The tendency so far has been to allow greater freedom to the economy and less of government control through regulations and activity in the public sector. But the 2007 crisis has shaken this faith and this has led to a revival of old thinking of clamping down regulations.
USA government put into practice stimulus packages speedily. It was emulated in other parts of the world but growth has been tardy – not as much as expected. The revival is wobbly. This has posed the question as to whether the Great Recession was unavoidable when growth is steered by the market or could it be handled in a better way by defining the part to be played by public sector?
There are many factors that could have contributed to the turmoil. The opening up of borders and the flow of capital as well as financial services had exposed the weakness of many countries. For example the massive export surpluses generated by China led to a sharp spike of flow of capital for the short term.
Thanks to electronic technology any catastrophe now stretches and swells much more quickly than before. In 1999 the Glass-Steagall Act was abolished in USA. It had been crafted after the years of the Great Depression to prevent the acting of commercial banks as investment banks or allowing firms trading in securities to encourage the banks to play around in the markets to harvest profits. Together with this there developed a culture of bonus taking. It tempted the bankers to dig in for speculating in the short term. The mortgage loans were bundled into securities with confusing names so that their real value could not be assessed easily in a manner that was transparent. The credit rating agencies gave high grades to junk bonds. The regulatory bodies were weak, lacking coordination and this led to the taking of undue risks exposing the entire economy. The reliance was more on the companies than their own readings. Thus there was an illicit alliance between the financial entities, developers of properties together with the political parties. It all combined to confuse the real worth of the poisonous assets.
The International Monetary Fund that was supposed to give out regular warnings of the health of the economy remained conspicuously silent.
At the Toronto summit the stress was laid by the Indian Prime Minister Dr. Manmohan Singh on the necessity of maintaining a balance in attitude between the two extremes of government control and excessive freedom.
Kevin Simpson, has been working on USRepos.com studying the foreclosure market, helping buyers on the finer points of California repo homes. Try to visit USRepos.com and find all related information about Repo Homes.
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