With the latest round of global market turmoil and the latest set of 'steroids' injected into the financial markets, the problem seems to be far from over. The LIBOR, one of the globally recognised benchmarks for inter bank borrowing/ lending witnessing unprecedented levels, credit markets have come to a grinding halt. All efforts by Central Banks of major developed economies, by way of co-ordinated interest rate cuts and injecting funds have come to naught. Our own RBI is not the be left behind. It has announced decrease in CRR by a massive 150 basis points, in a matter of one week after a period of 5 years of CRR hikes. But all policy action towards providing liquidity and at cheap rates doesn't seem to work on the ground. Reason being the 'skepticism', to put it mildly, among bankers to lend each other. With major institutions going bust week after week, the inter bank lending has dried out. Banks are stashing their deposits in T-bills, leaving little to lend. Be it the commercial paper market, institutional funding or the equities market, all have become non functional, literally. Leaving businesses reeling under the downward credit spiril.
Some have criticised the nationalisation and bailout packages being bundled out by the US, labeling them as socialist in nature and away from the principles of free market & democracy . To the US's defense the role of a democracy is much more then just free markets, its more about the welfare of the people. The debate is not going to die anytime soon thou. But I having turned into a staunch free market fundamentalist believe that the bail out packages being thrown around is not going to bring back confidence which is an essential prerequisite for the banking and financial systems to work. Which is exactly the reason why we find that though the interest rates have been cut, corporates find no takers for their paper and whatever financing is done is at exorbitant rates. The ban on short selling imposed to abate the slide in equities is another such misstep. It can trigger another Pandoras box. Unregulated entities like hedge funds known for shorting aggressively can be caught wrong footed with the ban. Hedge funds, hiterato unscathed can pretty easily find themselves in the midst of all action if things go awry.
May be had it not been for the bailing out of Lehman Brothers, AIG etc, we would have had spiraling systemic problems, no one can ever be for sure as to the right solution to the issue on hand. But one thing is for sure we will witness sea change in the way the financial world is managed and compensations doled out.
Some have criticised the nationalisation and bailout packages being bundled out by the US, labeling them as socialist in nature and away from the principles of free market & democracy . To the US's defense the role of a democracy is much more then just free markets, its more about the welfare of the people. The debate is not going to die anytime soon thou. But I having turned into a staunch free market fundamentalist believe that the bail out packages being thrown around is not going to bring back confidence which is an essential prerequisite for the banking and financial systems to work. Which is exactly the reason why we find that though the interest rates have been cut, corporates find no takers for their paper and whatever financing is done is at exorbitant rates. The ban on short selling imposed to abate the slide in equities is another such misstep. It can trigger another Pandoras box. Unregulated entities like hedge funds known for shorting aggressively can be caught wrong footed with the ban. Hedge funds, hiterato unscathed can pretty easily find themselves in the midst of all action if things go awry.
May be had it not been for the bailing out of Lehman Brothers, AIG etc, we would have had spiraling systemic problems, no one can ever be for sure as to the right solution to the issue on hand. But one thing is for sure we will witness sea change in the way the financial world is managed and compensations doled out.
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