IN THE SHADOW OF THE GLOBAL
"Capitalism without bankruptcy is like Christianity without
By Miša Brkic
Does the crash of the global financial system have the effect of the
fall of the Berlin Wall? Or, to put it more precisely, will capitalism break down too
almost twenty years after the fall of communism?
From the perspective of October 2008, anti-globalists' gloating over the
death of capitalism seems exaggerated despite the fact that the system of private
ownership, competition and market economy has been seriously shaken. The awareness that
capitalism should be urgently reconfigured (reshaped) rather than thrown in the
"garbage of history" has already been turned into practice at the Camp David
Summit, when outgoing American President George Bush, French President Nikola Sarkozy and
President of the European Commission Jose Manuel Barosso agreed to open dialogue on
mending the system (of capitalism) without questioning its sum and substance at a series
of summit conferences with other world leaders. The principles by which capitalism would
be reformed follow the slogan, "All for one, one for all."
The French President belongs to the circle of "early roasters"
among world leaders who have started the polemic about reshuffle of capitalism. "I am
convinced that the problem is deeply rooted and that we should start from the scratch to
rebuild the entire world financial and monetary system. The idea about the absolute power
of the market that should not be bound by any rules or political interventions was a mad
idea, the same as the idea about the market always being right. The crisis opens the door
to a state's bigger intervention in a financial system, both nationally and at the global
level," said Sarkozy. Having joined the dialogue leaders of the International
Monetary Fund said the global financial crisis was of "a system character."
Sarkozy brought a new "Bretton Woods" to Camp David - a plan
for the reform of the world financial system (like the one drawn in Bretton Woods in
1944). Two days earlier leaders of the European Union had discussed the plan in Brussels
and called for urgent, strategic measures of control and support to the badly shaken world
financial system that would restore stability of the world economy and curb the panic at
stock markets. "The entire system should be set on new foundations and, in
particular, 'financial heavens' that have been beyond the reach of economies and states
should be removed," said Sarkozy at the beginning of his talks with Bush. The French
President also brought with himself to the United States Europe's support to his idea
about a meeting between the Group 8 of most influential states and the countries with
growing economies (China, India, Brazil, Mexico and South Africa) that would deliberate
re-channeling of the global financial system and institutions.
For Europeans, the measure that need to be taken would not only solve
the financial system in crisis but also establish a more "moral"
economic-financial order based on production rather than on financial speculation.
German Prime Minister Angela Merkel explained the term "more
moral" while urging the Bundestag to adopt a 500-odd-million Euro package of
assistance to banks. "Governmental measures aim at humanization of market economy.
The threat to the stability of financial market still looms but the state takes strong
measures to safeguard the structure for a humane market economy," she said.
Everyone expected the Americans to be "a harder nut to crack"
when it comes to "humanization of market economy" since they had opposed
rearrangement of the world financial system and insisted on liberal economy and
deregulation of global financial mechanisms and currents.
The collapse of the market of hypothecary credits and the ensuing
collapse of a great portion of financial market costing taxpayers 700 billion dollars
forced George Bush to offer the United States for a host to the series of summit
conferences. "It is very important that we work together, since the crisis affects us
all," he commented. European Premier Barosso also called for "an urgent joint
action" and warned about the necessity of "a new world financial order."
Bearing in mind the pandemic of bankrupt banks and scarce capital, such series of meetings
on rearrangement of the world financial system could be convened under the auspice of the
United Nations, the more so since Secretary General Ban Ki-Moon has already mentioned that
Despite the fact that they will surely not be invited to any of
meetings, some politicians have already given statements that contributed to opening of a
global dialogue about the fate of capitalism. Senator Jim Banning from Kentucky said in
mid-September that "the free market was dead in America" and that the Bush
administration would "introduce socialism in America" with its anti-crisis
measures. Brian Moor, presidential candidate of American Socialists-Marxists, said,
"The announced nationalization of the American International Group will contribute to
the socialist cause." The American administration's plan to spend billions of dollars
to save AIG and take over control of 79.9 percent of the company's stocks made liberal
economists wonder "whether the United States of America is turning into the United
Socialist Union of America." The decision by the Bush administration is unprecedented
in the American history. Only few exceptions such as the establishment of the public
railroad company Amtrak in 1971 or nationalization of electrical power supply in Tennessee
during Roosevelt administration and the Depression have gone down in history so far.
