Posts Tagged ‘Current Affairs’

I was astonished to read that the much hyped $700 billion bailout bill had been rejected by the US house of Representatives earlier this week. The ostensible reason for the defeat of the bill was: negative public opinion. Representatives were reluctant to have the lay American taxpayer bail out firms on Wall Street any more after the expensive AIG affair. Mainstream media outlets reported about how people got in touch with their local representatives through email, phone and post and conveyed quite plainly, their umbrage at having to bear the consequences for Wall Street’s perceived lack of prudence. People mobilized themselves on an unprecedented scale to have their voices heard and in the end; their voices were heard loud and clear on Capitol Hill, with the bill being defeated by a margin of 228-205.

Does the rejection of the bill, although painful for Wall Street and other financial markets world wide, have a silver lining? I think this incident actually stands testimony to the power of the democratic setup in the US. Credit goes to the American public for making their voices heard, discounting bipartisan political support that the bill enjoyed. Whether it made sound sense or not, people thought it unfair on the part of the Government to pump in such massive amounts of taxpayer money and frowned at attempts to buy out distressed financial assets. For people who were reared on ideas of free market capitalism, the very idea of Government intervention was anathema.

Does this mean that the US Government will do nothing to bail out Wall Street? The answer should be a “No”. There is a new much “sweetened” bill being circulated that has already been passed by the Senate. There is also talk about this bill getting passed in the House of Representatives tomorrow. So what changed during the course of the week? Per some media reports, after the massive 777 point drop on the Dow Jones index, the American taxpayer has now begun to feel the effects of a liquidity crunch with loans being difficult to come by and mortgage payments due. More and more people have now begun to realize that the crisis is no longer an academic problem of a few firms in faraway New York, but a real and alive issue threatening not just Wall Street, but also Main Street. Therefore, in all probability, people’s opposition to the bailout package is now expected to be more toned down with the realization that immediate action is the need of the hour.

Whether the bill eventually gets passed or not is irrelevant. What is evident is that America has a mature and active democratic setup wherein policies are framed to reflect the will of the people- policies that evolve to reflect what the American people think. Tabling two bills with such massive financial repercussions within the course of a week is a clear case in point. Despite the first bill being defeated, financial markets world wide are optimistic of the second one going through because of the change in perception among the American public.

Aside question to Finance Gurus: US taxpayers were reportedly incensed at the attempt of companies on Wall Street to localize profits and distribute losses. Which makes me wonder, does the Windfall Tax that the Government of India planned to levy on private firms that make a windfall profit, qualify as an attempt to distribute profits to the Indian exchequer? Hypothetically, do companies that pay such a tax have a legal entitlement to a Government brokered/sponsored bailout in case they flounder? Comments welcome…..


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