NEW DELHI: India cannot return to rapid growth till the world economy recovers. And that cannot happen till the US economy recovers. Alas, the Obama administration is prolonging the recession by avoiding surgery to remove dead wood from its financial sector.
Some call this cowardice. Others, such as former IMF chief economist Simon Johnson, writing in The Atlantic, say Wall Street has captured the White House. This is no longer a leftist accusation. Johnson says the US now resembles Russia, where business oligarchs and government officials protect each others’ financial interests, at the expense of the economy.
This is surely an exaggeration. Yet it highlights the priority given by the Obama administration to save the titans of Wall Street rather than end the recession quickly.
It is now clear that the toxic assets-securities and loans with impaired values - of US banks are $2-2.8 trillion, while tangible assets are only $1 trillion. Technically, the financial sector is comprehensively bust.
It needs to recognise the losses, writing off trillions. But for that somebody must first inject trillions of new equity into the banks. Private investors will not do so. The market solution would be to force insolvent banks into bankruptcy, with shareholders and creditors taking a huge hit, and their good assets being auctioned (at bargain prices) to surviving financiers. Many titans of Wall Street will disappear, but others will rise to take their place.
http://economictimes.indiatimes.com/Slowdown-Obamas-cowardice-hits-India-too/articleshow/4432443.cms
Some call this cowardice. Others, such as former IMF chief economist Simon Johnson, writing in The Atlantic, say Wall Street has captured the White House. This is no longer a leftist accusation. Johnson says the US now resembles Russia, where business oligarchs and government officials protect each others’ financial interests, at the expense of the economy.
This is surely an exaggeration. Yet it highlights the priority given by the Obama administration to save the titans of Wall Street rather than end the recession quickly.
It is now clear that the toxic assets-securities and loans with impaired values - of US banks are $2-2.8 trillion, while tangible assets are only $1 trillion. Technically, the financial sector is comprehensively bust.
It needs to recognise the losses, writing off trillions. But for that somebody must first inject trillions of new equity into the banks. Private investors will not do so. The market solution would be to force insolvent banks into bankruptcy, with shareholders and creditors taking a huge hit, and their good assets being auctioned (at bargain prices) to surviving financiers. Many titans of Wall Street will disappear, but others will rise to take their place.
http://economictimes.indiatimes.com/Slowdown-Obamas-cowardice-hits-India-too/articleshow/4432443.cms
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