Last week, Lehman Brothers, Merrill Lynch and American International Group (AIG) ran into severe problems paying off their debts, which pushed Lehman Brothers into bankruptcy, compelled Merrill Lynch to sell itself on the cheap, and led to a takeover of AIG by the US government. It was the tensest week in financial markets since the start of the subprime mortgage crisis last year.
The US Treasury Department and the Federal Reserve Board came up with an emergency plan to the tune of US$700 billion. The plan was sent to Congress, with a request for urgent legislation authorizing the Treasury to purchase toxic mortgage-related assets from financial institutions on Wall Street.
This was one of the biggest instances of government market intervention in history. Prior to this, it would have been inconceivable for the US, a country that strongly believes that individuals are responsible for their own misfortunes, to go to such lengths.
Even more ironic was the fact that it was Wall Street — perhaps the strongest believer in laissez-faire market economics and Darwinian finances — that was unable to take responsibility for its own actions.
Over the past 30 years, these “fittest” market economists have used their strong political influence to push other countries toward laissez-faire market economics, calling on governments to loosen financial restrictions and in the process opening up more economies to severe competition on the heels of rapid international capital flows — all in the name of efficiency.
However, after the ongoing financial crisis reared its ugly head, we were shown that loosening financial restrictions does not actually improve transparency in market information, nor does it allow for the most effective allocation of resources.
The only thing the loosening of restrictions accomplished was to allow financial institutions on Wall Street to play their money games. And the more they gambled, the greater their appetite became for risk and profit-taking.
In the past, the destructive behavior of these gamblers had a negative influence on the economies of other countries, but things have now swung around and their actions are starting to hurt the US economy.
The US$700 billion debt issue is equal to what the US has spent on its war in Iraq. In simpler terms, it is the same as asking every US citizen to pay US$2,000 to help clean up the mess created by Wall Street investors.
The US government’s plan is clearly aimed at “taking from the poor and giving to the rich,” but everybody has been discouraged from saying anything against it, for opposing something that could potentially help stabilize the market is bound to attract opprobrium.
The plan sought to convince the market that the Treasury Department will take on the bad assets of the main US financial institutions to help them regain the confidence of investors while escaping the vicious cycle that has gripped house prices and the financial market since the suprime mortgage crisis began.
Judging from stock market reactions around the world, the plan seemed to have restored some confidence — until the US House of Representatives defeated the plan on Monday, to which global markets reacted negatively.
For Treasury Secretary Henry Paulson, this is a challenge he cannot afford to miss. If a revised plan — and we can expect one will be proposed — succeeds, the US financial market will avert disaster and the economy will avoid recession. The quicker the housing market and prices stabilize, the quicker the bad assets taken over by the state can be sold off at a better price, thereby lowering US government debt.
If the revised plan fails, not only will confidence in the financial market drop even further, but it could lead to a total loss of confidence in the US government. If this came about, investors around the world would be prompted to rid themselves of their US stocks and currency and the world economy would enter a long period of panic and recession.
One could say that this huge market rescue saga is a matter of Wall Street blackmailing the US government and the US government taking the US public and the rest of the world hostage. Ironically, we must pray hard that their attempt at blackmail and hostage-taking succeeds.
Tao Yi-feng is an associate professor of political science at National Taiwan University.
TRANSLATED BY DREW CAMERON
The gutting of Voice of America (VOA) and Radio Free Asia (RFA) by US President Donald Trump’s administration poses a serious threat to the global voice of freedom, particularly for those living under authoritarian regimes such as China. The US — hailed as the model of liberal democracy — has the moral responsibility to uphold the values it champions. In undermining these institutions, the US risks diminishing its “soft power,” a pivotal pillar of its global influence. VOA Tibetan and RFA Tibetan played an enormous role in promoting the strong image of the US in and outside Tibet. On VOA Tibetan,
Former minister of culture Lung Ying-tai (龍應台) has long wielded influence through the power of words. Her articles once served as a moral compass for a society in transition. However, as her April 1 guest article in the New York Times, “The Clock Is Ticking for Taiwan,” makes all too clear, even celebrated prose can mislead when romanticism clouds political judgement. Lung crafts a narrative that is less an analysis of Taiwan’s geopolitical reality than an exercise in wistful nostalgia. As political scientists and international relations academics, we believe it is crucial to correct the misconceptions embedded in her article,
Sung Chien-liang (宋建樑), the leader of the Chinese Nationalist Party’s (KMT) efforts to recall Democratic Progressive Party (DPP) Legislator Lee Kun-cheng (李坤城), caused a national outrage and drew diplomatic condemnation on Tuesday after he arrived at the New Taipei City District Prosecutors’ Office dressed in a Nazi uniform. Sung performed a Nazi salute and carried a copy of Adolf Hitler’s Mein Kampf as he arrived to be questioned over allegations of signature forgery in the recall petition. The KMT’s response to the incident has shown a striking lack of contrition and decency. Rather than apologizing and distancing itself from Sung’s actions,
US President Trump weighed into the state of America’s semiconductor manufacturing when he declared, “They [Taiwan] stole it from us. They took it from us, and I don’t blame them. I give them credit.” At a prior White House event President Trump hosted TSMC chairman C.C. Wei (魏哲家), head of the world’s largest and most advanced chip manufacturer, to announce a commitment to invest US$100 billion in America. The president then shifted his previously critical rhetoric on Taiwan and put off tariffs on its chips. Now we learn that the Trump Administration is conducting a “trade investigation” on semiconductors which
RSS