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Bailout By Governments – A Critical Review

Posted in Finance Articles, Total Reads: 4152 , Published on January 08, 2012

Wohooo! Once again we have successfully censured, blamed a nation’s government and bailed it out with the hope that it will amend its ways. (Yes! I am talking about Greece but you can generalize the statement to any other county or a corporation in the future). The country  will now have to decrease benefits, tax more, reduce jobs, lower wages, etc. etc - in short harass its people but expect them to smile because the process of harassment will be systematic, reliable and will be done by the government instead of the ‘free market’.

Government Bailout

Every time a bailout happens oodles of questions are raised – Should the government interfere in a free market economy? Why should the taxpayer suffer because of the inefficiencies of someone else? Will the bailout package work? What could have been done to avoid bailouts? Who should be blamed? Etc. And our  beloved (sarcasm intended) economic pundits diligently come up with baloney answers which most of us subscribe to and the world seems to be a better place to live until the next bailout  or recession happens.

AIG, Bear Sterns, Chrysler, Citigroup, Apple, U.S. Airlines, Russia, Mexico, Argentina, India, Indonesia, Greece, Ireland etcetera, you will find most of the economic entities in the Bailout’s ‘been there done that’ list. The 104 year-old Hydra called bailout has come a long way forward both in terms of size and foolishness. The first bailout happened in 1907 when J.P. Morgan brought together his fellow bankers and trusts to avoid the runoff of deposits caused as usual by the “lack of confidence” in the system. Since then there has been (and will be) lots of lack of confidence .The whole economic system paradigm is nothing but a mind game of perception with one golden axiom - ‘Citrus paribus; the financial health of any entity in the economic system is directly proportional to the people’s perception of the entity’. And with in this axiom lies the solution to all our economic problems – Stop perceiving!  For without the perceiver the perceived does not exist; and we must leverage this advantage.

If you think the above solution is impractical then I am afraid it’s the only one I have, unless you change the present consumption driven capitalistic economic system. Let’s do a quick Sach ka Samna – ‘Bailouts are a part of the system. They will happen. It’s only a question of time.’ This will not seem to be true unless it’s shown in every media channel as Breaking News for 4-5 days. But I will try my best to explain the not so obvious truth – In a consumption driven economy like the one we have today, the more one consumes the better it is for the economy. To consume more one needs more money. So the (central) banks use a super powerful injection pump called monetary policy to pump in more money into the system. The more the money in the system the higher the price of goods and assets and puff!! There you have it; I have just created an asset bubble in four lines. The bubble fulfills its destiny and bursts. The government now steps in to heal the wounds by taking your money and giving it to the poor, innocent souls who were unfortunately blinded by the greed or over consumption which the system stands for. There is a brief hiatus on the consumption end. There are lots of promises made about curtailing expenditure and avoiding such a state. But wait a minute! How will a country grow if it reduces its consumption or expenditure? Its GDP will contract. There should be more ‘consumption’. And the story goes on and on like you mother’s nagging.

Hold on to your seats! It’s time for our species’ most favorite game – ‘The Blame Game’. So who is the culprit? Yes!!! It’s the system. We are not against the end which the system aims for i.e. growth, but growth for the sake of growth is an ideology of a cancerous cell and the present system just echoes that. We need sustainable growth which can only be achieved by cooperation and not competition which again the capitalistic economic system propagates. So what is the solution? We need a new system which overcomes the flaws of barter system, socialism, capitalism or any other system we have tried and tested so far, something on the lines of a Resource Based Economy where we will have no bailouts to do a critical review on.

This article has been authored by Abhishek Passi from NMIMS, Mumbai

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