Financial Crisis

Results of Global Financial Crisis

        Exact one year has passed when the world economy witnessed an onslaught on the global financial system resulting from the collapse of the American financial firm Lehman Brothers. This event precipitated a recession of the magnitude that world had not experienced since 1930.

          Financial giants such as AIG and Citibank had to struggle for their survival. In decades, the world economy shrank for the first time. However worldwide efforts to rescue the financial systems have born results and the global economy seems to come out of bad effects of the recession.

          Let us take some pause here and draw some results from this crisis for our future strategy. Is this not a time to rethink accepted theories and principles about the free market economy?

          The first lesson is that the slogan of ‘capitalism is dead’ and the idea of the nationalization of the privately owned assets are highly misplaced and unacceptable. The government intervention should only be permitted to rescue the economy from the strangleholds and to formulate polices and guidelines for the consumer protection and to ensure the corporate social responsibility. The excesses and greed of the bankers did play havoc, but there is no cogent reason to expect that private ownership and market mechanisms of resource allocation would give way to permanent public ownership and an administered allocation system.

        Second, terms such as the spillover effects, the herd instinct and animal spirits have not only remained unscathed but have become more relevant. While irrational excitement was so obvious during the days when the markets were buoyant, excessive fear, risk avoidance and abundant caution became vivid during the recessionary period. Other unrelated markets were also affected by the sentiments and confidence factors.

        Third, three large economies-China, India and Indonesia- and emerging economies in general...