What meltdown?

This financial "m e l t d o w n" that our media loves to directly copy from American media is to say the least, comical. Why can't the fools who get paid insane amounts of money to serve as financial experts see a bubble when it is blowing sky high? It isn't as if Wall Street didn't know this was coming. But nobody wanted to poke the balloon and question the unreality of banks that lent fifty times their asset base, and obviously American borrowers were stupid enough to buy homes they could not afford now, but based on how much their precious homes would be worth thirty years down the line!

Stupidity - and this is fast becoming my favourite word - is always expensive. The speculative optimism of American people doesn't border on stupidity, it is entrenched and enshrined in it. Just after Sept 11th, I had a conversation with an American man - I told him I wanted no part of the American Dream where each citizen owed an average of $36,000. He brushed off my concern and said his money was making him more than he was paying for. In other words, he was telling me that his investments were raking in good returns while he was paying a small interest on the money he owed. Of course that means some bank was being a sucker and he was in a good part of the food chain, where he could essentially grow fat without doing much.

Somehow, in a connected world, when you are unproductive, you tend to get your arse kicked sooner or later. Sure enough, American banks went crazy over easy money they were making based on home values bloating all over the place, and it is such a great economy that there were a great number of people buying homes, and then refinancing them to pocket a good chunk of money every so many years, and the few that weren't able to pay were becoming an acceptable percentage of repossessions. Now, in a bad economy, which Bush and Co. ensured Americans would face, people's confidence tends to sag as incomes aren't as rosy as they used to be, and jobs are harder to come by as more and more money went to Iraq and for buying oil!

So, a lot of loans went bad, and repossessions meant nothing when there were no "other customers" to push those homes to. The bubble had already burst but nobody was willing to use the word "recession" in case it threw people into a bigger panic. See, it is all about perception, and relying on perception instead of knowledge is .. you said it, "stupidity". The stock market is all about perception too. Stock value is buoyed up by the perception of a company doing well and how badly people want or do not want to be a part of that company. Fair enough if things are going well. But when one thing connects to another and big lending institutions like Fannie Mae and Freddie Mac have to face the reality of having bet on the bubble, all they get is soap water.

So, Bush, after pissing away billions in Iraq, and having done nothing to improve his country's competitiveness or productivity (America consumes 6% to 7% more than it produces), knowing fully well that the Chinese own the 3 trillion dollars of credit card debt that Americans have all accumulated, did nothing but put on a show for the fools watching the superfool on TV. The reason he could afford this luxury was because for nearly the entire second half of the last century, America was the engine for the world's economy, by the power of consumption alone. But to get to the bottom of it all, at some point, laziness comes at a price, and when America isn't quite as productive as it once was, it is bound to be forced to correct itself. Add high oil prices to this mess, and Americans are really being squeezed - because, guess what, surprise, surprise, they also consume the most oil per capita! (It is another matter that the USA with 4% of the world's population also consumes 25% of the world's energy)

So, as money kept drying up in American institutions, others stepped in to lend, because who doesn't want the animal that consumes so much? It's like a bar loves big drinkers, but doesn't like drunkards! As if debt is going to really mean anything if the borrower commits suicide! That suicide is what is being prevented by Bush and Co. with this famous 700 billion dollar "bailout", but the joke continues beyond the American tax payer!

This is what the "liquidity crunch" is really due to. Americans could show their houses as their "piggy banks" (to quote George Soros) and keep borrowing and spending out of notoriously good "refinancing" schemes! But when the housing bubble burst, everything went down the toilet rather fast! Houses were suddenly worth less, or worthless depending on how candid you want to be, and banks couldn't do much beyond gawk, since there were hundreds of such bad loans and nobody to palm the bad loans off to, based on these houses!

Since most banks are international institutions now, money flows across borders quite a bit in this free market economy we have all signed on for. It is all nice and dandy when our products and services are being consumed by others, and when we are raking in the money, but not quite so nice when we lend to unproductive fools. Luckily India doesn't usually lend to unproductive fools, and we are rather tight fisted about giving out large loans based on sentiments. That is the reason our economy here in India is fundamentally sound and nearly impossible to whip up to any frenzied activity - in growth or in decline. We are, thankfully, like financial donkeys.

The clowns on Dalal Street that are busy selling in panic induced frenzy clearly do not have an understanding of realities beyond their own sentiments. The idiots who spread rumours about ICICI going down, without even checking the facts on the ground, sent text messages to people that their insurance companies were going down are nothing but idiots who suddenly see themselves as "global" carriers of panic, who reel under imaginary winds of enormous change, who almost by whim or fashion, have to react to something like this, just in case they don't look out of place!

Quite staggeringly, there are a lot of people here in India, that seriously believe America will not pay that heavy a price for its follies. They feel that some "innovative" move will give them a genius break out of this and somehow the American financial flag will fly high again very soon. That is not a bad wish, and this is not to piss on the optimism or wish anything bad on American people, but from my understanding of "fundamentals" of any economy, you have to produce more than you consume in order to be competitive.

America needs to find a way to become competitive again. It is as simple as that, but for that to materialize, a lot of things have to fundamentally change, starting from curing the fever of betting a large amount of money on speculation of unending growth. That kind of growth is no longer happening in America. It is happening in India and China, but both these countries have such enormous cushions of populations that are coming into new habits of consumerism coupled with good, traditional, conservative fiscal sense, that there is hope we won't repeat the mistakes of the West here in the East.

I remember the time in the 90s when the developed "world" complained that India wasn't opening up its economy soon enough, while Indonesia, Malaysia, and the Far East were doing that. I remember our wise men didn't follow suit and sure enough all tigers turned out to be made of paper and India stood strong enough. It is no different now, but there is madness in the air of this New India. Baseless madness. Financial meltdown, my left foot toe, we have a bit of a character meltdown!