ini menciptakan keseluruhan jaringan ketergantungan yang saling terkait satu rantai hanya sekuat link yang paling lemah. Masalah apapun, seperti risiko atau kerugian signifikan yang sebenarnya bisa menyebar dengan cepat. Oleh karena itu, bailout akhirnya (sekarang sekitar 150 miliar) saham AIG oleh pemerintah AS untuk mencegahnya gagal. Derivatif tidak menyebabkan krisis keuangan ini tapi mereka melakukan percepatannya begitu hipotek subprime ambruk, karena investasi yang saling terkait. Derivatif merevolusi pasar keuangan dan kemungkinan akan berada di sini untuk bertahan karena ada permintaan untuk asuransi dan mitigasi risiko. Tantangannya sekarang, Davis meringkas, adalah untuk memerintah dalam ekses derivatif yang lebih liar untuk menghindari bencana yang sangat mahal tersebut dan mencegah lebih banyak terjadi AIG. Ini akan sangat sulit dilakukan. Terlepas dari manfaat sistem pasar, seperti yang telah diakui banyak orang, ini jauh dari sempurna. Antara lain, para ahli seperti ekonom dan psikolog mengatakan bahwa pasar menderita beberapa kelemahan manusia, seperti bias konfirmasi (selalu mencari fakta yang mendukung pandangan Anda, bukan hanya fakta) dan bias superioritas (kepercayaan bahwa seseorang lebih baik daripada Yang lain, atau lebih baik dari rata-rata dan bisa membuat keputusan yang baik sepanjang waktu). Mencoba untuk memerintah di sisi-sisi sifat manusia ini tampak seperti tatanan tinggi dan sementara itu biayanya meroket. Skala krisis: triliunan dana talangan pembayar pajak Tingkat permasalahannya begitu parah sehingga beberapa lembaga keuangan terbesar di dunia telah runtuh. Orang lain telah dibeli oleh pesaing mereka dengan harga rendah dan dalam kasus lain, pemerintah negara-negara terkaya di dunia telah menggunakan paket bail-out dan penyelamatan ekstensif untuk bank-bank besar dan lembaga keuangan yang tersisa. Jumlah total yang telah dikeluarkan pemerintah untuk dana talangan telah melejit. Dari kerugian kredit dunia sebesar 2,8 triliun pada Oktober 2009, pembayar pajak AS sendiri akan menghabiskan sekitar 9,7 triliun paket dan rencana bailout. Menurut Bloomberg. 14,5 triliun, atau 33, dari nilai perusahaan dunia telah terhapus oleh krisis ini. Inggris dan negara-negara Eropa lainnya juga telah menghabiskan sekitar 2 triliun untuk paket penyelamatan dan bailout. Lebih banyak yang diharapkan. Efek dari ini, Konferensi Perdagangan dan Pembangunan Perserikatan Bangsa-Bangsa mengatakan dalam Laporan Perdagangan dan Pembangunan 2008, sebagaimana dirangkum oleh Third World Network. Bahwa ekonomi global tertatih-tatih di ambang resesi. Penurunan setelah empat tahun pertumbuhan yang relatif cepat disebabkan oleh sejumlah faktor: dampak global dari krisis keuangan di Amerika Serikat, meledaknya gelembung perumahan di AS dan di negara-negara besar lainnya, melonjaknya harga komoditas, semakin ketat. Kebijakan moneter di sejumlah negara, dan volatilitas pasar saham. Kejatuhan dari runtuhnya pasar hipotek AS dan pembalikan boom perumahan di berbagai negara penting telah berubah menjadi lebih mendalam dan gigih dari yang diperkirakan pada tahun 2007 dan awal tahun 2008. Semakin banyak bukti dikumpulkan dan sebagai lag Efek muncul, kita melihat semakin banyak negara di seluruh dunia terpengaruh oleh efek negatif yang agak mendalam dan terus-menerus ini dari pembalikan booming perumahan di berbagai negara. Krisis yang begitu parah, yang bertanggung jawab ditebus Beberapa jaminan juga telah disertai dengan tuduhan kemunafikan karena munculnya sosialisasi biaya sambil melakukan privatisasi keuntungan. Bailout tampaknya membantu lembaga keuangan yang mendapat masalah (banyak di antaranya mendorong kebijakan longgar yang memungkinkan hal ini terjadi di tempat pertama). Beberapa pemerintah telah bergerak untuk membuat lebih sulit untuk memanipulasi pasar dengan korslet selama krisis keuangan menyalahkan mereka karena memburuknya situasi yang sudah buruk. (Perlu dicatat bahwa selama krisis keuangan Asia yang melemahkan pada akhir 1990an, negara-negara Asia terpengaruh oleh short-selling mengeluh, tanpa keberhasilan spekulator mata uang yang beroperasi melalui hedge fund atau melalui operasi mata uang bank umum dan lembaga keuangan lainnya yang menyerang mata uang mereka melalui Short selling dan dengan melakukan hal tersebut, membawa tingkat suku bunga lokal jauh di bawah tingkat ekonomi riil mereka. Namun, ketika mereka mengeluh kepada pemerintah Barat dan Dana Moneter Internasional (IMF), mereka menolak klaim pemerintah Asia, dengan menyalahkannya. Kesalahan manajemen ekonomi mereka sendiri.) Pemerintah lain telah bergerak untuk mencoba dan meyakinkan investor dan penabung bahwa uang mereka aman. Di sejumlah negara Eropa, misalnya, pemerintah telah berusaha untuk meningkatkan atau sepenuhnya menjamin simpanan nasabah. Dalam kasus lain, bank telah dinasionalisasi (mensosialisasikan keuntungan dan juga biaya, secara potensial.) Sementara itu, bisnis yang lebih kecil dan orang miskin jarang memiliki opsi untuk mendapatkan uang jaminan dan menyelamatkan diri saat mereka menghadapi krisis. Tampaknya ada sedikit simpati dan bahkan menimbulkan kebencian terhadap pekerja di sektor keuangan, karena mereka dianggap telah berjudi dengan uang orang lain, dan karenanya hidup, saat mendapatkan bonus gemuk dan kenaikan gaji untuk itu di masa lalu. Meskipun dalam dolar mentah, kenaikan gaji yang besar dan bonus kecil dibandingkan dengan besarnya masalah, dorongan yang diberikan praktik semacam itu di masa lalu, dan juga jenis budaya yang diciptakannya, adalah apa yang telah membuat marah banyak orang. Catatan samping pada mereka yang mengambil pinjaman berisiko di pasar subprime Dalam kasus hipotek subprime, juga berpendapat bahwa mereka yang mengambil pinjaman berisiko harus disalahkan bahwa mereka seharusnya tidak meminjam begitu banyak uang ketika mereka tahu mereka tidak akan memiliki Berarti membayar kembali Meskipun ada kebenaran mengenai hal ini, dan budaya kita mengharapkan uang mudah, mengkonsumsi di luar kemampuan kita, dan lain-lain adalah sesuatu yang memerlukan perhatian segera, dalam kasus hipotek subprime, nampaknya mudah untuk melupakan keadaan orang-orang yang hidup dalam kemiskinan relatif. Penasihat keuangan yang secara tidak bertanggung jawab mendorong pinjaman ini (tanpa bunga atau perhatian peminjam) umumnya agresif karena mereka harus memperoleh banyak keuntungan dari pinjaman ini. Bagi orang yang hidup dalam kemiskinan bahkan di negara-negara kaya kehidupan bisa menjadi sangat putus asa dan menyedihkan. Kekhawatiran akan berkisar dari kejahatan di lingkungan sekitar, hingga sekolah yang baik, untuk mendapatkan minggu demi minggu dengan sangat sedikit, dan memastikan sebuah pekerjaan bertahan. Harapan untuk dapat melarikan diri untuk sementara waktu, pada dasarnya, dieksploitasi. Bila dalam kemiskinan, pemikiran jangka panjang tidak selalu masuk ke ranah perhatian langsung. Lebih jauh lagi, kemungkinan bahwa mereka yang berada di bawah strata sosial tidak akan sama finansialnya dengan orang-orang yang berada di bawahnya. Oleh karena itu biasanya lebih banyak kepercayaan ditempatkan di bank atau penasihat keuangan. Hal ini sering dilupakan akhir-akhir ini bahwa bank dan lembaga keuangan telah berubah di alam, ada sedikit kekhawatiran tentang orang-orang yang mereka layani, namun lebih banyak tentang bagaimana mereka dapat menjual produk dari mana mereka dapat menghasilkan keuntungan. Sampai batas tertentu peminjam berisiko menanggung sebagian tanggung jawab, namun secara keseluruhan mereka telah kehilangan kreditur yang diselamatkan, sementara mereka yang mengambil pinjaman berisiko telah kehilangan rumah mereka, atau menghadapi ancaman nyata kehilangan rumah mereka dalam waktu dekat. Pemenang Nobel Perekonomian, Paul Krugman, mengomentari pembunuhan Bernard Madoffs 50 miliar, mencatat bahwa sebagian besar industri jasa keuangan telah mengalami kerusakan yang sama: Industri jasa keuangan telah mengklaim bagian pendapatan negara yang terus berkembang selama masa lalu , Membuat orang-orang yang menjalankan industri sangat kaya. Kekayaan besar yang dicapai oleh orang-orang yang mengelola uang orang lain memiliki dampak buruk pada masyarakat kita secara keseluruhan. Tapi pastinya para superstar keuangan itu pasti sudah menghasilkan jutaan uang mereka, bukan Tidak, tidak harus. Sistem pembayaran di Wall Street dengan boros memberi penghargaan pada penampilan keuntungan, bahkan jika penampilan itu kemudian berubah menjadi ilusi. Pada tingkat yang paling rendah, Wall Street mendapat keuntungan rusak dan terus merusak politik, dengan cara yang sangat bipartisan. Paul Krugman, Ekonomi Madoff. Bagaimana mungkin mantan kepala ekonom IMF ini (dan penasihat ekonomi Perdana Menteri India yang baru saja ditunjuk), Raghuram Rajan menulis sebuah makalah pada tahun 2005 karena khawatir perkembangan keuangan dalam bentuknya saat ini mungkin berisiko. Salah satu alasan utamanya adalah mekanisme incentivepay bagi manajer investasi yang tidak hanya menghargai perilaku berisiko, tapi mungkin mendorongnya. (Karena dia juga khawatir bahwa bentuk kapitalisme keuangan ini bisa memiliki efek negatif yang serius dan juga efek positif yang terlihat saat itu, dia tentu saja diabaikan dan agak diejek pada saat itu, karena pada puncak ledakan ekonomi. ) Dalam artikel yang disebutkan di atas, Krugman berpendapat bahwa ada kecenderungan bawaan dari pihak elite untuk mengidolakan pria yang menghasilkan banyak uang, dan berasumsi bahwa mereka tahu apa yang mereka lakukan. Krisis yang begitu parah, selebihnya juga menderita Karena peran penting yang dimainkan bank dalam sistem pasar saat ini, ketika bank-bank besar menunjukkan tanda-tanda krisis, bukan hanya orang kaya yang menderita, tapi juga berpotensi setiap orang. Dengan sistem global, krisis kredit dapat bergejolak melalui keseluruhan ekonomi (real) dengan sangat cepat mengubah krisis keuangan global menjadi krisis ekonomi global. Misalnya, keseluruhan sistem perbankan yang kurang percaya diri dalam memberikan pinjaman karena menghadapi kerugian besar akan mencoba menopang cadangan dan dapat mengurangi akses terhadap kredit, atau membuatnya lebih sulit dan mahal untuk diperoleh. Dalam ekonomi yang lebih luas, krisis kredit ini dan biaya pinjaman yang lebih tinggi akan mempengaruhi banyak sektor, yang menyebabkan pemotongan pekerjaan. Orang mungkin menganggap hipotek mereka sulit dibayar, atau remortgaging bisa menjadi mahal. Untuk setiap pembeli rumah baru-baru ini, nilai rumah mereka cenderung turun nilainya sehingga membiarkan ekuitas negatif. Seiring orang mengurangi konsumsi untuk mencoba dan mengatasi badai ekonomi ini, lebih banyak bisnis akan berjuang untuk bertahan menuju kerugian pekerjaan lebih lanjut. Seperti yang telah dipikirkan di atas, situasinya telah cukup buruk sehingga Organisasi Perburuhan Internasional (ILO) menggambarkan krisis ini sebagai krisis pekerjaan global. Jadi, banyak negara, apakah kaya dan industri, atau miskin dan berkembang, meluncur ke dalam resesi jika mereka belum berada di sana. Krisis keuangan dan negara-negara kaya Banyak yang menyalahkan keserakahan Wall Street karena telah menyebabkan masalah tersebut di tempat pertama karena di AS ada bank, institusi, dan ideolog yang paling berpengaruh yang mendorong kebijakan yang menyebabkan masalah tersebut ditemukan. Krisis menjadi sangat parah sehingga setelah kegagalan dan pembelian lembaga-lembaga utama, Pemerintahan Bush menawarkan rencana bailout 700 miliar untuk sistem keuangan AS. Paket bailout ini kontroversial karena tidak populer di kalangan publik, dilihat sebagai bailout untuk pelaku kejahatan sementara orang biasa dibiarkan membayar kebodohan mereka. Awal DPR AS menolak paket tersebut, mengirimkan gelombang kejut ke seluruh dunia. Butuh usaha kedua untuk melewati rencana tersebut, namun dengan tambahan tagihan untuk mendapatkan tambahan anggota kongres dan wanita untuk menerima rencananya. Namun, sebagai mantan pemenang Nobel Ekonomi, mantan Kepala Ekonom Bank Dunia dan profesor universitas di Universitas Columbia, Joseph Stiglitz. Dikatakan, rencananya tetap menjadi tagihan yang sangat buruk: saya pikir itu tetap tagihan yang sangat buruk. Ini mengecewakan, tapi tidak mengherankan, bahwa pemerintah menghasilkan tagihan yang lagi-lagi berdasarkan pada ekonomi trickle-down. Anda cukup membuang uang di Wall Street, dan beberapa di antaranya akan menetes ke bagian ekonomi lainnya. Its seperti pasien yang menderita pemberian transfusi darah masif sementara pendarahan internal tidak melakukan apa-apa tentang sumber dasar pendarahan, masalah penyitaan. Tapi yang telah dikatakan, itu lebih baik daripada tidak melakukan apa-apa, dan mudah-mudahan setelah pemilihan, kita bisa memperbaiki banyak kesalahan di dalamnya. Menulis di The Guardian. Stiglitz juga menambahkan bahwa, orang Amerika telah kehilangan kepercayaan tidak hanya di pemerintahan Bush, namun dalam filosofi ekonominya: welfarisme korporat baru menyamar di balik ideologi pasar bebas versi lain dari ekonomi menetes-turun, di mana ratusan miliar ke Wall Street yang menyebabkan Masalahnya seharusnya menetes ke bawah untuk membantu orang Amerika biasa. Trickle-down tidak bekerja dengan baik di Amerika selama delapan tahun terakhir. Asumsi yang sangat bagus bahwa rencana penyelamatan harus dicurigai. Setelah semua, bailout IMF dan AS untuk Wall Street 10 tahun yang lalu di Korea, Thailand, Indonesia, Brasil, Rusia dan Argentina tidak bekerja untuk negara-negara tersebut, walaupun hal itu memungkinkan Wall Street untuk mengembalikan sebagian besar uangnya. Pembayar pajak di negara-negara miskin lainnya mengambil tab untuk kesalahan pasar keuangan. Kali ini, pembayar pajak Amerika yang diminta mengambil tabnya. Dan itulah bedanya. Untuk semua retorika tentang demokrasi dan tata pemerintahan yang baik, warga di negara-negara tersebut tidak benar-benar mendapat kesempatan untuk memberikan suara pada bail out. Dalam ekonomi lingkungan, ada konsep dasar yang disebut prinsip polluter pays. Ini adalah masalah keadilan, tapi juga efisiensi. Wall Street telah mencemari ekonomi kita dengan hipotek beracun. Sekarang harus membayar pembersihan. Di Eropa, dimulai dengan Inggris, sejumlah negara memutuskan untuk menasionalisasi, atau part-nasionalisasi, beberapa bank gagal untuk mencoba dan memulihkan kepercayaan diri. AS menolak pendekatan ini pada awalnya, karena bertentangan dengan