The present recession begun with the crisis at the US hypothecary
market, with the so-called toxic loans. At the beginning of the crises caused by tumbling
prices of real estate, many banks were forced to write off several billion dollar loans,
some went bankrupt or were salvaged either by the government or takeovers. In early 2008
the American government intervened to save the Bear Stearns bank, in September it had to
take over Fanny May and Freddy Mac hypothecary companies and then intervened in the
leading insurance company, AIG. In the meantime the fourth biggest American bank, Lehman
Brothers, went bankrupt, while Merrill Lynch was saved thanks to its prompt sale to the
Bank of America. Then Washington Mutuals, yet another among the biggest American banks,
went bankrupt, the federal government seized its property and sold it to JP Morgan for
almost two billion dollars. In late September, Sheila Beir, head of the FDIC, told a panel
discussion at the New York Stock Market that other American banks should also have to
declare bankruptcy since financial crisis was far from over. Collapse of banks caused
distrust in the banking system. Banks ceased giving loans to one another and to companies
and citizens. In July the cost of real estate dropped by 16.3 percent by comparison with
July 2007. In late summer toughened crediting conditions decreased Ford, Toyota and
Chrysler sales by over 30 percent. Americans begun to spend less and were incapable of
paying off all their credits. That was when City Group prognocized that its credit losses
in the third quarter of 2008 would amount to 10 billion dollars. In September, 159,000
people were left jobless, the unemployment rate was 6.1 percent and the industrial
production index was the lowest since 2000. Budget analyst at the American Congress, Peter
Orzag said that the US pension fund had lost 2,000 billion dollars in 15 months.
American President George Bush decided to urgently cover up all the
state's regulatory and control failure through conventional interventionalism. After much
parliamentary debate and strategic polemic about the nature of the measures for overcoming
the crisis the American Congress adopted a 700-billion-dollar package of financial
assistance to financial institutions. The "package" was worth 12 Bill Gates or
equaled Holland's GNP. According to the Congress, each American citizen would have to
contribute to curbing the crisis with 2,300 dollars.
With this money the government will buy out "contaminated"
hypothecary credits and other worthless property from the financial institutions in crises
and thus motivate them to lend money to companies and citizens instead of keeping it in
Many in the United States and worldwide saw the healing of private
companies - that had hazarded at the market to earn fortunes and then lost everything -
with taxpayers' money as an incredibly brazen state interference into market affairs.
Branko Terzic, energy consultant at Deloitte Services, tried to explain
the functioning of the American financial system. He said it was complex and relying on
regulatory measures at the federal level. To illustrate his point he presented the
examples of two semi-governmental agencies, Fanny May and Freddy Mac, which used to enjoy
unique status and played to the rules laid down by the Congress. Both were privately
financed but had state guarantees. When the crisis broke out the state acted in accordance
with its duty to save those to big hypothecary companies, says Terzic, adding that
"generally speaking, private firms and capitals usually go bankrupt and then get
reorganized with the assistance of new investors." "This time, however, because
of the sizes of companies and possible consequences on the financial situation in the
country and worldwide, federal authorities had to act since those firms and their
businesses were too important to be let down the drain," explained Terzic.
Daniel Mitchell, economist at the Cato Institute in Washington and main
adviser to the republican congressmen opposing the salvage of the financial sector by
state intervention, has no understanding for such model. He told the Voice of America that
the American government was responsible for financial difficulties since it had pursued
the policy of low interests and tolerated corruptible subsidies to hypothecary banks.
Scores of people at the Wall Street enjoyed life as long as millions were earned, and now
they expect taxpayers to save their necks, says Mitchell. According to him, correction of
financial markets should be left to the laws of demand and supply since "capitalism
without bankruptcy is like Christianity without hell." "Banking crises are
breaking out throughout the world. Whenever states allow markets to act on their own
difficulties end sooner and economies emerge stronger. The American economic crisis will
last longer and will be more painful because of latest measures by the American
government," said Mitchell.
As expected, the crisis soon overflowed to financial markets in Europe,
the Far East, Russia and underdeveloped countries.
To heal the crisis the governments of the EU member-states set aside
some 2,000 billion dollars that will be spent on guarantees for bank loans and other
urgent needs. Just Germany plans to put some 500 billion Euros into the system - to lend
some 400 billion Euros to banks, to spend some 80 billion on recapitalization of banks and
(if necessary) on the purchase of risky property, and invest the rest in bank guarantees.
The French government approved a 360-billion-plan for protection of banks from collapse
and unblocking of the clogged credit markets.
Until a few days ago the global financial crisis was watched from a safe
distance in the region of Southeast Europe. Most states and their governments retained
their "composure and dignity" assessing the world financial tsunami would reach
the Western Balkans in the form of a refreshing breeze, despite the fact that stock market
indexes have been "in the red" for days.
