By Gary Marbaniang
The Script, an Irish rock band released a song entitled, ”For the first time,” in 2010.What draws me to the song was the poignant music video of the song. The song was released at the height of the great recession, the worst economic crisis since the Great Depression. The song poignantly captures the pain and misery that the recession heaped on the lives of ordinary people. The music video criss-crossed Ireland and the USA and showed a young Irish couple who moved to the United States to escape the agony of the worst economic crisis in Ireland but when they arrived in Uncle’s Sam Country, reality hits home when they find that the picture isn’t as rosy as it seems from the other side of the Atlantic. The USA was experiencing an economic crisis of its own and when the housing bubble bursts it sent the world economy into a tailspin. Ireland was also experiencing its worst economic crisis caused by a similar crash in the real estate sector.
Shane Filan a member of the popular Irish boy band, Westlife had invested his millions in the booming real estate sector in his country but unbeknownst to him and the countless people who invested their entire resources in this sector, the booming real estate sector was like a castle built on sand. When the waves of years of reckless risk taking finally arrived, the castles which held billions of dollars of investment of ordinary people were totally wiped off. Westlife had made their millions by capturing the hearts of young teenage girls around the world including our very own Shillong and had they broken the American market they would have become as big if not bigger than the biggest Irish music export of all time, U2. Unfortunately for Shane Filan he chose to invest his fortune in the wrong portfolio and by taking a plunge into untested waters, his investment was totally wiped off. He had to file for bankruptcy in 2012.
The Economic Crisis of 2008 wreaked havoc on the lives of ordinary people around the world. Millions lost their jobs and their homes and the road to recovery has been a rather slow and painful one. In the USA trillions of tax-payers money was spent to bail out the big banks and companies because allowing them to go under was like pulling out one card from a house of cards. The whole economic system would have collapsed. Financial experts and Economists alike still debate to this day as to the main causes of the recession. Some blamed the poor and immigrants in the USA for taking mortgages far beyond their means whereas a section of financial analysts put the blame solely on financial institutions for luring people into the web of exotic complicated financial instruments known as Collaterised Debt Obligations(CDO’s).
Unlike normal stocks and treasury bonds, these financial instruments were on a different financial planet altogether. CDO’s were asset backed securities where investors were promised returns based on the performance of the securities that backed them. Unbeknownst to many investors who invest in these exotic financial instruments, a large chunk of the collateral that back the CDO’s was non performing sub- prime mortgages. But most of these CDO’s were given triple AAA ratings by the numerous rating agencies thereby reinforcing the faith of investors in these high risk financial instruments. Prior to the crash of 2008,most of these mortgages were not yielding any returns since they were experiencing a high rate of default. Sub prime mortgages are housing loans with very high rates of interest given to people with very low credit score. Under strict regulations, most people who took the sub- prime mortgages wouldn’t qualify for any sort of credit because of their low credit scores.
The repeal of the Glass Steagall Act in 1999 by the Clinton Administration enabled the reckless risk taking by both investment banks and Commercial banks. CDO’s and sub- prime mortgages inflated the profit margins of these financial institutions but in reality CDO’s were nothing but junk financial instruments. It’s like a small shop owner coming up with a brilliant idea of making the most of the left over rotis he could not sell in a particular day. Instead of throwing the rotis away and suffering losses in the process, he would sell the rotis at a throw away price to a nearby restaurateur who would recycle the rotis into seemingly fresh egg rolls the next day. In that way both the small shop owner and the restaurateur would make profit from a lost cause whereas the customers might suffer stomach ailments by eating the seemingly fresh egg rolls. In a nutshell, the CDO’s are like the seemingly fresh egg rolls. In the years leading up to the financial crisis of 2008, the CDO market had grown into billions of dollars and when the truth finally surfaced, the whole economy of the USA crashed, sending ripples throughout the world. The financial crisis of 2008 laid bare the huge inequalities prevailing throughout the world.
The gini coefficient, a statistical tool which measured the income disparities between the rich and the poor has skyrocketed over the years. In the USA in 2006, the top 5 percent cornered almost 87 percent of the wealth that was generated during that year. In some countries, the gini coefficient has crossed the 0.5 mark which shows that the rich have become richer whereas the poor have stagnate at the same level or have sink deeper into the poverty trap. Some countries do offer some hope that a fairer more equitable society is something that is within our reach and somewhere beyond the horizon countries like India can achieve the same thing. In 2016,Switzerland came out with an audacious plan to implement a universal basic income for all its citizens. Even though the plan was rejected at the referendum, it just shows that countries like Switzerland do have the economic resources to bring in a fairer and more equitable distribution of income. The Nordic countries have been at the forefront of ushering in a fairer equitable society by making sure through good governance that economic resources are equally shared by all members of society.
What a State like Meghalaya desperately needs at the moment is for equitable distribution at the macro level rather than at the micro level. Every now and again ordinary citizens like me can come up with suggestions to improve the economic scenario in the state but I guess that the government is more than capable of implementing policies to rectify the inequality prevailing in society and spurt up economic growth and development if it has the will power to do so