pandangan pasar bebas yang kaku, AS telah mengambil beberapa dekade sekarang. Akhirnya, AS menyerah dan Pemerintahan Bush mengumumkan bahwa pemerintah AS akan membeli saham di bank-bank bermasalah. Ini menggambarkan betapa seriusnya masalah ini bagi pengikut ideologi pasar bebas yang bersemangat untuk melakukan hal ini (walaupun teori pasar bebas awalnya tidak dimaksudkan untuk diterapkan pada keuangan, yang bisa menjadi bagian dari penyebab masalah yang lebih dalam). Mungkin karena takut akan reaksi ideologis, Bush dengan cepat mengatakan bahwa membeli saham di bank tidak dimaksudkan untuk mengambil alih pasar bebas, tapi untuk melestarikannya. Profesor Ha-Joon Chang dari Universitas Cambridge menunjukkan bahwa secara historis Amerika telah lebih pragmatis tentang pasar bebas daripada yang ditunjukkan oleh retorika ideologis baru-baru ini. Sebuah tuntutan oleh banyak orang di negara-negara berkembang bahwa negara-negara kaya seringkali cukup proteksionis sendiri tapi juga menuntut pasar bebas dari orang lain. Sementara langkah AS akhirnya disambut oleh banyak orang, yang lain menggemakan kekhawatiran Stiglitz di atas. Misalnya, mantan Asisten Sekretaris Departemen Keuangan di pemerintahan Reagan dan mantan editor asosiasi Wall Street Journal. Paul Craig Roberts juga berpendapat bahwa bailout seharusnya membantu orang dengan hipotek gagal, bukan bank. Masalahnya, menurut pemerintah, adalah hipotek default, jadi uangnya harus diarahkan untuk refinancing hipotek dan melunasi yang diambil alih. Dan itu akan mengembalikan nilai sekuritas berbasis mortgage yang mengancam lembaga keuangan dan krisis akan berakhir. Jadi tidak ada hubungan antara penjelasan pemerintah mengenai krisis dan solusinya terhadap krisis. (Menariknya, dan mungkin pertanda zamannya, sementara Eropa dan AS mempertimbangkan lebih banyak lagi kebijakan mirip sosialis, seperti beberapa bentuk nasionalisasi, China tampaknya sedang merenungkan gagasan kapitalis lebih banyak, seperti beberapa gagasan tentang reformasi pertanahan, untuk merangsang dan mengembangkan Pasar internalnya, China berharap, bisa menjadi salah satu cara untuk mencoba dan membantu melindungi negara dari beberapa dampak krisis keuangan global.) Meskipun rencana 700 miliar dolar AS besar, bank masih enggan memberi pinjaman. Hal ini menyebabkan Fed AS mengumumkan paket stimulus 800 miliar lainnya pada akhir November. Sekitar 600 miliar ditandai untuk membeli sekuritas berbasis mortgage sementara 200 miliar akan ditujukan untuk unfreezing pasar kredit konsumer. Ini juga mencerminkan bagaimana krisis telah menyebar dari pasar keuangan ke ekonomi riil dan belanja konsumen. Pada Februari 2009, menurut Bloomberg. Total bailout AS adalah 9,7 triliun. Cukup untuk melunasi lebih dari 90 persen hipotek rumah Amerika (walaupun bailout ini hampir tidak membantu pemilik rumah). Dan selama berbulan-bulan kekhawatiran telah berkembang di mana dana bailout AS benar-benar berjalan. Tampaknya ada sedikit ketegangan antara Departemen Keuangan AS dan Kongres. Wawancara dengan Inspektur Jenderal Khusus Barofsky, catatan Layanan Inter Press, Departemen Keuangan telah menyebut pengeluaran dana bailout secara tidak benar. Barofsky mengatakan. Departemen Keuangan telah menolak untuk mengaudit uang yang dipinjamkan ke bank untuk melihat bagaimana mereka membelanjakannya. Jadi kantor Barofskys terus maju dan mengejar informasi. Kantor tersebut mensurvei 360 bank yang menerima dana bailout dari Departemen Keuangan dan menemukan bahwa hampir semua menggunakan uang tersebut dengan cara lain selain meminjamkan yang merupakan tujuan dari program tersebut. Bank-bank tersebut menggunakan sebagian dana untuk dipinjamkan, tetapi juga untuk membeli bank lain, untuk melunasi hutang dan hanya memegang cadangan jika mereka membutuhkan dana di masa depan. TARP Troubled Asset Relief Program telah menjadi program di mana pembayar pajak tidak diberitahu apa yang dilakukan oleh penerima TARP dengan uang mereka, masih belum diberi tahu berapa besar investasi substansial mereka layak dilakukan, dan tidak akan diberitahu rincian lengkap dari Bagaimana uang mereka diinvestasikan, kata Barofsky. A crisis signaling the decline of USs superpower status Even before this global financial crisis took hold, some commentators were writing that the US was in decline, evidenced by its challenges in Iraq and Afghanistan, and its declining image in Europe, Asia and elsewhere. The BBC also asked if the USs superpower status was shaken by this financial crisis: The financial crisis is likely to diminish the status of the United States as the worlds only superpower. On the practical level, the US is already stretched militarily, in Afghanistan and Iraq, and is now stretched financially. On the philosophical level, it will be harder for it to argue in favor of its free market ideas, if its own markets have collapsed. Some see this as a pivotal moment. The political philosopher John Gray, who recently retired as a professor at the London School of Economics, wrote in the London paper The Observer: Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably. The era of American global leadership, reaching back to the Second World War, is over The American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated. How symbolic that Chinese astronauts take a spacewalk while the US Treasury Secretary is on his knees. Yet, others argue that it may be too early to write of the US: The director of a leading British think-tank Chatham House, Dr Robin Niblett argues that we should wait a bit before coming to a judgment and that structurally the United States is still strong. America is still immensely attractive to skilled immigrants and is still capable of producing a Microsoft or a Google, he went on. Even its debt can be overcome. It has enormous resilience economically at a local and entrepreneurial level. And one must ask, decline relative to who China is in a desperate race for growth to feed its population and avert unrest in 15 to 20 years. Russia is not exactly a paper tiger but it is stretching its own limits with a new strategy built on a flimsy base. India has huge internal contradictions. Europe has usually proved unable to jump out of the doldrums as dynamically as the US. But the US must regain its financial footing and the extent to which it does so will also determine its military capacity. If it has less money, it will have fewer forces. Europe and the financial crisis In Europe, a number of major financial institutions failed. Others needed rescuing. In Iceland, where the economy was very dependent on the finance sector, economic problems have hit them hard. The banking system virtually collapsed and the government had to borrow from the IMF and other neighbors to try and rescue the economy. In the end, public dissatisfaction at the way the government was handling the crisis meant the Iceland government fell . For example, some nations have stepped in to nationalize or in some way attempt to provide assurance for people. This may include guaranteeing 100 of peoples savings or helping broker deals between large banks to ensure there isnt a failure. The EU is also considering spending increases and tax cuts said to be worth 200bn over two years. The plan is supposed to help restore consumer and business confidence, shore up employment, getting the banks lending again, and promoting green technologies. Russiaa economy is contracting sharply with many more feared to slide into poverty. One of Russias key exports, oil, was a reason for a recent boom, but falling prices have had a big impact and investors are withdrawing from the country. Structural Adjustment for Industrialized Nations For decades, structural adjustment policies in the developing nations (often strongly encouraged by the wealthy nations) has created poverty or made things worse. Now, with such a severe financial crisis industrialized nations from Greece, to UK and others are contemplating strong austerity measures and cutbacks on public services much like the structural adjustment the developing world had to endure for as much as 2 decades. For example, UKs new government has come in mostly on a platform of blaming the previous government for causing the crisis, ignoring the neoliberal ideological influences on government policy from the private sector or from their own party before the Labour Party had come into power (though New Labour also encouraged the same thinking). As such, the new Conservative government has insisted that because of high spending of the past government, they have no alternative but to cut back on all manner of social spending (all while various bankers get ready to be rewarded with more bonuses). Yet, as Professor Ha Joon Chang noted at the end of 2010, the fall in tax revenues has made the deficit hard to sustain. not government spending per se: Companies and individuals have been unable to earn as much as before the recession so the fall in that revenue for governments leaves their previously high spending look like immense bureaucratic waste holes. Bringing about sustainable and appropriate growth is more important than cuts to areas that didnt cause the problem he seems to imply, while not enough is being done to prevent future crises of the same type. Excessive cuts, he warns, can even push a country further into recession if it is not addressing the core causes of the crisis in the first place. Stories of strikes and protests are increasingly commonplace, and if the experience of developing nations are anything to go by in previous decades. similar protests are likely in the future in industrialized nations. One such example is in Ireland that has recently seen a bailout package from the EU, IMF and others require an austerity budget, much like the harmful structural adjustment policies the developing world went through. Other Eurozone countries such as Portugal, Italy, Greece and Spain are also facing potential problems, while Iceland has gone through many in the past. Former Nobel prize winner for economics, Paul Krugman compared Iceland and Irelands handling of the situation and found that Irelands situation is potentially worse than Icelands because the Irish government stepped in to guarantee the banks debt, turning private losses into public obligations. Irelands economic growth turned to disaster when speculative frenzy, driven by banks and the real estate sector, and possibly corrupt politicians, ended with banks bursting. Irelands credit-worthiness in the international markets was under fire so it took on austerity measures. So, in effect, actions by banks and others have left the nation in recession, with the public bailing them out, while taking on the effects to their economy a double-whammy so to speak. As Krugman ends, punishing the Irish population for the mistakes of the banks and others is a terrible mistake. By contrast, Krugman also notes that Icelands banks had to pay for their mistakes, leading to a decline in Icelands external debt. (Other measures including temporary capital controls also helped. Icelands own currency, the Krona, instead of Euro may have helped it too as it was able to devalue its currency, making its exports more competitive and thus helping it somewhat.) Ireland is now in a tough spot as protesters have a legitimate cause to be concerned while others are worried that if actions such as considering increasing corporate tax are entertained, major multinationals that have been part of Irelands recent boom, may make good on their threat to move to other places that are more favorable to them although the 100bn bailout conditions currently do not require that. Focusing on debt instead of the economy In the US, the Democracy Now show reveals how billionaire investors have helped reshape the national debate on the economy, the debt and social spending. Some have contributes hundreds of millions of dollars to push Congress to cut Social Security, Medicare and Medicaid while providing tax breaks for corporations and the wealthy. Campaigns such as Fix the Debt are portrayed as a citizen-led effort, while critics find them to be fronts for business groups. And of course, special interests and ideology are at play as John Nicols, part of a group who exposed some of these findings, noted: What they are really arguing for is a systematized austerity, one where you have very, very wealthy people deciding what sort of fixes we will have for our economy. And at the end of the day, invariably, the fix will be to lower their tax rates while at the same time taking deep cuts out of the earned benefit programs that Americans desperately need. Democracy Nows full video is here: In his own article in the Nation magazine John Nichols added. The Fix the Debt project, financed by corporations and billionaires, seeks to buy that influence after its proposals were rejected by the voters. Thats not democracy thats plutocracy. That comes from his article, The Austerity Agenda: An Electoral Loser. In that article he also describes how some of the phony campaigns work in a 2-minute video: Presumably other countries may also have such cynical political campaigns, too. Austerity as ideological opportunity As prominent economist Ha Joon Chang has written many times, the UKs problems go far deeper than the cuts agenda. It simply cant produce enough to revive its ailing economy. Furthermore, as has been said by many for many years, the approach by some governments, such as the UKs current coalition government (with the Conservatives as the main party) is ideological: British debate on economic policy is getting nowhere. The coalition government keeps repeating that it has to cut spending in order to cut deficits, no matter what. The opposition has been at pains to explain that trying to cut deficits by cutting spending in a stagnant economy is a largely self-defeating exercise, as it reduces growth and thus tax revenue. In reality, though, the coalition government isnt as stupid or stubborn as it appears. It is sticking to its plan A because spending cuts are not about deficits but about rolling back the welfare state. So no amount of evidence is going to change its position on cuts . Ha Joon Chang, Britain: a nation in decay. The Guardian, March 8, 2013 (Emphasis Added) And history seems to show that austerity has never worked and has always led to recession. Or