The Stock Market Crisis: Who Said that Socialism was Dead?
Does anyone know what is happening in stock markets around the world? The way the various governments have rushed into action seems to indicate that they understand what’s going on. Witness the Central European Bank’s injection of thousands of billion of dollars since Sept. 15 in an effort to keep the world’s financial system running. And on Oct. 3, President Bush signed a bailout plan putting more than $700 billion at the disposal of the American treasury to shore up the US financial sector. Nationalizing financial institutions has now become the order of the day.
First it was Iceland, establishing state control of Kaupthin, the country’s largest bank. Then London took control of Bradford & Bingley, one of England’s major banking firms. After having weighed the idea of acquiring some of the US imperilled institutions, Washington has poured billions of dollars into American International Group, (AIG) and JP Morgan-Chase-&-Co, and has taken control of Fannie Mae and Freddie Mac, two giants mortgage loan institutions.
Who said that socialism was dead? Experts had thought that these kinds of measures would reassure investors and stabilize markets. However, the indexes didn’t calm down. On Friday, Oct. 10, Tokyo’s Nikkei index lost almost 10 per cent of its value, ending up below the 9,000-point mark; London and Paris followed the same trend as soon as they opened, while Brazil’s Sao Paulo exchange had to suspend trading after a dizzying downward spiral. Then, the Dow Jones slid below the 8,000-point level, a historic low. All this has happened so quickly that some analysts have started to fear a collapse of the banking system that could be worse than the crash of 1929. Despite some recovery since, the market remains unpredictable. It goes dip down today, then high up tomorrow, causing the financial pundits to scratch their heads.
It is generally agreed that the current difficulties started with the mortgage crisis that hit the United States about a year and a half ago, when many American householders defaulted on loans taken out to purchase their homes. In regard to the root causes, opinions differ. In the United States, some have pointed to the greed of the directors of the large financial institutions who, blinded by the prospects of profits and bonuses, had ignored the basic principles that frame the credit granting. The 2008 Republican presidential candidate, John McCain, had repeated this refrain over and over again during his campaign. Others have said that the acceleration in the deregulation of the financial sector over the last eight years has opened the way for bankers to engage in extremely risky mortgage lending practices. Barack Obama, the United States President elect, who subscribes to this thesis, has promised to institute adequate supervision over the markets.
American billionaire Steve Forbes told the business magazine Les Affaires that the crisis is primarily due to the fact that the established rules in the financial sector were not followed; he also blamed the significant reduction in the interest rate by the American Federal Reserve since 2004. And Rémy Morel and Patrick Thénière of the private holding company Barrage Capital have held consumers responsible: “We would, for the most part, point a finger at homeowners who enjoyed years of comfort living in a home they definitely could not afford. We’re glad they could do so, but we feel more sympathetic toward people who have been more prudent.”
So who is right?
So who is right? Maybe everyone; it could be that all the factors mentioned above contributed in some way to the present crisis. The value of stock portfolios continues to play yo-yo, with some deep nose-diving days. Investor anxiety is at an all-time high. The public is confused by contradictory advices from the experts: some say they should get out of the market before it’s too late, since it’s only going to get worse, while others advise just the opposite, because pulling out now would turn a virtual loss into a real loss, and investors will regret it when the market recovers.
The real truth about the present crisis was probably best summed up decades ago in remarks made by French sociologist Edgar Morin: “The diagnosticians can no longer tell and the prognosticators can no longer foretell. Our present is in distress. The life of the planet lurches from one day to the next — stumbling, staggering, belching, hiccupping, farting along.” Not at all a reassuring picture. Seventeenth-century moral philosopher Adam Smith’s concept of an “invisible hand” has always been at the expense of the poor; nowadays the better-off are receiving rough handling from it too. All at once, socialistic instincts are rising up in the very heart of capitalism. That’s enough to take the smile off anyone’s face.