US Financial Crisis

Tuesday, September 16, 2008

Press Statement

The Polit Bureau of the Communist Party of India (Marxist) has issued the following statement:

Lessons of the Financial Crisis Afflicting the US

The bankruptcy of Lehman Brothers, the fourth largest investment bank in the US, marks a considerable deepening of the financial crisis in the US, which was precipitated by the collapse of the real estate bubble. Another large investment bank, Merrill Lynch, was bought over by the Bank of America at a throwaway price while insurance giant AIG (American International Group) is struggling to raise funds and desperately seeking a bailout package. This latest round of financial stress in the US comes in spite of the recent nationalisation of the housing mortgage companies, Fannie Mae and Freddie Mac, and the state-sponsored bailout of another investment bank, Bear Stearns, earlier this year.

It is clear by now that even the US Government, with all its resources, is finding it impossible to bailout these failing financial giants with public funds, given the sheer extent of their losses. The deregulated financial system of the US, which has been held up by the advocates of globalisation and financial liberalisation as a model to be emulated by all countries, has been badly exposed for its inefficiency and unviability.

The Manmohan Singh government needs to learn the proper lessons from these momentous events. It has been pursuing harmful steps for financial liberalisation. Legislations like the Banking Regulation Amendment Bill, IRDA Bill and the PFRDA Bill, which seek to further deregulate, privatise and open up the banking, insurance and pension funds to foreign finance capital, should be withdrawn immediately. Reckless lending to volatile sectors such as real estate should be curbed. The renewed attempts to make the capital account convertible and deregulate the capital markets should also come to an end. The Indian financial system must not be allowed to become a happy hunting ground for speculative finance capital to the detriment of financial stability.