maybe put another way, it has typically worked for the elite looking to maintain a system from which they benefit. Austerity without economic growth backwards development For UK in particular, as Chang continues, despite a huge devaluation in the sterling currency, it has still been unable to generate a trade surplus. UKs over-reliance on financial services may also be a cause for long-term concern. And as manufacturing shows mixed signals, luxury goods show a general healthy sign and exports of raw resources are doing better than finished manufacturing products, these all hint to growing inequality and potential growing poverty and stagnation. Or as Chang puts it, putting all this in context, since the crisis the British economy has been moving backwards in terms of its sophistication as a producer. In the middle of 2012, the United Nations also warned that the problems in European were bad not just for Europe, but for the world economy too. The policy of austerity was criticized by the UN as heading in the wrong direction. The fiscal austerity programs implemented in several European countries are ineffective to help the economy emerge from crisis, it said, according to Inter Press Service . Lost decade A few are now suggesting that some European countries may be facing a lost decade or a lost youth generation. A Nobel laureate in economics, Joseph Stiglitz, writes, It will take 10 years or more to recover the losses incurred in this austerity process. Europes talents and resources its physical, human, and natural capital are the same today as they were before the crisis began. The problem is that the prescriptions imposed are leading to massive under-utilisation of these resources. Whatever Europes problem, a response that entails waste on this scale cannot be the solution. While many talk of a lost decade, it is worth remembering that similar austerity programs imposed on most of the developing world in the form of Structural Adjustment Programs amounted to a loss of 2 decades. Those policies largely driven by IMF policies influenced by the US and European countries now seem ironic as Chang also notes: Given recent reform changes in the IMF, it is ironic to see the European governments inflicting an old-IMF-style program on their own populations. It is one thing to tell the citizens of some faraway country to go to hell but it is another to do the same to your own citizens, who are supposedly your ultimate sovereigns. Indeed, the European governments are out-IMF-ing the IMF in its austerity drive so much that now the fund itself frequently issues the warning that Europe is going too far, too fast. Ha Joon Chang, The root of Europes riots. The Guardian, September 28, 2012 So as well as a loss of economic productivity and livelihoods that come through it, peoples rights and democracy are also undermined by this process of austerity: Instead of austerity being explicitly cast as a rewriting of the social contract, changing peoples entitlements and changing the way the society establishes its legitimacy, the dismembering of the welfare state is presented as a technocratic exercise of balancing the books. Democracy is neutered in the process and the protests against the cuts are dismissed. The description of the externally imposed Greek and Italian governments as technocratic is the ultimate proof of the attempt to make the radical rewriting of the social contract more acceptable by pretending that it isnt really a political change. The danger is not only that these austerity measures are killing the European economies but also that they threaten the very legitimacy of European democracies not just directly by threatening the livelihoods of so many people and pushing the economy into a downward spiral, but also indirectly by undermining the legitimacy of the political system through this backdoor rewriting of the social contract. Ha Joon Chang, The root of Europes riots. The Guardian, September 28, 2012 So why cant countries just declare themselves bankrupt like companies can As Chang explains in another article, there arent the same processes available for countries as there are for companies: It is not because people condoned defaulting per se that they came to introduce the corporate bankruptcy law. It was because they recognized that in the long run, creditors and the broader economy, too are likely to benefit more from reducing the debt burdens of companies in trouble, so that they can get a fresh start, than by letting them disintegrate in a disorderly way. It is high time that we applied the same principles to countries and introduced a sovereign bankruptcy law. The financial crisis and the developing world For the developing world, the rise in food prices as well as the knock-on effects from the financial instability and uncertainty in industrialized nations are having a compounding effect. High fuel costs, soaring commodity prices together with fears of global recession are worrying many developing country analysts. Summarizing a United Nations Conference on Trade and Development report, the Third World Network notes the impacts the crisis could have around the world, especially on developing countries that are dependent on commodities for import or export: Uncertainty and instability in international financial, currency and commodity markets, coupled with doubts about the direction of monetary policy in some major developed countries, are contributing to a gloomy outlook for the world economy and could present considerable risks for the developing world, the UN Conference on Trade and Development (UNCTAD) said Thursday. Commodity-dependent economies are exposed to considerable external shocks stemming from price booms and busts in international commodity markets. Market liberalization and privatization in the commodity sector have not resulted in greater stability of international commodity prices. There is widespread dissatisfaction with the outcomes of unregulated financial and commodity markets, which fail to transmit reliable price signals for commodity producers. In recent years, the global economic policy environment seems to have become more favorable to fresh thinking about the need for multilateral actions against the negative impacts of large commodity price fluctuations on development and macroeconomic stability in the world economy. Asia and the financial crisis Countries in Asia are increasingly worried about what is happening in the West. A number of nations urged the US to provide meaningful assurances and bailout packages for the US economy, as that would have a knock-on effect of reassuring foreign investors and helping ease concerns in other parts of the world. Many believed Asia was sufficiently decoupled from the Western financial systems. Asia has not had a subprime mortgage crisis like many nations in the West have, for example. Many Asian nations have witnessed rapid growth and wealth creation in recent years. This lead to enormous investment in Western countries. In addition, there was increased foreign investment in Asia, mostly from the West. However, this crisis has shown that in an increasingly inter-connected world means there are always knock-on effects and as a result, Asia has had more exposure to problems stemming from the West. Many Asian countries have seen their stock markets suffer and currency values going on a downward trend. Asian products and services are also global, and a slowdown in wealthy countries means increased chances of a slowdown in Asia and the risk of job losses and associated problems such as social unrest. India and China are the among the worlds fastest growing nations and after Japan, are the largest economies in Asia. From 2007 to 2008 Indias economy grew by a whopping 9. Much of it is fueled by its domestic market. However, even that has not been enough to shield it from the effect of the global financial crisis, and it is expected that in data will show that by March 2009 that Indias growth will have slowed quickly to 7.1. Although this is a very impressive growth figure even in good times, the speed at which it has droppedthe sharp slowdownis what is concerning. China, similarly has also experienced a sharp slowdown and its growth is expected to slow down to 8 (still a good growth figure in normal conditions). However, China also has a growing crisis of unrest over job losses. Both have poured billions into recovery packages. With China concerned about its economy, it has been trying to encourage its companies to invest more overseas. hoping it will reduce the upward pressure on its currency, the Yuan. China has also raised concerns about the world relying on mostly one foreign currency reserve, and called for the dollar to be replaced by a world reserve currency run by the IMF. Of course, the US has defended the dollar as a global currency reserve. which is to be expected given it is one of its main sources of global economic dominance. Whether a change like this would actually happen remains to be seen, but it is likely the US and its allies will be very resistant to the idea. Japan, which has suffered its own crisis in the 1990s also faces trouble now. While their banks seem more secure compared to their Western counterparts, it is very dependent on exports. Japan is so exposed that in January alone, Japans industrial production fell by 10. the biggest monthly drop since their records began. Japans output for the first 3 months of 2009 plunged at its quickest pace since records began in 1955, mostly due to falling exports. A rise in industrial output in April was expected, but was positively more than initially estimated. However, with high unemployment and general lack of confidence, optimism for recovery has been dampened. Towards the end of October 2008, a major meeting between the EU and a number of Asian nations resulted in a joint statement pledging a coordinated response to the global financial crisis. However, as Inter Press Service (IPS) reported, this coordinated response is dependent on the entry of Asias emerging economies into global policy-setting institutions . This is very significant because Asian and other developing countries have often been treated as second-class citizens when it comes to international trade, finance and investment talks. This time, however, Asian countries are potentially trying to flex their muscle, maybe because they see an opportunity in this crisis, which at the moment mostly affects the rich West. Asian leaders had called for effective and comprehensive reform of the international monetary and financial systems. For example, as IPS also noted in the same report, one of the Chinese state-controlled media outlets demanded that We want the U. S. to give up its veto power at the International Monetary Fund and European countries to give up some more of their voting rights in order to make room for emerging and developing countries. They also added, And we want America to lower its protectionist barriers allowing an easier access to its markets for Chinese and other developing countries goods. Whether this will happen is hard to know. Similar calls by other developing countries and civil society around the world, for years, have come to no avail. This time however, the financial crisis could mean the US is less influential than before. A side-story of the emerging Chinese superpower versus the declining US superpower will be interesting to watch. It would of course be too early to see China somehow using this opportunity to decimate the US, economically, as it has its own internal issues. While the Western mainstream media has often hyped up a threat posed by a growing China, the World Banks chief economist (Lin Yifu, a well respected Chinese academic) notes Relatively speaking, China is a country with scarce capital funds and it is hardly the time for us to export these funds and pour them into a country profuse with capital like the U. S. China has, however, used this opportunity to attempt to attract neighboring nations into its orbit by attempting to foster better economic ties. According to an IPS analysis, this has been a goal for a while, but the recent financial crisis has provided more opportunities for China to step up to this. An improved investment deal between China and Taiwan maybe one example of this improving engagement in the region. The economic crisis may also be encouraging greater ties in this manner, as it would be important for Taiwan in particular (as it has been in recession since the end of 2008). Asian nations are mulling over the creation of an alternative Asia foreign exchange fund, but market shocks are making some Asian countries nervous and it is not clear if all will be able to commit. What seems to be emerging is that Asian nations may have an opportunity to demand more fairness in the international arena, which would be good for other developing regions, too. Africa and the financial crisis Perhaps ironically, Africas generally weak integration with the rest of the global economy may mean that many African countries will not be affected from the crisis, at least not initially. as suggested by Reuters in September 2008. The wealthier ones who do have some exposure to the rest of the world, however, may face some problems. In recent years, there has been more interest in Africa from Asian countries such as China. As the financial crisis is hitting the Western nations the hardest, Africa may yet enjoy increased trade for a while. These earlier hopes for Africa, above, may be short lived, unfortunately. In May 2009, the International Monetary Fund (IMF) warned that Africas economic growth will plummet because of the world economic downturn, predicting growth in sub-Saharan Africa will slow to 1.5 in 2009, below the rate of population growth (revising downward a March 2009 prediction of 3.25 growth due to the the slump in commodity prices and the credit squeeze). South Africa, Africas largest economy, has entered into recession for the first time since 1992, due to a sharp decline in the key manufacturing and mining sectors. The IMF has promised more aid to the region, importantly with looser conditions, which in the past have been very detrimental to Africa. Many will likely remain skeptical of IMF loans given this past, as Stiglitz and others have already voiced concerns about (see further below). In