It is funny how some words suddenly capture our attention and haunt us for a while. The word “scam” became popular in the urban Indian lexicon in 1992 after broker Harshad Mehta triggered a political furore by borrowing money from the inter-bank securities market to fund a stock bubble that led to a market scandal.
This year, the global flavour is “sub-prime” – the prefix for high-risk, high-interest home loans to people with poor credit records that led to defaults after house prices fell in the United States. The defaults led to a crisis in the financial market where high-risk investors like hedge funds had bought home loans (mortgages) converted into tradeable bonds.
This is not the first time that bonds of dubious worth have led to a financial market crisis. But this is happening at a time when the US is slowly realising that it may not necessarily be the sole superpower in economic matters. Europe and Asian economies like India and China are now forces to contend with.
Now, while it is possible to analyse the US economy in isolation, perhaps it is wise to stand back and ask some very commonsensical questions.
Why are home buyers with dubious track records in repaying loans being plied with cheap credit in the United States, while rickshaw pullers in India have to borrow at exorbitant rates or wait for new fangled microfinance institutions to arrive at their doors?
Why does Wall Street favour poor quality securities in the US markets while ignoring solid mid-cap companies in emerging markets?
Why does the US President face flak from critics like Michael Moore (maker of the hit documentary Farenheit 9/11) on the healthcare policies of his administration in an election year?
Why do US-based companies queue up to get temporary work-permit visas (H1B) for foreign workers while literally hundreds of thousands of high-knowledge jobs remain unfulfilled in the economy?
All those questions show a basic skew in the global economy today.
Doctors and nurses from India and other Asian countries can help the US lower healthcare costs, but they are not being courted significantly. Indian workers face protectionist pressures in getting work permits while they can actually help US-based companies become more efficient. Indians borrowing to get their first-ever home ownership can actually pay higher interest rates to buy their first roofs. Mid-sized Indian companies offer financial potential for US investors (as private equity firms are already discovering).
The real question facing the US administration today is: How long are you going to protect inefficient workers and dubious borrowers while ignoring the healthcare needs of your citizens and inviting a crisis upon your economy?
President George W Bush has to wake up and smell some robust coffee from India, which may help him shake off some of the stupor induced by the odour of Texan oil.
One thing the US can do is to increase the H1B visa quota from the current 65,000 of the year and also introduce a generally more liberal visa programme. (Overseas students working in the US after studying there are exempt from the quota already).
The visa programme, in turn, can be linked to the mortgage market. For instance, a Microsoft or an Intel may be allowed more Indian workers if it sponsors a home for them under a human resource initiative tied to employment conditions.
This might sound bizarre now. But think about what hedge funds did on Wall Street. They invented new financial instruments by packaging risky loans with good loans, calling it “structured finance”. To counter the bad effects of structured finance, perhaps it might be wise to invent “structured immigration” or “structured visas” that can strengthen the US economy and healthcare.
Such a policy would be backed by the fundamental forces of the global economy in which imbalances need to be addressed. The last time I heard, America’s favourite bird was the eagle not the ostrich.