Uncomfortable questions for a recession

By | October 19, 2008

Economies all around the world are in a recession just 4 years after they recovered from the last one. This recession, like the last one, is a product of greed. In 2000, there was the greed to earn a quick buck from dot com companies. Hence there mushroomed an eco-system of dot com firms that was later named as the “dot com bubble”, a bubble that burst and took down with it a lot of global economies.

The world did recover from the dot com bubble eventually, but there were no lessons learnt. Greed was much bigger, as giant loan sharks gave loans in the US that were not sustainable. Loans given out to people to buy houses they could never afford. Sub-prime crisis, as we know now, started a phase of slowdown that has claimed many heads now. A whole era of investment banks led by the likes of Goldmans & Lehmanns. No one knows how or where this recession would lead. All we can hope is, it stays a recession and does not become a depression.

There are, however, some uncomfortable questions one must ask even during these tough times. Here they are:

#1 Will the USA take responsibility for plunging the world into this unprecedented(so they say) crisis?

After all, it is the blind greed and capitalistic whims of the so-called Harvard educated “managerial talents” that have us in this mess.

#2 Will the banks of the world come out in the open and inform the masses how bad their books are?

One cause of the current recession is lack of faith in banks. This lack of faith is because banks are not so forthcoming with their bad debts and losses.

#3 Will higher managements in companies accept cuts to their own fat paychecks before laying off hundreds of thousands of lower rung employees?

Consider this: The average cost to company(CTC) of an entry level professional in India is about 2.5 – 3 lacs per annum. The average CTC of a Senior Manager is about 25-30 lacs per annum. CTCs for company VPs, CEOs, CTOs & CFOs are much higher, sometimes in the range of a couple of crores. If these high salary earning executives took a 20-40% cut in their CTCs, in luxuries like club memberships etc, they can very well make a considerable saving for their companies. Will they?

#4 Whenever we are out of this recession, how would we make sure we don’t have another recession?

This is the most important question to answer. Part of this answer will stem from the first answer, the USA must accept responsibility for what its greedy bankers have led the world into. The next step would be to make sure the world doesn’t head into another recession.

Now, we need someone to answer these question. More importantly, act on those answers so that the world can get back on its feet sooner than later.

Author’s Note: The Empty Head wishes all readers, fellow bloggers and well-wishers a very Happy Festival season. May you and your families be blessed with health, wealth and happiness!!

2 thoughts on “Uncomfortable questions for a recession

  1. sanjay mehra

    There is no way to make bankers who are ultimately people to behave responsibly if they dont wish to. That is why there is legal regulation, which defines the extent of risk and avenues that banks and financial companies who use other people’s money can invest in. This is more of a failure of the model of regulation in the USA. The regulatory authorities could not figure out the complex manners in which these bankers were bundling their loan portfolios and selling to other banks and agencies.
    The real lesson here maybe a complete overhaul of the regulatory agencies and the technology that they use to regulate a huge huge market. Technology hopefully will come to their rescue, as the size of the debt markets make it impossible to regulate manually.


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