the long run, it can be expected that foreign investment in Africa will reduce as the credit squeeze takes hold. Furthermore, foreign aid. which is important for a number of African countries, is likely to diminish. ( Effectiveness of aid is a separate issue which the previous link details.) African countries could face increasing pressure for debt repayment, however. As the crisis gets deeper and the international institutions and western banks that have lent money to Africa need to shore up their reserves more, one way could be to demand debt repayment. This could cause further cuts in social services such as health and education, which have already been reduced due to crises and policies from previous eras . Much of the debts owed by African nations are odious, or unjust debts, as detailed further below, which would make any more aggressive demands of repayment all the more worrisome. Some African countries have already started to cut their health and HIV budgets due to the economic crisis. Their health budgets and resources have been constrained for many years already, so this crisis makes a bad situation worse. As IPS reports, Already, large percentages of households in Sub-Saharan Africa are poor, and the large number of people on treatment means ever-increasing treatment program costs. Yet, Sub-Saharan Africa only accounts for one percent of global health expenditure and two percent of the global health workforce. Currently, only one third of HIV-positive Africans in need of antiretroviral (ARV) treatment can access it. Dr Bactrin Killingo, chairperson of the Nairobi-based Collaborative Fund for HIV Treatment Preparedness says, If current cost constraints faced by HIV treatment programmes are not addressed, while the demand for expensive second-line treatment increases, we will soon find ourselves in a situation similar to the 1990s, where millions of lives were lost unnecessarily because people could not afford the treatment they needed to stay alive. And it is not just poor nations health funds at risk. IPS adds that even international donor organizations have started to feel the financial crunch: The Global Fund to Fight AIDS, Tuberculosis and Malaria recently announced it is at least 4 billion short of the money it will need to continue funding essential HIV, TB and malaria services in 2010. The coalition believes there is a 10.7 billion funding gap for regional implementation of the Global Plan to Stop TB alone. Latin America and the financial crisis Much of Latin America depends on trade with the United States (which absorbs half of Latin Americas exports, alone, for example). As such Latin America will also feel the effect of the US financial crisis and slower growth in Latin America is expected . Due to its proximity to the US and its close relationship via the NAFTA and other agreements, Mexico is expected to have one of the lowest growth rates for the region next year at 1.9, compared to a downgraded forecast of 3 for the rest of the region. A number of countries in the region have come together in the form of the Latin American Pacific Arc and are hoping to improve trade and investment with Asia. Diversifying in this way might be good for the region and help provide some stability against future crises. For the moment, the integration is going ahead. despite concerns about the financial crisis. However, the problems of a regional blocs, Mercosur (the Southern Common Market), shows that not all is well. While Mercosur is its relevance being questioned, an IPS overview of its recent challenges also highlights that a number of South American countries are raising trade barriers against their neighbors as the crisis starts to bite more. Rather than regional integration and a unified position to present to the rest of the world, concerns of fragmentation are increasing. This also affects Brazil, as the regional economic superpower more bickering within its sphere means distraction from the global scene. A crisis in context While much mainstream media attention is on the details of the financial crisis, and some of its causes, it also needs to be put into context (though not diminishing its severity). Plummeting stock markets have wiped out 33 of the value of companies, 14.5 trillion. Taxpayers will be bailing out their banks and financial institutions with large amounts of money. US taxpayers alone will spend some 9.7 trillion in bailout packages and plans. according to Bloomberg. The UK and other European countries have also spent some 2 trillion on rescues and bailout packages. More is expected. Much more. Such numbers, made quickly available, are enough to wipe many individuals mortgages, or clear out third world debt many times over. Even the high military spending figures are dwarfed by the bailout plans to date. A crisis of poverty for much of humanity In poorer countries, poverty is not always the fault of the individual alone, but a combination of personal, regional, national, andimportantlyinternational influences. There is little in the way of bail out for these people, many of whom are not to blame for their own predicament, unlike with the financial crisis. There are some grand strategies to try and address global poverty, such as the UN Millennium Development Goals, but these are not only lofty ideals and under threat from the effects of the financial crisis (which would reduce funds available for the goals), but they only aim to halve poverty and other problems. While this of course is better than nothing it signifies that many leading nations have not had the political will to go further and aim for more ambitious targets, but are willing to find far more to save their own banks, for example. A global food crisis affecting the poorest the most While the medias attention is on the global financial crisis (which predominantly affects the wealthy and middle classes), the effects of the global food crisis (which predominantly affects the poorer and working classes) seems to have fallen off the radar. The two are in fact inter-related issues, both have their causes rooted in the fundamental problems associated with a neoliberal, one-size-fits-all, economic agenda imposed on virtually the entire world. Human rights conditions made worse by the crisis Human rights has long been a concern. Recent years have seen increasing acknowledgment that human rights and economic issues such as development go hand in hand. Amnesty International Report 2009. May 27, 2009. The Amnesty International Report 2009 highlights the impact of the economic crisis on human rights across the world, calling for a new deal on human rights to go hand-in-hand with any proposed financial solutions. Long before the global financial crisis took hold, human rights concerns were high the world over, as annual reports from Amnesty International and other human rights organizations repeatedly warned about. The global financial crisis has led to an economic crisis which in turn has led to a human rights crisis, says Amnesty in their 2009 report . They find that as millions more slide into poverty as a result of the current crisis, social unrest increases resulting in more protests. These protests are sometimes met with a lot of suppression. Other times, people are exploited further. When the G20 held a summit in UK in April 2009, much was made by local media about the apparent use of excessive force by police against protesters. and even led to the death of a passer by mistaken as a protester (a small minority of whom were also violent). (George Monbiot also raises concerns about how campaigners and protesters are being rebranding as domestic extremists .) But as a news article accompanying the report from Amnesty summarizes, many nations have seen protests against economic decline and social conditions which have been met by violence, arrests and detentions without charge: Across Africa, people demonstrated against desperate social and economic situations and sharp rises in living costs. Some demonstrations turned violent the authorities often repressed protests with excessive force. Social tensions and economic disparities led to thousands of protests throughout China. In the Americas, social protest at economic conditions increased in Peru in Chile there were demonstrations throughout 2008 on Indigenous Peoples rights and rising living costs. In the Middle East and North Africa, the economic and social insecurity was highlighted by strikes and protests in several countries, including Egypt. In Tunisia, strikes and protests were put down with force, causing two deaths, many injuries and more than 2,000 prosecutions of alleged organizers, some culminating in long prison sentences. Poor nations will get less financing for development The poorer countries do get foreign aid from richer nations, but it cannot be expected that current levels of aid (low as they actually are) can be maintained as donor nations themselves go through financial crisis. As such the Millennium Development Goals to address many concerns such as halving poverty and hunger around the world, will be affected. Almost an aside, the issue of tax havens is important for many poor countries. Tax havens result in capital moving out of poor countries into havens. An important source of revenue, domestic tax revenues account for just 13 of low income countries earnings, whereas it is 36 for the rich countries. as Inter Press Service notes. A UN-sponsored conference slated for November 2008 to address this issue is unlikely to get much attention or be successful due to the recession fears and the financial crisis. But this capital flight is estimated to cost poor countries from 350 billion to 500 billion in lost revenue, outweighing foreign aid by almost a factor of 5. This lost tax revenue is significant for poor countries. It could reduce, or eliminate the need for foreign aid (which many in rich countries do not like giving, anyway), could help poor countries pay off (legitimate) debts, and also help themselves become more independent from the influence of wealthy creditor nations. Politically, it may be this latter point that prevents many rich countries doing more to help the poor, when monetarily it would be so easy to do so. But public pressure has had an effect. Governments of the US, UK and others are slowly increasing pressure on tax havens, though with mixed results, and some tax havens are on the defensive, some trying to justify themselves. Some havens, such as Jersey have been pressured into signing agreements that will increase their transparency. Whether it will work, or if it is just a token gesture is hard to say at this time, however. Channel 4 news item on tax justice in Jersey, March 2009 (via IFIWatch. tv ) For more on this aspect, see this sites section on tax evasion and tax havens . Odious third world debt has remained for decades Banks and military get money easily Crippling third world debt has been hampering development of the developing countries for decades. These debts are small in comparison to the bailout the US alone was prepared to give its banks, but enormous for the poor countries that bear those burdens, having affected many millions of lives for many, many years. Many of these debts were incurred not just by irresponsible government borrowers (such as corrupt third world dictators, many of whom had come to power with Western backing and support ), but irresponsible lending (also a moral hazard) from Western banks and institutions they heavily influenced, such as the IMF and World Bank. Drop the Debt 2009. (July 2009). Video compares financial crisis bailouts with third world debt. Despite enormous protest and public pressure for odious debt relief or write-off, hardly any has occurred, and when it does grand promises of debt relief for poor countries often turn out to be exaggerated. One recently described historic breakthrough debt relief was announced as a 40 billion debt write-off but turned out to be closer to 17 billion in real terms. To achieve even this amount required much campaigning and pressuring of the mainstream media to cover these issues. By contrast, the 700 billion US bail out as well as bailouts by other rich country governments were very quick to put in place. The money then seemed easy to find. Talk of increasing health or education budgets in rich countries typically meets resistance. Massive military spending. or now, financial sector bail out, however, can be done extremely quickly. And, a common view in many countries seems to be how financial sector leaders get away with it. For example, a hungry person stealing bread is likely to get thrown into jail. A financial sector leader, or an ideologue pushing for policies that are going to lead to corruption or weaknesses like this, face almost no such consequence for their action other than resigning from their jobs and perhaps public humiliation for a while. A crisis that need not have happened This problem could have been averted (in theory) as people had been pointing to these issues for decades. Yet, of course, during periods of boom no-one (let alone the financial institutions and their supporting ideologues and politicians largely believed to be responsible for the bulk of the problems) would want to hear of caution and even thoughts of the kind of regulation that many are now advocating. To suggest anything would be anti-capitalism or socialism or some other label that could effectively shut up even the most prominent of economists raising concerns. Of course, the irony that those same institutions would now themselves agree that those anti-capitalist regulations are required is of course barely noted. Such options now being considered are not anti-capitalist. However, they could be described as more regulatory or managed rather than completely free or laissez faire capitalism, which critics of regulation have often preferred. But a regulatory capitalist economy is very different to a state-based command economy, the style of which the Soviet Union was known for. The points is that there are various forms of capitalism, not just the black-and-white capitalism and communism. And at the same time, the most extreme forms of capitalism can also lead to the bigger bubbles and the bigger busts. Quoting Stiglitz again, he captures the sentiments of a number of people: We had become