However, some international and domestic institutions were sending not
exactly encouraging messages. The EBRD, for instance, estimated that the financial crisis
would affect Europe's post-communist countries firstly by slowing down their export to
Western markets and then by restricting their access to international financial markets
and their funds. In its six-month report the IMF stressed that "the world financial
crisis could cause problems in European countries with high economic growth, which include
Officially at least possible impacts were analyzed in Croatia, Serbia
and Montenegro. Croatia, for instance, publicized that the global credit crisis and poor
liquidity of the banking sector had affected the investment in construction of business
towers and first-rate offices. Consulting real estate firm King Sturge assessed that less
than 50,000 square meters of new offices would be constructed in Croatia in 2008 by
comparison with 170,000 square meters in 2007. The global financial crisis forced
institutional investors (AZ Pension Fund, Auktor Brokers, Erste Invest and PBZ Pension
Fund) to accept the offer made by the Hungarian oil company, MOL, and sell out the shares
of the Croatian INA oil firm though the offer was lower than the fundamental value.
In Serbia too, some business deals were postponed due to the world
financial crisis. Salford Fund released that it decided to postpone the sale of
"Knjaz Milos," mineral water and soft drinks plant, for the time being. The
"Stara Planina" company also extended the deadline for the tender calling
co-investors in the tourist complex "Jabucko Ravniste."
For their part, experts warn that things are not as rosy as pictured by
officials. Goran Nikolic of the Chamber of Commerce of Serbia takes that the decrease in
the world liquidity, shortage of capital and fewer opportunities for domestic companies to
obtain foreign credits are the key reasons for the weakening of the RSD exchange rate.
And experts of the Belgrade Economic Institute warn that the world
economic crisis would influence the growth of interests and slowing down of economic
growth in Serbia.
On the other hand, Vice-Premier for European Integrations Bozidar Djelic
said, "In the aggravated circumstances for the world economy Serbia stands good
chances for attracting investors, whose businesses are facing difficulties in certain
countries. Therefore, this is our chance to become stronger." Yet another
vice-premier, Mladjan Dinkic, minister of economy at the same time, claims that "for
the first time after a long period Serbia will collaterally benefit from global
developments." And Governor of the Central Bank Radovan Jelasic told the press that
the IMF meeting commended Serbia for its monetary policy and financial system.
And then things stopped being so rosy though in their servile poetry
columnists were doing their best to present them in cheerful colors.
Firstly, Reuters' analysis of economic circumstances in the countries of
the Western Balkans showed that smaller Balkan states could overcome the consequences of
the financial crisis only with the guidance of the International Monetary Fund, whereas
Serbia and Croatia could also need fresh funds. "Serbia seems to me more vulnerable
than Rumania and Turkey," said Tim Ash of the Royal Bank of Scotland. Ash added that
Serbia would probably have to make corrections to RSD exchange rate and estimated it could
benefit from IMF's support to its payment balance or from standby loans.
Then the Belgrade Stock Market laid down the rule that reduced the range
between the allowed daily fall and growth in stocks - the so-called fluctuation zone.
From now on, stocks at the Belgrade Stock Market's A list will maximally
fall by 8 percent (10 percent until now) at cheapen by 12 percent (20 percent until now)
at free market.
Later on, the Central Bank decided to annul the provision on mandatory
reserve deposited in it from foreign loans, retroactively as of October 1. Governor
Radovan Jelasic explained the measure had to be taken due to aggravated circumstances for
obtaining foreign credits against the backdrop of the world financial crisis.
Representatives of investment funds in Serbia also assessed that
liquidity and investors' distrust were the biggest problems affecting them and requested
the state to form a 10-million-Euro intervening fund that would help them to promptly
respond to investors' demands and restore their trust. "The value of the property
managed by investment funds decreased from 63 million Euros in October 2007 to today's 27
million Euros," said the representatives.
The general public was deprived of any information about the outcome of
the meeting between the Association of Banks and members of the governmental working group
for monitoring the impact of the world financial crisis on the Serbian economy. Reporters
were kindly asked to leave the meeting though they had been duly invited to attend it.
To conclude with, once all the safes in Belgrade banks have already been
rented (by former clients, who placed their savings in them) and with unnecessary delay
the Serbian government spoke out. Premier Mirko Cvetkovic said that at the suggestion of
the European Commission the state of Serbia would increase saving guarantees from 3,000 to
50,000 Euros per deposit and temporarily lift the tax on savings. The state has also
temporarily - till 2012 - lifted the tax on capital gain and the tax on the transfer of
absolute rights in trade in stocks. Though the world financial crisis has bypassed Serbia
so far, the state plans to set aside funds in the 2009 budget for maintenance of the
banking system - in the event the crisis continues and gets worse.
Is capitalism jeopardized in Serbia and should it be reconfigured along
Reconfiguration of UNMIK seems to be by far more important now.
Capitalism can wait.