After a year of financial turmoil, stocks have surged worldwide, and noises from the G20 summit of elite economies are positive on the global economy.
And then, US President Barack Obama has stood on a podium on Wall Street itself with a promise to clean up the town. The consensus view is that “we’re through.”
However, one of the many things that this crisis has taught us is that the consensus view is frequently worthless. When it’s correct, it isn’t very useful and when it’s wrong it can be spectacularly disastrous. A couple of days back, maverick investment guru Marc Faber said the global situation was an “utter and complete disaster” and that the recent events were “just an appetiser to the big total breakdown of financial markets and of governments in five or ten years time when the whole system goes bust”.
Faber is characteristically maverick, but he is not the only one saying this.
Now you can see the crisis by numbers, in terms of credit quality, liquidity and so on. Or you can watch human behaviour.
Behind the meltdown were people whose could take huge risks taking profits to be their own while their mistakes would be paid for by some government or the other using money created out of thin air — to be repaid by someone at some point in the future.
The behaviour problem has actually gotten worse. Before the disaster, the big American and European banks would have hoped that they were too big to fail. Now, it seems they are too big too fail and too powerful to fix. From Obama’s fulminations, it seems no real reforms will take place.
Unfortunately, the financial crisis has also put paid to the formerly beloved decoupling theory that delinked Asian growth from the US. If Faber and Co are correct, we in India are as much in its crosshairs as anyone else in the world.