accustomed to the hypocrisy. The banks reject any suggestion they should face regulation, rebuff any move towards anti-trust measures yet when trouble strikes, all of a sudden they demand state intervention: they must be bailed out they are too big, too important to be allowed to fail. Americas financial system failed in its two crucial responsibilities: managing risk and allocating capital. The industry as a whole has not been doing what it should be doing and it must now face change in its regulatory structures. Regrettably, many of the worst elements of the US financial system were exported to the rest of the world. Some of these regulatory measures have been easy to get around for various reasons. Some reasons for weak regulation that entrepreneur Mark Shuttleworth describes include that regulators Are poorly paid or are not the best talent Often lack true independence (or are corrupted by industries lobbying for favors) May lack teeth or courage in face of hostile industries and a politically hostile climate to regulation. Given its crucial role, it is extremely important to invest in it too, Shuttleworth stresses. However, this crisis wasted almost a generation of talent: It was all done in the name of innovation, and any regulatory initiative was fought away with claims that it would suppress that innovation. They were innovating, all right, but not in ways that made the economy stronger. Some of Americas best and brightest were devoting their talents to getting around standards and regulations designed to ensure the efficiency of the economy and the safety of the banking system. Unfortunately, they were far too successful, and we are all homeowners, workers, investors, taxpayers paying the price. Paul Krugman also notes the wasted talent, at the expense of other areas in much need: How much has our nations future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else Paul Krugman, The Madoff Economy. New York Times, Opinion, December 19, 2008 British economist John Maynard Keynes, is considered one of the most influential economists of the 20th century and one of the fathers of modern macroeconomics. He advocated an interventionist form of government policy believing markets left to their own measure (i. e. completely freed ) could be destructive leading to cycles of recessions, depressions and booms. To mitigate against the worst effects of these cycles, he supported the idea that governments could use various fiscal and monetary measures. His ideas helped rebuild after World War II, until the 1970s when his ideas were abandoned for freer market systems. Keynes biographer, professor Robert Skidelsky, argues that free markets have undermined democracy and led to this crisis in the first place: What creates a crisis of the kind that now engulfs us is not economics but politics. The triumph of the global free market, which has dominated the world over the last three decades has been a political triumph. It has reflected the dominance of those who believe that governments (for which read the views and interests of ordinary people) should be kept away from the levers of power, and that the tiny minority who control and benefit most from the economic process are the only people competent to direct it. This band of greedy oligarchs have used their economic power to persuade themselves and most others that we will all be better off if they are in no way restrainedand if they cannot persuade, they have used that same economic power to override any opposition. The economic arguments in favor of free markets are no more than a fig leaf for this self-serving doctrine of self-aggrandizement. Furthermore, he argues that the democratic process has been abused and manipulated to allow a concentration of power that is actually against the idea of free markets and real capitalism: The uncomfortable truth is that democracy and free markets are incompatible. The whole point of democratic government is that it uses the legitimacy of the democratic mandate to diffuse power throughout society rather than allow it to accumulateas any player of Monopoly understandsin just a few hands. It deliberately uses the political power of the majority to offset what would otherwise be the overwhelming economic power of the dominant market players. If governments accept, as they have done, that the free market cannot be challenged, they abandon, in effect, their whole raison detre. Democracy is then merely a sham. No amount of cosmetic tinkering at the margins will conceal the fact that power has passed to that handful of people who control the global economy. Despite Keynesian economics getting a bad press from free market advocates for many years, many are now turning to his policies and ideas to help weather the economic crisis. We are all Keynesians now. Even the right in the United States has joined the Keynesian camp with unbridled enthusiasm and on a scale that at one time would have been truly unimaginable. after having been left in the wilderness, almost shunned, for more than three decades what is happening now is a triumph of reason and evidence over ideology and interests. Economic theory has long explained why unfettered markets were not self-correcting, why regulation was needed, why there was an important role for government to play in the economy. But many, especially people working in the financial markets, pushed a type of market fundamentalism. The misguided policies that resulted pushed by, among others, some members of President-elect Barack Obamas economic team had earlier inflicted enormous costs on developing countries. The moment of enlightenment came only when those policies also began inflicting costs on the US and other advanced industrial countries. The neo-liberal push for deregulation served some interests well. Financial markets did well through capital market liberalization. Enabling America to sell its risky financial products and engage in speculation all over the world may have served its firms well, even if they imposed large costs on others. Today, the risk is that the new Keynesian doctrines will be used and abused to serve some of the same interests. Joseph Stiglitz, Getting bang for your buck. The Guardian, December 5, 2008 Some of the worlds top financiers and officials are reluctantly accepting that the version of capitalism that has long favored them may not be good for everyone. At the end of 2008, Alan Greenspan was summoned to the U. S. Congress to testify about the financial crisis. His tenure at the Federal Reserve had been long and lauded, and Congress wanted to know what had gone wrong. Henry Waxman questioned him: I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. In other words, you found that your view of the world, your ideology, was not right, it was not working. Precisely. That is precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well. Greenspans flaw warped his view about how the world was organized, about the sociology of the market. And Greenspan is not alone. Larry Summers, the presidents senior economic advisor, has had to come to terms with a similar errorhis view that the market was inherently self-stabilizing has been dealt a fatal blow. Hank Paulson, Bushs treasury secretary, has shrugged his shoulders with similar resignation. Even Jim Cramer from CNBCs Mad Money admitted defeat: The only guy who really called this right was Karl Marx. One after the other, the celebrants of the free market are finding themselves, to use the language of the market, corrected. Raj Patel, Flaw . The Value of Nothing, (Picador, 2010), pp.4, 6-7 Stiglitz observed this remarkable resignation at the annual Davos forum, usually a meeting place of rich world leaders and the corporate elite, who usually together reassert ways to go full steam ahead with a form of corporate globalization that has benefited those at the top. This time, however, Stiglitz noted that There was a striking loss of faith in markets. In a widely attended brainstorming session at which participants were asked what single failure accounted for the crisis, there was a resounding answer: the belief that markets were self-correcting. The so-called efficient markets model, which holds that prices fully and efficiently reflect all available information, also came in for a trashing. So did inflation targeting: the excessive focus on inflation had diverted attention from the more fundamental question of financial stability. Central bankers belief that controlling inflation was necessary and almost sufficient for growth and prosperity had never been based on sound economic theory. no one from either the Bush or Obama administrations attempted to defend American-style free-wheeling capitalism. Most American financial leaders seemed too embarrassed to make an appearance. Perhaps their absence made it easier for those who did attend to vent their anger. Labor leaders working for the business community were particularly angry at the financial communitys lack of remorse. A call for the repayment of past bonuses was received with applause. Joseph Stiglitz, Fear and loathing in Davos. The Guardian, February 6, 2009 Some at the top, however, have tried to play the role of victim: Indeed, some American financiers were especially harshly criticized for seeming to take the position that they, too, were victims and it seemed particularly galling that they were continuing to hold a gun to the heads of governments, demanding massive bailouts and threatening economic collapse otherwise. Money was flowing to those who had caused the problem, rather than to the victims. Worse still, much of the money flowing into the banks to recapitalize them so that they could resume lending has been flowing out in the form of bonus payments and dividends. Joseph Stiglitz, Fear and loathing in Davos. The Guardian, February 6, 2009 And as much as this crisis affects wealthier nations, the poorest will suffer most in the long run: This crisis raises fundamental questions about globalization, which was supposed to help diffuse risk. Instead, it has enabled Americas failures to spread around the world, like a contagious disease. Still, the worry at Davos was that there would be a retreat from even our flawed globalization, and that poor countries would suffer the most. But the playing field has always been uneven. If developing countries cant compete with Americas subsidies and guarantees, how could any developing country defend to its citizens the idea of opening itself even more to Americas highly subsidized banks At least for the moment, financial market liberalization seems to be dead. Joseph Stiglitz, Fear and loathing in Davos. The Guardian, February 6, 2009 Dealing with recession Most economic regions are now facing recession, or are in it. This includes the US, the Eurozone, and many others. At such times governments attempt to stimulate the economy. Standard macroeconomic policy includes policies to Increase borrowing, Reduce interest rates, Reduce taxes, and Spend on public works such as infrastructure. Borrowing at a time of recession seems risky, but the idea is that this should be complimented with paying back during times of growth. Likewise, reducing interest rates sounds like there would be less incentive for people to save money, when banks need to build up their capital reserves. However, as the real economy starts to feel the pinch, reduced interest rates is an attempt to encourage people to take part in the economy. Tax reduction is something that most people favor, and yet during times of economic downturn it would seem that a reduction in tax would result in reduced government revenues just when they need it and then spending on health, education, etc, would be at risk. However, because higher taxes during downturns means more hardship for more people, increased borrowing is supposed to offset the reduction in taxes, hopefully affording people a better chance to weather the economic storm. Finally it is at this time that public infrastructure work, which can potentially employ many, many people, is palatable. Often, under free market ideals, government involvement in such activities is supposed to be minimal. Even the other forms of interference is usually frowned upon. However, most states realize that markets are not always able to function on their own (the current financial crisis, starting in the US, being the prime example) pragmatic and sensible adoption of market systems means governments can guide development and progress as required. Nonetheless, many governments have started to contemplate these kinds of measures. For example, South Korea reduced its interest rates. as has Japan. China. England. various European countries, and many others. Many have looked to borrow billions or in some way come up with stimulus packages to try and kick-start ailing economies. While these might be reasonably standard things to do, it requires that during economic good times, a reversal of some of these policies are required interest rates may need to increase (one reason for the housing booms in the US, UK and elsewhere was that interest rates were too low during good times), borrowing should be reduced and debts should start to be repaid, infrastructure investments may not need to be as direct from government and private enterprise may be able to contribute, and most politically sensitive of all, taxes should increase again to offset the reduction in borrowing. Some are also against government-based stimulus packages, arguing instead that tax cuts alone should do the job individuals make better choices on consumption than governments. Nobel prize winner for economics, Paul Krugman addresses this noting the difference between private consumption and government stimulus: But private spending is not what were talking about when we talk about stimulus spending: were not talking about the government buying consumption goods for the public at large. Instead, were talking about spending more on public goods: goods that the private market wont supply, or at any rate wont supply in sufficient quantities. things like roads, communication networks, sewage systems, and so on. And every Econ 101 textbook explains that the provision of public goods is a necessary function of government. Paul Krugman, Bad anti-stimulus arguments. New York Times, December 22, 2008 Each of these measures