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WEEKLY
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| Bitter medicine |
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Monday, October 06, 2008
The looks on the faces of the American Congressmen and women said it all. Even those who had voted for the so-called rescue package could see that its effects were likely to be short-lived and too little too late. The financial markets, co-authors of the crisis along with those who advocated deregulation of financial instruments at the bottom end of the housing market, are no fools either and they know also that the bailout may only be a stop-gap measure designed to prevent the situation deteriorating further than it already has. The last thing they all want is for the slide to continue to accelerate in the lifetime of the current government, further damaging the chances of election for the Republican candidate, John McCain.
Leaders of the Congress vowed that they would go ahead with hearings on regulatory reform and would “shine a bright light of accountability” on those who were responsible for the crisis. We may at least be sure of the truth of that, as whatever else may be said about the US it has a strong track-record of putting high-profile white-collar crooks behind bars (which is more than can be said for Pakistan, ever) and we only have to look to the example of the boss of Enron if we need the proof. Any retribution in the future is going to come too late to sweeten the bitter medicine that America and the rest of the world now have to swallow. There are many in the Republican camp that see the bailout as surrender to the forces of socialism, and that markets are best left to regulate themselves – let the weak go to the wall. There is unrest in the Democratic camp as well, with almost as many there being dissatisfied with the outcome of the vote – they are the fiscal conservatives whose views are not as different as those in the Republican Party.
The ‘rescue package’ at $700bn-plus and not counting the sweeteners that were added in its journey from the Senate to the Congress, is no guarantee that the mortgage buyout by the government will recoup the full cost of stopping the collapse of the market. The US government now owns the ‘sub-prime’ mortgages that started the rot in the first place; and there is a dynamic tension between the recovery of the mortgaged assets as quickly as possible which may leave many on the streets – and allowing indebted homeowners to stay in their houses which is going to make them a lot harder to sell on the open market. Dramas such as this may seem far from the lives of ordinary Pakistanis, but when America sneezes the rest of the world is likely to catch a cold as well – we could all be sneezing by the end of December.
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ISSN 1563-9479 
