The US economic meltdown and the Arroyo government’s response

The “cataclysmic” events that hit major US companies is sending shockwaves across the world.

Advocates of “laissez faire” and neoliberal policy are surprised over the US treasury department’s rescue of global insurance firm AIG. The rescue has reportedly been inadequate to calm markets across Asia.

Read more about the AIG bail-out or takeover here. A Christian Science Monitor report says that:

… a long period of Washington laissez faire toward financial markets may well be at an end. The details of regulation could be different, depending on which candidate wins the White House this fall. But more US oversight seems inevitable.

Nobel laureate Joseph Stiglitz stepped up to offer his analysis on the developments:

The present financial crisis springs from a catastrophic collapse in confidence. The banks were laying huge bets with each other over loans and assets. Complex transactions were designed to move risk and disguise the sliding value of assets. In this game there are winners and losers. And it’s not a zero-sum game, it’s a negative-sum game: as people wake up to the smoke and mirrors in the financial system, as people grow averse to risk, losses occur; the market as a whole plummets and everyone loses.

Stiglitz also said that:

America’s financial system failed in its two crucial responsibilities: managing risk and allocating capital. The industry as a whole has not been doing what it should be doing – for instance creating products that help Americans manage critical risks, such as staying in their homes when interest rates rise or house prices fall – and it must now face change in its regulatory structures. Regrettably, many of the worst elements of the US financial system – toxic mortgages and the practices that led to them – were exported to the rest of the world.

It was all done in the name of innovation, and any regulatory initiative was fought away with claims that it would suppress that innovation. They were innovating, all right, but not in ways that made the economy stronger.

The Philippines may be quickly infected by the US finance crisis, with several of the country’s biggest banks coming out one by one about their exposure in embattled US firms. They include Banco de Oro, Metrobank, RCBC and Security Bank.

President Arroyo, who takes prides in her “economist” creds, could only recite empty soundbytes amid the financial shocker.

Arroyo’s economic managers belie the usual presidential deception, with defeated Senate reelectionist and now NEDA chief Ralph Recto predicting an even lower rate of growth this year.

The Philippine Stock Exchange Index and the peso also went down today to historic lows — a reflection of how colonial and how vulnerable our economy is.

The irony is that the so-called “sound economic fundamentals” has yet again be exposed as a phony. The Arroyo government now expects overseas Filipino workers’ remittances to rescue the country from the adverse effects of the economic meltdown. Which is so exploitative and unfair — self, family and economy are now on the shoulders of each and every OFW. They obviously carry a very heavy burden and it doesn’t help that we do not have a clean, transparent and progressive government.