should no doubt come under scrutiny from opposition parties and the media, to ensure they are appropriate, but some, such as tax hikes during good times can be so politically sensitive, that governments may be afraid to make such choices, thus making economic policies during bad times even riskier as a result. Even then, the severity of these economic problems means that these strategies are not guaranteed to work, or it may take even longer to take effect. For example, as quarterly figures for various companies start to come out, more and more companies are announcing losses, closures, layoffs or other problems people are becoming very nervous about the economy and spending less. The automobile industry in the US, for example, is feeling immense pressure with some of the largest companies in the world facing huge problems and are asking the government for some kind of bailout or assistance. Yet, the US public generally seems against this, having already bailed out the banks with enormous sums of money. If the automobile industry is bailed out, then other industries will all cry for more money when would it stop In addition, as Joseph Stiglitz warns, some nations are turning to the IMF which is prescribing the opposite policies: Many are already turning to the International Monetary Fund (IMF) for help. The worry is that, at least in some cases, the IMF will go back to its old failed recipes: fiscal and monetary contraction, which would only increase global inequities. While developed countries engage in stabilizing countercyclical policies, developing countries would be forced into destabilizing policies, driving away capital when they need it most. In Iceland, where the economy was very dependent on the finance sector, economic problems have hit them hard. The banking system virtually collapsed and the government had to borrow from the IMF and other neighbors to try and rescue the economy. However, Iceland has raised its interest rates to some 18, partly on advice from the IMF. It would appear to be an example where high interest rates may be inappropriate. The economic problems have led to political challenges including protests and clashes. But as Krugman notes, capital controls may have also helped Iceland as well as having its own currency and making the banks pay for the problems rather than making the public pay. which is what has since happened in Ireland which now faces a massive bailout and very severe austerity measures. It may be that this time round a more fundamental set of measures need to be considered, possibly global in scope. The very core of the global financial system is something many are now turning their attention to. Developing world saving the West Towards the end of September 2010, the World Bank admitted that developing countries have come to the rescue of the global economy. picking up the slack of the advanced economies which were hurt the worst by the financial crisis. World Bank President Robert Zoellick noted that The developing world is becoming the driver of the global economy. Led by emerging markets, developing countries now account for half of global growth and are leading the recovery in world trade. He also acknowledged that as economic power has shifted, a multi-polar world economy is emerging. Current growth trends in the developing world means the collective size of developing-country economies would surpass that of developed-country economies in 2015, the Bank estimates. The Bank believes the following factors help to explain this: Faster technological learning Larger middle-classes More South-South commercial integration High commodity prices, and Healthier balance sheets that will allow borrowing for infrastructure investment These factors further strengthen the long-time chorus of voices demanding Bank and IMF governance reform to share more power with developing countries who have long been side-lined by these influential international institutions, and is discussed further below. Rethinking the international financial system Many people are now calling for fundamental reforms of the financial systems, internationally. This includes international banking and finance, to reform of international financial institutions such as the World Bank and IMF. Part of the reform suggestions also include giving more voice and power to poor countries, who typically have little say in how the global economy is shaped. Traditionally powerful countries have resisted these callsthat have been voiced for decades, not just during this crisis. This crisis however has seen even powerful countries contemplate changes that would be more favorable to emerging nations. Whether these changes can happen is hard to predict. Reforming international banking and finance Leaders of the Bank of England have also called for fundamental international banking reform. Bank of England deputy governor Sir John Gieve said the fundamental rethink meant increasing capital and liquidity requirements at institutions with strong restraints on the build up of risk. Some of the ideas considered are quite significant, such as increasing the reserves banks must have. (Fractional reserve banking often allows banks to have small reserves against which loans can then be made out for larger amounts as usually most people do not withdraw their cash deposits at the same time. This works well in good times, but can then lead to a crisis through encouraging more loans which get riskier as competition increases a moral hazard in reverse.) The Bank of Englands governor, Mervyn King, even went as far as saying a little more boredom would not be a bad thing for the industry. This too is significant as it suggests restraint for an industry that otherwise is a strong proponent of financial market liberalization and supportive of very rapid growth. The recognition here appears to be that maybe slower but more stable long term growth is better and sustainable in the long run rather than short bursts of high growth followed by disruptive bursts, some of which can be very violent as the current crisis is showing. Joseph Stiglitz argues that failures in financial markets have come about because of poorly designed incentive structures, inadequate competition, and inadequate transparency. Part of this is because larger institutions have been resistant to changes that would actually create more healthy competition, something Adam Smith had long noted in his Wealth of Nations. often regarded as the Bible of capitalism. Better regulation is required to reign in the financial markets and bring back trust in the system. In a short but very powerful article he concludes, Part of the problem has been our regulatory structures. If government appoints as regulators those who do not believe in regulation, one is not likely to get strong enforcement. We have to design robust regulatory systems, where gaps in enforcement are transparent. Relatively simple regulatory systems may be easier to implement and more robust, and more resistant to regulatory capture. Well-designed regulations may protect us in the short run and encourage real innovation in the long. Much of our financial markets creativity was directed to circumventing regulations and taxes. Accounting was so creative that no one, not even the banks, knew their financial position. Meanwhile, the financial system has resisted many of the innovations that would have increased the efficiency of our economy. By reducing the scope for these socially unproductive innovations, we can divert creative activity in more productive directions. The agenda for regulatory reform is large. It will not be completed overnight. But we will not begin to restore confidence in our financial markets until and unless we begin serious reform. Joseph Stiglitz, A crisis of confidence. The Guardian, October 22, 2008 Professor of economics at Cambridge, Ha-Joon Chang adds some additional thoughts when commenting on Jeffery Sachs suggestions such as the Tobin Tax and changing emissions trading towards a more straight forward carbon tax. Chang said a lot more could be entertained, including the following: The introduction of a country bankruptcy code that will enable orderly sovereign debt restructuring. Not just expanding the capital adequacy requirement, but also making it counter-cyclical, rather than pro-cyclical as it currently is (i. e. making credit a bit harder to get during good times). Stricter regulations of tax havens and private equity funds, which have greatly contributed to increasing opacity in the financial market. Credit rating agencies play a critical role in todays financial system and given the damages they have inflicted by blessing all those toxic assets, these agencies need to be much more heavily regulated or even replaced by an international public body. Chang also voices concern about IMF reforms, questioning whether trade liberalization for poor countries is always good. (He has been one of the more vocal critics of that idea and argues that rich countries developed using more protectionist policies and moved to free trade once they were industrialized. but that they now say poor countries should liberalize straight away, either because of historical amnesia or because they want to kick away the ladder they climbed to achieve industrialization. The Institute for Economic Democracy has also suggested this for many years too, and is worth looking at for more depth on the political aspects of economic dominance over the centuries.) Reforming International Trade and the WTO A number of developed countries have seen their automobile sectors struggling and asking for bailouts. While banking bailouts could be understood as it affects the entire economy, bailouts for the auto-industry is more controversial while they support many jobs, they do not support the whole economy in the way a bank does. Bailing out car-makers could result in other industries asking for similar bailouts. So what have most governments done Professor Ha-Joon Chang raises the concern that developed countries have spun the proposed assistance as a green issue, not because of a sudden care for the environment and climate change, but to by-pass WTO rules on subsidies, thus revealing a fundamental problem with the World Trade Organization system: The major car-producing countries outside Asia are trying to present their bail-outs to the car industry as green initiatives to avoid having their subsidies declared illegal in the WTO. Back in the summer of 2007, the US government proposed a new subsidies rule in the WTO, in which government lending to uncreditworthy companies and government investments in unequityworthy companies are all to be classified as illegal subsidies. This proposal was objected to by the developing countries, which use many of these measures, but was supported by the Europeans, with some minor qualifications. Having spectacularly bailed out their banks recently by investing astronomical sums in unequityworthy companies, the Americans and Europeans would be completely undermining their position if they also lent huge sums of money to uncreditworthy carmakers. Therefore, they need to be able to say that the huge subsidies that they are giving to their car industries are legal subsidies aimed at greening. What is going on in the automobile industry in Europe and the US exposes the inherent contradictions and inequities in the current international trading system, represented by the WTO. The system bans policy tools that developing countries use more, such as tariffs, direct subsidies and regulations on foreign investment, while being very generous with the tools that the rich countries need, such as the subsidies for agriculture, RampD and reduction of regional disparity. Now that they need to use direct subsidies in large quantity, the rich countries are just going ahead only they are painting everything green. By so blatantly going against the WTO rules, the rich countries have implicitly admitted that the present world trading system is not working. Rather than trying to cover this up by painting everything green, they should start a serious rethink on how to truly reform the system so that not just the rich countries but also the developing countries can use policies that are more suitable to their conditions. In May 2010, a UN conference concluded that markets cant self-regulate. States are often stepping in. Furthermore, it seems that no fundamental reforms have yet taken place: The market has proven unable to self-regulate, stated Jean Feyder, ambassador of Luxembourg and president of UNCTADs trade and development board. In the North, the state has played a major role in overcoming the financial crisis. In the South, it should be a key player in the financing of productive capacities, starting with industrialisation and the protection of infant industries, he added. For Supachai Panitchpakdi, secretary general of UNCTAD, whatever momentum there was for the reform of global economic governance is gone. There have been no fundamental changes to the institutional architecture of economic governance. Some of the most significant moves take place at the regional level, such as more South-South integration. Reforming the Bretton Woods Institutions (IMF and World Bank) The Bretton Woods system of international finance devised by 44 nations after the Second World War, mostly represented by the IMF, World Bank, was designed to help reconstruct and stabilize a post-war global economy. In the 70s, the purpose of these international financial institutions (IFIs) shifted towards a neoliberal economic agenda, championed by Washington, (also known as the Washington Consensus). It was at this time that policies such as structural adjustment started to be pushed to much of the developing world, following a one size fits all prescription of how economies should be structured, which had disastrous consequences for much of the worlds population. As journalist John Vandaele writes, From then on the Bretton Woods Institutions (BWIs) were very asymmetrical organisations. The rich countries didnt need the BWIs any more, but with more than 60 percent of the vote they called the shots in both institutions. Developing countries really depended upon the BWIs, but didnt have a lot to say there. And so the BWIs developed into an instrument of western power. The