“When US President Barack Obama takes office in January, the crisis will be even bigger,” Kumar said today while delivering a lecture on the current financial crisis and lessons for the future at the Ahmedabad Management Association.
“The $150 billion tax cut package for the housing sector was too little and too late to prevent a massive collapse,” Kumar said, adding that “every aspect of the financial sector was plunged into financial chaos.”
“For the past two decades, financial markets in the United States have been deregulated, under the leadership of Alan Greenspan, because he operated under the assumption that markets were self-stabilizing, but in a recent testimony, Greenspan admitted that he had been wrong for 16 years.” Kumar said, referring to a leading US newspaper.
He added that this disorder led to the collapse of Lehman Brothers, Bear Stern and other troubled institutions.
He added: “The government has intervened, the crisis has subsided, but now there is a crisis of confidence among banks. Financial and money markets operate on the level of trust and confidence and this should not be broken at any cost.” The fall in the United States was sharper than the gradual rise because the banks were involved in deals and even more because of the decline in returns. A slight drop in asset prices made it all happen,” said Arun Kumar.
The US economy was growing on borrowed funds, so post-crisis countries like Japan, China, Iceland, Ukraine, etc. are in deep trouble. China is looking for ways to divest from the dollar, after corporate profits started falling, Arun Kumar said.
He warned that now the protectionism of the economy is stalled by distrust, which is also dangerous. So when US President-elect Barack Obama takes office he will prioritize job creation in sectors like BPO and call centres, Kumar added, adding that 1.5 billion jobs have been reported in the US in the past.
So an out-of-the-box restructuring is required for the $600 trillion financial sector at this historic juncture.
In the backdrop of such a scenario, the G-20 initiative is important and there should be greater coordination among governments, including India, Kumar added.
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