Karl Marx is said to be an economist who had laid down the tenets of economic equality and socialistic pattern of society to fight imperialist and capitalist societies. Actually it was fight between the state controlled economy and against the free and liberal economy. The magic of Marxism engulfed almost half the world for rhetoric of equality it offered.
By 1980 onward communist governments in the world started crumbling down, because of state controlled economy, which could not keep pace with the production and development in the countries following the system of capitalist and free economy. The result was Russia and China injected the elements of free economy in their economic planning.
But as on day the capitalists and followers of free and liberal economy like America and European countries are facing the downward swing to such an extent that has jolted the whole of the world. Reasons are overtrading with speculative tendencies. Stock markets in the world have witnessed unprecedented fall creating fear among investors. This has happened under the very nose of IMF, which has been writing economic policies for whole of the world and suggesting globalisation under liberalisation.
It is here the question mark starts. The world'sfinancial giants in America i.e. Lehman Brother'sMerrill Lynch and AIG have been shaken. The editorial in journal The Chartered Accountant (October 2008) issued by the Institute of Chartered Accountants of India, while commenting on the situation points out:-
?Financial Crisis are terrifying when underlying economic fundamentals are out of line with established theory leading to bursts of unjustified optimism and/or passimism. A pin pointed reference has also been made to selection of accounting policies as per the IFRS propagated by IASB. It is the responsibility of powers to bring sense to the market?.
Powers here means regulatory systems. The American financial institutions like Golman Sachs and Margon Stanly have now decided to become regulated banks.
USA'snational debts are about $10.2 trillion as on day. NASDAQ is still jittery showing downward trend due to failure of major banks and FII'sto meet their financial obligations. Industry is under revision. About 8 lakh personnel'shave lost their jobs since beginning of the year 2008. The US Senate has passed $ 700 bn a bail out package. How far this will hold the situation and satisfy the individual investors is yet to be seen.
The global stock market value has come down to $ 42.21 trillion (on September 30, 2008) from 52 weeks high $ 62.57 trillion (on October 31, 2007), losing 20.36 trillion in market capitalisation. The major global banks stock holdings hit 52 weeks low as on 30 September 2008 (from October 31, 2007) is shown in a table below.
The table shows that the Lehman Brother of America is the biggest loser and in India ICICI Bank has been hit hard, because of its major stake in Lehman Brother. Its share value which was Rs. 1400 in January 2008 has come down to Rs. 350 in October 2008. Smt. Chanda Kochar, Joint Managing Director of ICICI has been trying hard to convince the depositors about sound liquidity position and capacity to pay them.
The losses have been enormous to the countries involved in investments hoping in good returns. A comparative position of some of them is given below in respect to market capitalisation.
The table shows that Asian countries have been hit harder compared to USA and West European countries. Indian loss in terms of percentage 50.55 per cent is the highest but in absolute terms it comes to $ 914 bn whereas USA'sloss which is 26.94 per cent is the lowest of all comes to $ 5000 bn, which is the highest of all in absolute terms that has shaken the economy. A survey in America tells that out of 10 persons, 8 are under mental pressure. $ 700 bn. release by the American government for bail out package may not help. The losses of other countries are of course significant. The governments of America, England, France etc have come out to have their stakes with losing banks.
In India the Sensex which was more than 21000 points in January 2008, has fallen down less than 10000 points this month of October 2008. This has wiped off Rs. 4164000 crores of investors. The measures taken by the Central Governments are CRR cut by 3.5 per cent in order to release Rs. 100000 crores liquidity to the banks, and another amount Rs. 25000 crores to the mutual funds. Liberal external commercial borrowings have been advised. RBI cut in lending rate is also in the offing. But still no stability in stock market is visible.
The impact on economy in totality is that industrial growth is showing downward trend. Shri Kamal Nath, Commerce Minister, has written to the Minister of Finance for more concessions to exporters to meet the target for 2008-2009. Out of 519 Central Government infrastructure projects 258 are running behind the schedule. The cost push is expected to be Rs. 46000 crores and half of which is for railways. In international market oil prices have gone down to $ 70 per barrel. Most of the benefits will be off-set due to depreciated rupee value in payment and rest is likely to be appropriated by the government against oil losses. The trade deficit in August 2008 at $ 14 bn as against $ 7.19 bn in August 2007 is 94 per cent higher. Forex of the companies is under scanner by the Ministry of Corporate Affairs for not following the prescribed accounting standards. Forex reserves are continuously falling. In faction, rate has increased to 12 per cent this year as against 5 per cent in 2004.
Our Finance Minster was saying again and again about the liquidity crunch in the money market. So, whereas it is important to know that who has lost how much, but it is also more important to know that where the liquidity has been cornered though stock exchange operations in the world. Home loans going bad cannot be the sole reason. IMF must come out with its findings in detail on this global crisis. Out of total losses of $ 20.36 trillion from October 2007 up to September 2008, USA equity market has lost $ 5.13 trillion i.e. 1/4th of the loss. FBI in USA is already struggling with financial fraud cases.
(The writer can be contact at 89/7, East Punjabi Bagh, New Delhi-110 026)