same policy prescriptions led to predictable problems such as Developing countries opening markets before they were really ready to do so (something often forced through by gun-boat diplomacy during colonial times) Rich countries became judge and party, as Vandaele puts it: When they forced developing countries to open their markets, it was no coincidence that western multinationals tended to be among the first beneficiaries. Worsening poverty from things like structural adjustment policies that sapped the ability of poor country governments to make decisions about how their economies would be run. Although such institutions have rarely been held accountable for such policies and their effects, for many years, people have been calling for their reform, or even for their abolition. Lack of transparency in these institutions has not helped. There have been signs of discontent, however. As mentioned on the structural adjustment page on this site, the IMF and World Bank have even admitted their policies have not always worked. For example, back in 2003, they warned that developing countries face an increasing risk of financial crisis with increasing globalization because effects in one part of the world can more easily ripple through an inter-connected world. Financial integration should be approached cautiously, they warned. In addition, they admitted that it was hard to provide a clear road-map on how this should be achieved, and instead it should be done on a case by case basis. While former chief economist for the World Bank, Joseph Stiglitz is now a well-known critic of the IMFWashington Consensus ideological fanaticism, as also mentioned on that previous page, others at the IMF have also started to question things, noting that developing countries have not benefited from following these ideologies so rigorously. Fast forward a few years to this financial crisis and there are more calls for reform of the global financial system, perhaps with a difference: the crisis now seems to be so deep and affecting rich countries as well that even some rich countries that benefited from the inequality structured into the global order are now calling for reform. In addition, although developing countries had called for reform many times before, they now have a slightly stronger voice that in the past. People within the IMFWorld Bank are now themselves publicly entertaining the thought of reform. The World Banks own president, Robert Zoellick has said the idea of the G7 is not working and that a steering group of more nations would be better. With the limited role the IFIs have played in this crisis. until recently, it seems their significance may be dwindling. Fewer countries have turned to them as last resort, and when they have, they have been able to push for far less stringent conditions than in the past. Some countries have looked to other countries like China, Russia and Arab countries, first. There are still some concerns that some countries turning to the IMF will find themselves being prescribed the old formulas that are now quite criticized. Joseph Stiglitz also adds that these financial institutions have been slow to respond in the past and now: We may be at a new Bretton Woods moment. The old institutions have recognized the need for reform, but they have been moving at glacial speed. They did nothing to prevent the current crisis and there is concern about their effectiveness in responding to it now that it has hit. It took the world 15 years and a world war to come together to address the weaknesses in the global financial system that contributed to the Great Depression. It is to be hoped that it will not take us that long this time: given the level of global interdependence, the costs would simply be too high. As also hinted to earlier, some nations are turning to the IMF. However, it seems that despite talk of reform, for now, some of the IMFs policy prescriptions during this crisis are much of the same discredited prescriptions in past decades. austerity measures and spending cut backs, just when people rely on it the most. French President and head of the EU presidency, Nicolas Sarkozy has called for major changes to the IMF and World Bank. Yet, as John Vandaele added This is as much a rescue operation for two organisations that have lost muscle as a call for a new financial architecture. Sarkozys ideas include tighter supervision of the international banking system and a crackdown on international tax havens to address harmful tax competition between states. These and other proposals are not new however, as many have called for thisand morein the past 2 or 3 decades. As Vandaele also adds, if Sarkozy is serious about a Bretton Woods II, hed better keep in mind that developing countries want more voice. Governance issues such as better representation, more transparency and accountability are some of the things these institutions have long tried to promote, but often faced charges of hypocrisy as these institutions lack many of these fundamentals. Seemingly an impossible thing to realistically envision before this crisis, leading developing countries have finally managed to break some of the control at the IMF and get more seats and votes. While some say that parts of Europe have resisted giving up some share which would be appropriate, the changes also mean the US no longer has veto power that it had for decades. For a while now, talk of G20 meeting rather than just the G8 has signified this possible power shift. The G20 was actually set up in 1999 in the wake of the financial crisis that hit Asia. However, the G8 retained its influence, until now it seems. The G20 represents the G8, the EU as a bloc and 12 emerging economies: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America. As well as the EU being represented as a bloc, IMF and World Bank representatives are usually present at G20 meetings. Although it is an informal structure, it comprises 90 of the worlds economic output and some 80 of the worlds population, although the poorest 20 (over 160 nations) are not represented by this group. The United States invited the G20 for a financial crisis meeting in mid-November. As many noted, the meeting was of the G20 and not the G8, indicated how emerging nations might be gaining more prominence. While many emerging nations and even some European countries wanted the meetings to discuss fundamental reforms to the global financial system, the US and others wanted to focus on ways to address the current crisis with specific short term measures. These divergent aims threatened to make the talks less effective. At the same time, a more global UN conference on Financing for Development towards the end of November has received far less media attention. This is to include all 192 member states and is broader in scope, continuing on from the 2002 Monterrey conference. Some emerging nations such as China are now finding domestic pressures may outweigh their contributions to global resolutions. China for example is being asked by Britains Gordon Brown to provide billions from its dollar reserves to help out while China is worried about the increasing slowdown in the domestic economy and the need to stimulate its own internal markets. It has therefore poured billions into domestic stimulus packages, implying that it is not likely to provide so much money to institutions such as the IMF. Some are also wondering whether the resolve of nations such as China to support an alternative to a US dollar dominated world will really hold up China for example, has benefited from the US development model driven by consumption. It has meant more exports for China. However, now as consumer confidence in the US has been seriously rocked, China is feeling the effects. But if it can see a future where that model is revived, it would benefit. Would it want that to change Reform and Resistance Will any of these changes occur in an effective way In recent months these institutions have warmed to changes in these areas. For example, in April 2008, it was decided that rich countries at the IMF would give in 3 percent of the votes 2 percent went to emerging countries and 1 percent to other developing countries. However, this is still not that much and this crisis shows that more is needed in a more deeper and meaningful way. This will be hard to predict. If history is any indicator, power and greed politics always ruin good ideas. Those who benefit from a system are less likely to be receptive to change, or want to steer change in a direction that will be good for them, but that may not mean good for everyone. And tensions, even amongst the more powerful nations are already showing. For example, the US has not invited Spain to a financial crisis summit for mid-November. As the worlds eight largest economy and home to 2 of the worlds top 16 banks, a meeting of the G20 (G7 plus some developing nations) sees Spain (the worlds 8th largest economy) missing out of either classification. Spain, however, sees this as US retaliation for the country withdrawing its troops from Iraq. It has full EU support for being present at this meeting as well as support from a number of Latin American countries. Like France, it wants to see in-depth reform of the global financial system and focuses on IMF reform as well as giving more representation to emerging nations. The eventual outcome of the G20 meeting seemed mixed. They agreed to use government spending to fight a spreading recession, to tighten lax oversight of markets, to resist protectionism, and to revive stalled negotiations for a new global trade pact. They also agreed to meet at the end of March 2009 to follow up. Developing countries also got more assurances about increased say at international financial institutions through promises of reform at the IMF and World Bank. But others argued that the meeting outcome seemed more vague than concrete and only these principles seemed to have been agreed without anything more concrete. The call to resist protectionism has been a prime concern from the Bush Administration, sometimes (incorrectly) equating calls for regulation with protectionsim. The calls for regulation have typically been to make companies more transparent and ensure the financial mess created can be avoided in the future. Nonetheless, other regions around the world agree that generally free trade is desirable over protectionist policies. History has shown that once economies mature they benefit from less protectionist measures (but also shows that nations on early stages of development may also benefit from it). The APEC trading bloc, for example, represents almost half of all world trade. Most member states are generally industrialized, so as a group, APEC nations have agreed to resist protectionist measures . Towards the end of April 2009, however, the World Bank finds a number of leading nations are practicing protectionism, despite pledges not to do so just a few weeks earlier at a highly publicized G20 summit where they agreed to further cuts to trade barriers. This has included the US, various EU nations, Japan, South Korea, Russia, India, Argentina and Brazil. This has been done quietly, not as a public matter of policy like Krugman suggests. So despite words on how responses need to be coordinated, leading nations are attempting to look after their own interests (which can also be understandable). Reform of the IMF and World Bank, however, will be crucial for much of the world. Whether that actually happens and to what extent those with power are willing to truly share power is something that we will find out in the course of the next year. The promise of rearchitecting the global financial system more fundamentally seemed to wither away slightly. As the Bretton Woods Project noted, the G20 had little time to effect much and could not do it alone, any way: G20 governments, swept off their feet by the financial crisis, were never going to be able to reach a consensus on deeper reforms within the few weeks taken to prepare the summit. Critics argue that the G20 can never tackle this agenda alone. As Miguel DEscoto, president of the UN General Assembly said: Only full participation within a truly representative framework will restore the confidence of citizens in our governments and financial institutions. He continued, Solutions must involve all countries in a democratic process. Hardly mentioned in the mainstream media by comparison, the more democratic alternative was the Doha conference on financing for development meeting at the end of November in Doha, Qatar, held by the United Nations General Assembly. Perhaps partly because of lack of mainstream media attention, the Doha conference also resulted in weak pledges and disappointment . Rich countries resist meaningful reform Also disappointingly was the outcome of the G20 April 2009 summit in London and the The United Nations Conference on the World Financial and Economic Crisis and its Impact on Development, which concluded June 26. At the former, it was hoped leading developing countries might have voice to make the rich nations agree to meaningful measures to address the current crisis, while at the latter (the first global conference to address the global financial crisis and to look beyond), it was hoped that more meaningful and longer term measures could be entertained. Instead, (and as feared above) rich nations resisted substantive reforms demanded by developing countries . As the Bretton Woods Project summarized, the April 2009 G20 meeting in London, captured positive media attention despite failing to set out a vision for transformative economic change, and pumping more money into the IMF and World Bank without a clear plan for reforming them. The IMF received most of the boost, with a possible 500 billion in new resources and 250 billion in issuances of Special Drawing Rights (SDRs). An SDR allocation effectively means printing new money, 100 billion of which will go to emerging market and developing countries the majority will go to rich countries. Of the putative 1.1trillion, 50 billion, or less than 5 per cent, is likely to be for the 49 poorest countries in the world . The G20 communiqu says nothing new on IFI governance reform, and big increases in IMF resources have not been matched with clear commitments to end the controversial austerity