Global Financial Recession and Its Solution

World market has transformed into a casino for financial game. According to a recent study published by Political Economy Research Institute,

Written by

S.M. WASIULLAH

Published on

World market has transformed into a casino for financial game. According to a recent study published by Political Economy Research Institute, “ultimate cause of current global financial crisis is to be found in the deeply flawed institutions and practices of what is often referred to as the New Financial Architecture (NFA) – a globally integrated system of giant bank conglomerates and the so-called ‘shadow banking system’ of investment banks, hedge funds and bank-created Special Investment Vehicles. These institutions are either lightly and badly regulated or not regulated at all. The NFA has generated a series of ever-bigger financial crises that have been met by larger and larger government bailouts.” This sums up the whole issue beautifully.

However, the important question is “why other countries are catching cold when the US sneezes?” The answer is simple and obvious: all of these countries, somehow or the other, are trapped under the web of capitalist financial web of the US. The edifice of this system is based on absolutely flawed principles. Although India is politically an independent and constitutionally sovereign state yet it finds itself leaning back to the United States of America for its economic development. And mind you! This cannot be dismissed as just one off isolated incident. In fact the US financial system has penetrated deep into our lives. Highly volatile stock market is a proof enough of this situation.

 

CAUSATIVE FACTORS

There are various contributing factors of this crisis namely: Total Economic Freedom; Allocation of resources through interest-based lending; and Trade in Risks, Options, Futures, Derivatives and Speculation based global market. Surely, these are salient features of capitalism.

The German Finance Minister Peer Steinbrück slammed Anglo-American capitalism blaming it for endangering global stability. He also warned that if this crisis is not checked soon then this would seriously dent the US edifice of superpower of international finance and ultimately signal the collapse of USA.

Interest makes the individual and the society selfish and greedy. It pushes for exploitation and increases the gap between the haves and have-nots. It is also one of the key contributing factors for the current global financial crisis.

On the other hand, market operating on the financial instruments like derivatives, swaps, futures, options etc. results in risk trading and speculation. Here, the real value of asset is derived from the underlined asset. Under such type of market conditions one sells what one does not own. Any change in the value of underlined asset leads to the change in the other asset. Hence, making market susceptible to high volatility.

 

REMEDIAL MEASURES

At this crucial juncture of history of the global economy the utter need for such a financial system as is capable of protecting and safeguarding property of individual as well as society is deeply felt. Moreover, this system is founded in the principles of fairness and transparency. This is a sure shot remedy for positive national economic development. Another corrective measure could be in order to stop sub-prime happening again in future a government must step in and take control of the key factors only while still maintaining a fair degree of freedom to individuals and institutions vis-a-vis other business factors. Chiefly, market should neither be excessively free so that it can adopt exploitative policies nor is overtly bound by the government that may have a negative impact on its development. In a nut shell we can claim that governmental control of the market should be according to needs that would benefit individuals as well as society. The global community must strive to replace market based on interest, ignorance, gambling, deception with Profit & Loss Sharing (PLS) system for both borrowing and lending that has no risk of exploitation.

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