US governments financial and military interventions

We have over the past few months seen some of the biggest names in corporate history biting the dust – lack of government oversight is given as one of the major reasons for the crumbling of the giants in US corporate history. Well that could be one of the reasons for sure – but was that not the beauty of it all – US democracy at its best – which meant that the businesses should run themselves and the business of government was governance! The problem with this was that the government adopted a blinkered approach to the financial sector which created more and more complex financial instruments with absolutely zero underlying to create a bubble which burst and whose aftermath is being felt by the real economy. During the growth phase of the bubble everything was hunky dory, but now the manufacturing sector is feeling the pressure. With the rupture of the financial sector there is no credit on offer to the manufacturing sector, thus the manufacturing sector is feeling the heat – who would have thought that General Motors would fold up? With a debt of US$ 175 billion (India’s forex reserves a couple of years ago were that much) the company had no choice but to file for bankruptcy with sales not picking up due to the demand downturn!

The new government under Obama is now becoming socialistic in its approach (what a turn around) and want major government financial oversight into business operations. The government over the past six months has been framing regulations to bring oversight on the operations of large firms whose excessive risk taking triggered a global economic slump. The question is whether the government can bring in the caliber of people required for oversight to operate effectively? In India we have seen that the more the oversight the greater the ingenuity of the people in working around the new regulations. We also know what this leads to – more litigation and the courts getting clogged with cases which go on for ever!

The political cost of bringing in such legislation is yet to be tested – if the US Congress passes the new oversight legislation it will a victory of sorts for Obama whose popularity has been going down since being elected. Reaction from Edward Yingling, CEO American Bankers Association “Administration’s proposal is so vast and controversial that it will be extremely difficult to enact and will produce great uncertainty in the financial markets” and that of David Hirschmann, President & CEO, US Chamber of Commerce’s Center of Capital Markets “We can’t simply insert new regulatory agencies and hope that we’ve covered our bases”. There is tremendous opposition to the new legislation and time will tell whether Obama will be able to pull off this legislative coup and the more difficult aspect of implementing the same.

In a similar vein the US government has been funding Pakistan to fight terrorism and turning a blind eye to the end use of money. The US Congress has passed a bill to fund Pakistan to fight the Taliban with no audit for end use of money – this is exactly what the Bush administration had done and India ended up facing the music with arms purchased with US funds. The question is whether the US is following a long term strategy or a short term one – history has shown that post world war II, every time the US poked it’s nose in another country it left with a bloody nose – Vietnam, Libya, Iran, Iraq, North Korea, forget the various African banana republics which its dirty tricks department has helped fund with dirty money! We have seen of late that home grown Islamic militants have started taking root in the US with two recent cases of random killings coming to the fore. If the US follows a blinkered policy of interference, they will ultimately end up self destructing – financially as well as militarily. This is because, if the US fails financially, they will probably try to use their military might to brow beat the rest of the world, which could lead to consequences which are too scary to contemplate. Obama and the US may find that killing fly’s is far simpler than trying to manage the mess which they are now creating.