October the 7th was a day of high drama and panic on both sides of the Atlantic. The New York Stock Exchange suffered further massive losses, despite the $700 billion rescue package coming into force. In London, shares in the banking sector collapsed, some falling by as much as 40 percent. The Chairman of the US Federal Reserve, Ben Bernanke, admitted that the risk of a deeper economic slump had increased. And George W. Bush, whose presidency looks destined for an ignominious end, pleaded for coordinated action by the leading industrialized countries. The International Monetary Fund estimates financial losses of around $1.4 trillion. But there is no certainty. They could be higher.
Central banks of several major countries have now announced cuts in their interest rates, after weeks of indecision when each country seemed to be engaged in domestic fire-fighting. America's rescue package was for its institutions, although, if successful, it would benefit others. On October the 8th, the British government became the latest to announce a bailout plan of its own. It will spend up to £50 billion in return for ‘preference shares' in eight of the largest banks in the country. The measure gives the government some control over the banking system. And there will be restrictions on huge executive salaries and generous dividends to shareholders that have caused strong public resentment in recent years.
In the immediate run, individual governments have largely done what is best for their own economies rather than the global system. In Europe, the Irish Republic, Greece, Spain, Germany, and Britain, have taken unilateral action. Their conduct shatters what was left of the idea of unity in the European Union, especially among members of the euro currency zone. In the longer run, the era of deregulation of the kind we have seen in recent years is over. Protectionism in trade has migrated to the world of finance. How far the latest measures will succeed remains to be seen.
What we see is the result of a catastrophic loss of trust in the West. It goes well beyond economics and finance. It is the sincerity of political leaders of the West that is at stake. If those in power in Washington, London and elsewhere cannot be trusted on the critical matters of war and peace, law and justice and treatment of different sections of their own populations, their ability in other areas is bound to be questioned. The leaders of America and its allies have simply become captivated by a doctrine that leaves their economies at home, to be run by the large private institutions that they befriend, while they themselves go and fight wars abroad.
Today, America's wars are financed by money borrowed from China and the oil-rich Gulf states which are awash with petrodollars. The invasion of Iraq was launched on the false pretext of weapons of mass destruction. Later, a person of no less importance than the former Chairman of the US Federal Reserve, Alan Greenspan, was to say that the war was all about oil.
Instead of easy access to the oil-fields of the Gulf, what the US-led expedition has achieved is turmoil in the region and beyond. America's actions have contributed to dramatic oil price rises, which have hit the world economy. And countries like China, Russia and Saudi Arabia, which have accumulated huge reserves in US dollars, don't trust the West. The resentment in the Arab world against the treatment of Muslims by the West is strong. And the government of Iceland criticizes its ‘friends' for not doing enough to help it and looks towards Russia to bail it out. The West is simply broke - morally, politically and economically.
Deepak Tripathi, former BBC journalist, is a researcher and an author. His works can be found on http://deepaktripathi.wordpress.com