policies that have so far accompanied IMF bailout packages. Changes to voting shares to give developing economies greater voice and representation are promised in general but the annex appears to backtrack on IMF reform . Critics remain concerned that lessons from the Asian financial crisis a decade ago have not been learned . where IMF conditions were blamed for worsening recessions. On banking regulation surprisingly little concrete was agreed . the London Summit was slammed for systematically excluding civil society voices. In contrast to most international gatherings there was no process for civil society organizations to accredit and attend. Of the few civil society representatives who were allowed in as media representatives, some had accreditation withdrawn at the last minute. One of these denied entrance, Benedict Southwark of UK campaigning group the World Development Movement said that this: starts to reek of the deliberate exclusion of critical voices . G20 trillion dollar magic trick. Bretton Woods Project, April 3, 2009 (Emphasis Added) The Project also provided a summary of the UN conference on the world financial and economic crisis and its impact on development. This conference was the first opportunity for all the countries of the world to discuss the crisis on an equal footing, but that equal footing gave way to power posturing: The first major conference on the financial and economic crisis to involve all countries ended with rich countries blocking substantive reforms demanded by developing countries . The UN conference did however push key issues up the international agenda, such as the need for a better system of international reserves, and for genuine policy space for developing countries. During acrimonious preparations, developing countries, who wanted substantive reforms to the global economic and financial system, battled rich northern countries who wanted to curtail the role of the conference and the UN . In the end, the final outcome document was stripped by western countries of most concrete proposals for change, but it includes language on many of the critical issues raised by developing countries, and the genesis of a follow up process that could expand the UNs role in this area. The conference produced the most honest assessment of the nature of the worst financial and economic crisis since the Great Depression yet produced by an intergovernmental forum. many developing countries spoke forcefully against IFI conditionality from the floor of the general assembly. the issue of the creation of an international reserve currency to replace the dollar is referred to, albeit in very tentative language. The theme of raising important issues but promising little new action is continued throughout the document. Governance reform is an urgent need Financial sector reform merits only a couple of paragraphs. Observant participants noticed that many of the worlds leading tax havens had sent strong delegations to the conference, so unsurprisingly there was little new on combating tax evasion and capital flight . There is little new on emergency finance or aid. Despite the warnings of many that another global debt crisis is imminent, the language is weak. The opposition of western countries to using the UN to coordinate or lead on international economic issues was expressed forcefully by the US . Our strong view is that the UN does not have the expertise or the mandate to serve as a forum for meaningful dialogue or to provide direction on issues such as reserve systems, the international financial institutions and the international financial architecture. it is clear that the richest countries of the world will continue to fight to prevent the UN from taking the lead. The US view above is interesting: it claims the UN does not have the expertise. Given this global financial crisis emanated from the US, pushed by ideologues largely from the US, it feels hollow for the US to suggest it knows better. The US also added that the UN does not have the mandate to serve as a forum for meaningful dialogue or provide direction. This clear interest and vocal involvement of so many developing countries shows otherwise, and suggests that the US (voicing the concerns of all rich nations, most likely) is saying it wants the current global system to remain unequal and undemocratic. Hazel Henderson and Jan Oberg also suggest some commonsense things that need addressing across the spectrum but have for years lacked mainstream media attention, or been ignored (especially during times of boom as it impacts the winners the most). Jan Oberg of the Swedish organization, Transnational Foundation for Peace and Future Research, notes how the global financial crisis is one of 5 major crises coming together : Economic (system breakdown) Environmental (global warming and other problems) Cultural (intolerance, clash of religions, Western cultural dominance) Political (democratic deficits everywhere, lack of hope and political interest in media and among young) Security (drug-like, ever increasing military expenditures to satisfy the Military-Industrial-Media-Academic Complex, MIMAC yielding ever less human security). Furthermore, he laments at the mainstream media reporting, in particular on these areas Never talking of militarization and war, a common cause of these major crises Rarely challenging the general communiques from world summits that follow the theme of the all-is-possible, conflict-free world where the rich wont have to make any concessions The intellectual poverty that encourages thinking along the lines of to solve the crisis, lets have more of what caused it. Forget the environment Henderson, like many others, suggest some technically simple (though politically difficult) changes, including the following: Introducing some kind of currency exchange tax. A very minimal one like the famous Tobin Tax, suggested a very long time ago, would go a long way to avoid the incredibly damaging aspects of currency speculation and financial volatility we see today. Reduce military spending (rarely is war and militarism seen as connected to economic power, and yet history shows these are inter-connected). Revisiting the money system based on debt, by, for example raising capital reserve requirements for banks and reducing leverage used by financial players. Addressing financial markets and self-regulationself-rating by, for example, regulating and making far more transparent the workings of hedge funds and other financial schemes. As also Joseph Stigliz, further above, Henderson notes that even leading governments and businesses are entertaining similar thoughts: Even the World Economic Forum in Davos in January found a consensus of both government and business leaders for such global-level agreements and standards. The UN Principles of Responsible Investment are calling for similar reforms. At last, this global financial crisis brings the opportunities discussed for decades to reform todays global casino and restore finance to its vital but limited role in facilitating real production and innovation in the worlds real economies. Although such powerful entities are finally entertaining these things, there is good reason to remain skeptical. More generally, as Vandaele also finds, The most powerful international institutions tend to have the worst democratic credentials: the power distribution among countries is more unequal, and the transparency, and hence democratic control, is worse. Yet, although history often shows that those with agendas of power tend to win out, history also shows us that power shifts. A financial crisis of this proportion may signify the beginnings of such a shift. And so, it is perhaps only at a time of crisis that more fundamental rethinking of the entire economic system can be entertained. Rethinking economics During periods of boom, people do not want to hear of criticisms of the forms of economics they benefit from, especially when it brings immense wealth and power, regardless of whether it is good for everyone or not. It may be that during periods of crisis such as now, the time comes to rethink economics in some way. Even mainstream media, usually quite supportive of the dominant neoliberal economic ideology entertains thoughts that economic policies and ideas need rethinking. Stephen Marglin, Rethinking Economics. May 21, 2007, Big Picture TV Harvard professor of economics, Stephen Marglin, for example, notes how throughout recent decades, the political spectrum and thinking on economics has narrowed, limiting the ideas and policy options available. Some have been writing for many years that while the current economic ideology is flawed, it only needs minor tweaking to correct it and make it work for everyone a more compassionate capitalism, but capitalism nonetheless. Others argue that capitalism is so flawed it needs complete doing away with. Others may yet argue that the bailouts by large government will distort the markets even more (encouraging bad practices by the big institutions) and rather than more regulation, an even freer form of capitalism is needed. As a small example, Raj Patel notes how the price of an item (fundamental to neoliberal capitalism) often doesnt capture or reflect true value. Patel argues that the markets in their current shape have created a convoluted idea of value value meals are cheap but unhealthy whereas fruit and veg are often more expensive rainforests are hardly valued whereas felling trees adds to the economy. Flawed assumptions about the underlying economic systems contributed to this problem and had been building up for a long time, the current financial crisis being one of its eventualities. But there is a recognition among the public and some politicians that todays economic crisis is a failure of free market thinking, and not a warrant for more. In response to popular outcry, politicians around the world seem ready to discuss how to regulate and restrain the market. The question is, can they, and, if they can, in whose interests will this regulation work Raj Patel, Flaw . The Value of Nothing, (Picador, 2010), p.15 What is hoped is that fruitful debate will increase in the mainstream. This will also attract ideologues of different shades, leading to both wider discussion but also more entrenched views. Those with power and money are less likely to agree to a radical change in economics where their power and influence are going to diminish, and will be able to lobby governments, produce compelling ads and do whatever it takes to maintain options that ensure they benefit. The highly regarded Hazel Henderson has written about how difficult it has been for years to get mainstream economists to think about a broader economic system that considers the environment and ethics. She goes into how many mainstream universities and economists have actively avoided these alternative thinking from as far back as the 1920s, but suggests that now may be a time for change. Drawing on the work of Karl Polanyis The Great Transformation. Raj Patel notes that What Polanyi offers is a way of understanding not only why the economy and society are part of the same set of processes, but also why we erroneously believe that market and society are separate. The culture of profit-driven markets, what Polanyi calls the myth of the self-regulating market, turns out to need society far more than it pretends tobut the myth that economy and society are two distinct realms needs to be widely propagated if the self-regulating market is to spread farther. In times of crisis, the myth becomes far easier to see through. After all, the failure of the banks could have spiraled into total economic meltdown were the public sector not there to catch it. Capitalism can no more bail itself out than it can stand on its own shoulders. The market has always depended on society, which is why the language of too big to fail simply means so big that it can depend on society to pick it up when it topples. The logic of laissez-faire always needs a social base, and this is why Polanyi does not separate the way we live into government and the free market for him, its simply market society. Raj Patel, Flaw . The Value of Nothing, (Picador, 2010), p.15 As another example, Canadian economist Jeff Rubin notes that access to oil is a crucial element of the current form of globalization because manufacturing has been moved to very distant places from where the goods are used (so transporting those goods require oil, and hence cheap oil is important to make that affordable). As oil prices increases, it threatens globalization itself. Amongst the various implications is that alternative energy sources and localization (e. g. reviving local industries that have long been in decline as a policy of globalization, regional trade, etc.) may therefore be a necessary strategy as globalization may unravel due to the inability to afford transportation of manufactured goods from far away. But those who benefit (money and power) from the current form of globalization are hardly going to agree to fundamental changes that this implies, just like that. It is perhaps ironic to quote, at length, a warning from Adam Smith, given he is held up as the leading figure of the economic ideology they promote: Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their good both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people. Merchants and master manufacturers are the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects than with regard to the latter. Their superiority over the country gentleman is not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers . To widen the market may frequently be agreeable enough to the interest of the public but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. Adam Smith, The Wealth of Nations, Book I, (Everymans Library, Sixth Printing, 1991), pp. 87-88, 231-232 (Emphasis added. Additional paragraph breaks added for readability) With the mainstream media often representing such entrenched interests, true democratic participation will be very critical. More information A lot will be written about this crisis as more will certainly unfold. Here are some starting points to read more: From the mainstream media: The above are just small examples, and they will link to yet more resources for further information.