THE MOUNTAINEER

Edison L. Baddal
Bailout, trend to a policy shift (2)

BONTOC, Mountain Province -- With the bailout, it is now apparent that the US government is doing what it long eschewed and advocated that it will never do: government intervention or meddling in business.

Where it previously preached aversion to social welfare, Bush has socialized the attendant risks and costs of the financial crisis with the bailout while consequently privatizing gains. The mechanism is tantamount to practicing social welfare for the rich as taxpayers’ money are used to bail out the bankrupt banks and financial firms with the proprietors of the bailed out banks enjoying the fruits as they are still hitting pay dirt while taxpayers are left holding an empty bag.

Nonetheless, with the bailout program intending to re-capitalize the insolvent banks and firms, the US Government has effectively put an end to the Reaganite advocacy on less intervention by the government in business. Reagan, during his presidency, dynamically preached the superiority of free market system as he professed that the best form of government is a government that exercises less restraint in business.

In retrospect, Reagan’s theory originated from the economic tremors in the ‘70s in which “managed capitalism” was gradually done away with in contravention to the provisions of the Glass-Steagall Act of 1933. The act, according to Edsel L. Beja, Jr., a noted economist, was “designed to discipline the financial markets through separation of commercial and investment activities.”

This law was crafted as a result of the great financial collapse of 1930 that ushered the great economic depression of the early thirties. With the breakdown of “managed capitalism”, the road was then paved for the predominance of policies pointing towards right-wing economics and right-wing politics.

It goes without saying that as right-wingers in the political and economic spheres of the US Government reared their ugly heads, the more that market forces were left on their own. Reagan championed and exemplified rightwing politics and economics through Reaganomics, which is a package of economic policies that buoys up unregulation and liberalization of business. It was named after him being the staunchest exponent.

One feature of Reaganomics is that “markets always worked because they are rational, self-producing and self-regulating.” It is thus that Reagan and other right-wing politicians like him, despised government intervention and regulation of the financial market.

My fancy notion is that, Reagan may have been earnest in promoting liberalization and unregulation in business as he was then in a humongous ideological struggle with communism during his time. And part of his aces is exhibiting proof of the superiority of a laissez-faire approach to business is avoiding any direct intervention in business itself as this smacks of socialism. Inexorably and invariably, the repeal of the Glass-Steagall Act in the 1990’s opened the financial markets to a free-for-all with most of the transactions being off-balance sheet transactions and not accurately accounted for as enough liquidity was never considered.

With the conditions of things now in the financial market as a result of the collapse of the US economy, the US Government cannot afford not to be interventionist now like its European counterparts and Japan which got rid of all non-performing assets of all private banks to stimulate the financial markets.

Closer to home, with the tendency of the Philippines to follow US policies, Gov. Amado Tetangco of the Central Bank is mulling the idea of a superbody which will regulate the dynamics of the financial markets. This huge but integrated regulatory agency will combine all the functions of the Bangko Sentral ng Pilipinas, Insurance Commision and the Securities and Exchange Commission.

The reason for this is that the Philippine financial market is tied up with the US financial markets so its financial markets is becoming complex although not as complex and advanced as the US financial system. To forestall or at least regulate in some ways any mess or gaping hole that may result in Philippine financial markets in the offing as it becomes more complex, a regulatory body to oversee the complex financial market becomes imperative.

As exemplified by the US and Japan’s experience, there is wisdom in an environment of government regulation and intervention in the dynamics and kinematics of the capitalist financial markets or systems. Finally, the breakdown of the US economy seems to fit a prophecy made by an anointed prophet who once predicted that the Philippines will become the America of Asia. In his prophecy, enunciated sometime in 1992, he predicted the breakdown of the western economies with negligible damage to the Philippine economy.

Currently, the US economic crisis had not much palpable little effect on the national economy save for the intermittent downslide of the peso as a result of the crashes in the international stock market. Looking back, the Philippines was not also affected much from the damaging effects of the 1997 Asian financial crisis which infected much of the Asian continent. If this is the unraveling proof of such a seemingly fancy prophecy then God bless the Philippines!