Economic Downturn – Action & Reaction

Action: Three of the “Big Fives” of Wall Street – Bear Stearns, Merrill Lynch and Leman Brothers have disappeared. The two largest home mortgage institutions of US – Feddie Mac and Fannie Mae were rescued from bankruptcy because the government has effectively taken them over, just as it has effectively taken 80% of AIG. CITI Group is surviving by purely because of cash infusion by sovereign wealth funds.

When you look at this list, it really drives home the seriousness of the current US economic climate. The most arrogant symbol of American capitalism – the Wall Street had been barely saved from destruction by the most ‘capitalist’ nation on earth suddenly behaving like the most ‘socialist’. Let’s face it George Bush has just ‘nationalised’ the largest American insurance company AIG just as Indira Gandhi has done in her heydays.

Reaction: Our Harvard educated Finance Minster P Chidambaram rushes to in to say that India is insulated from the crisis looming large in the US. Rightfully so, because he is trying to prevent panic in the Indian Investors mind. But it just reminds one of the Oxford educated Dr. Manmohan Singh’s pat on his own back for the soaring Sensex during Harshad Mehta’s heyday. Dr. Singh attributed the then skyrocketing index to his economic reforms taking effect.

So notwithstanding the “sermon on the mount” by the ‘New Delhi Dream Team’, the impact will surely be seen in Indian market and we are bound to see some turbulence. It is too bad that our learned FMs are repeatedly caught on the wrong foot. But now the only thing the economists worldwide and in India (at least privately) are debating is the degree of impact.

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