Bail-out: The Devil’s Advocate?

The mayhem that has unraveled over the previous years within global financial markets has been unprecedented and compelled many underlying doctrines of free market economies into redundancy. Having embraced the virtues of capitalism for decades, we are now forced to witness the potential Armageddon of global financial markets. Stock markets have plunged to all time lows and investor confidence is virtually non-existent. Ironically, centralized economies of the Far East have averted a complete fiasco, and although there are mounting concerns of a worldwide recession, the events of contemporary global markets vindicate that there can be multifaceted approaches to economic prosperity. The tables have turned rapidly and conspicuously for what was once the world’s overwhelming economic powerhouse coupled with the epitome of economic extravaganza. However, these imminent events have transpired the U.S. into debris of exaggerated power distribution and de-regulation. The question now beckons whether the bail-out bill provides a sustainable solution for the revival of credit markets or whether their general economic framework requires a considerable makeover?

Many pundits have criticized the bail-out bill, labeling it as a short-term contingency exemplifying that no lessons have been learnt. The government’s decision to nationalize Freddie Mac and Fannie Mae provides a short term solution, and they may have been justified in their actions as the collapse of these companies would have prompted a ripple effect highly detrimental to the already shattered economy. However, absorbing the toxic assets of several companies by providing liquidity of this amount will continue to conceal the deficiencies of this highly deregulated economy. Excessive deregulation has sparked an array of corruptive influences, and these cannot be laid to rest through persistent liquidity injections worth billions of dollars. Ireland has enforced the provision of 100% security for consumer deposits, which has been met with heated criticism from prominent EU member states. France has experienced two quarters of negative growth, and is hence already in a recession. President Sarkozy’s ad-hoc meeting with Europe’s greatest economic leaders to resolve the crisis appeared to be in vain, and the collapse of Hypo Real Estate due to the inability to find a private buyer has led Chancellor Merkel to follow suit with Ireland. An era of globalization, where cross-border transactions and mutual understanding were adopted as norm, has now turned into “survival of the fittest”, and as long as no affirmative solution can be found, the possibility of a global economic overhaul appears bleak.

America’s bail-out bill may provide some economic stability, but their actions can be termed as self-fulfilling and negligent. Such liquidities would sweep aside any financial worries that have haunted each and every conglomerate, but in a global context this would create an unfair competitive advantage for U.S. companies. Should this bail-out fail to alleviate markets, the consequences would be fatal, and the government debt surely irrecoverable. Conformity, it seems, is now utopian.