The Islamic Post Blog

Financial Collapse Has Potential to Alter Modern Civilization by Khalida

By Muhammad Ahmad
Islamic Post Staff Writer

President-elect Barack Obama made a rare pre-inaugural call in November for the support of Congress, when it reconvenes January 6, for a two-year economic stimulus program. The announcement reflects the seriousness of the situation, an “economic crisis of historic proportions,” in the words of the president-elect, and worse than previously believed. President-elect Obama has emphasized that aides, like New York Federal Reserve President, Timothy Geithner, who is now the treasury secretary designate, are to seek the consultation of congress for the passing of the bill so that, following the January 20 inauguration, his team can “hit the ground running” on the long road to repair the economy.
Although the team has been working closely with President Bush to ease the transition, the president-elect opted out of the November 15th G20 summit in Washington, D.C. The summit was expected to “discuss cooperative measures for responding to the global economic meltdown and ways to prevent future crises,” as stated by the AFP.  The agenda was set primarily by leaders in the European Union.
Some believe the G20 summit, which included names like Brazil, South Korea and Indonesia, along with the United States and the usual European players, was in a rush to pile on more of the same fiscal policies that lay at the root of the current problem. In an interview with The Associated Press, Vaclav Havel, the former President of Czechoslovakia, emphasized leaders should pay more attention to the lessons of the current crisis before moving forward. “It’s a warning against the idea that we understand the world, that we know how everything works,” said Mr. Havel. “It’s a warning against the pride of economists who think they understand everything and have the whole world… mapped out.”
In the opinion of the former democratic leader of the eastern European nation, who was instrumental in toppling communism, in that country, in the late 1980’s, “the major problem is where modern civilization is going.”
He could be correct.
Western European leaders, headed by France and the United Kingdom, heralded a new world financial and monetary order just before the summit, one which would give more regulatory powers to the International Monetary Fund.
While the EU Observer reported the final conclusions of the Washington summit “came well short of delivering any construction of a new global financial architecture,” the summit did, however, agree to grant more powers to the International Monetary Fund, the global symbol of financial lending bound by “conditionalities,” or preconditional performance targets.
Before the summit, British prime minister, Gordon Brown, spoke of “very large and very radical changes.” According to Mr. Brown, the summit was set to address plans in which the bailouts of financial institutions –$2.3 trillion dollars in the case of the European Union– would simply be preliminary moves to “global action as sweeping as that which gave birth to the United Nations, the World Bank and the IMF in the 1940s.”
Yet, critics state that the bailouts, even as a first step, hardly address the problem. Paul Craig Roberts, former Assistant Secretary to the U.S. Treasury, said, “All it [the bailout] does is take troubled financial assets off the books of the banks and puts them on the books of the United States Treasury, that is [to say], puts them on the taxpayers’ books.”
While governments in Latin America have been criticized severely for nationalizing natural resource industries, that had been primarily in the hands of foreign investors, the European Union now owns majority shares of European banks, and the U.S. Federal Reserve’s purchase of $125 billion in banking assets means that it now owns 55% of the country’s banking assets.
Two of the most well known nationalizations of private entities are the buyout of primary lenders, Fannie Mae and Freddie Mac, as well as the country’s largest insurance company, American International Group (AIG).
Anthony Perez of the Epoch Times reported, “Despite growing criticism, U.S. Treasury Secretary Hank Paulson defended the U.S. bailout plan as ‘necessary.’”
“Government owning a stake in any private U.S. company is objectionable to most Americans—me included,” Secretary Paulson recently said. “Yet, the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”
The EU has also faced an overwhelming amount of backlash from their efforts towards a new order, with EU leaders reportedly risking their political standing for the European bailouts.
Apparently the same goes for U.S. congressmen, whose approval rating was only 18% before the economic crisis, and by some estimates has now fallen to 10%.
“From a capitalistic standpoint,” Representative Dennis Kucinich told Fox News from Capitol Hill, “[the bailout] actually destroys the idea of a free market economy.”
A more palpable solution, said former Assistant Treasury Secretary Roberts, lies with mortgage defaults. “The only way to address the problem is to address it at the homeowner level,” the former assistant secretary to the Treasury said, “What they should have done is what they did in the 1930s during the Great Depression. They created a homeowners loan corporation. They refinanced all the mortgages and they saved the housing sector.”
Part of President-elect Obama’s stimulus package includes help for the millions of Americans who remain in jeopardy of losing their homes.
“We will review the implementation of this Administration’s financial program to ensure that our government’s efforts are achieving their central goal of stabilizing financial markets, while protecting taxpayers, helping homeowners and not unduly rewarding the management of financial firms that are receiving government assistance,” stated the president-elect in his first press conference after winning, by a landslide, on the premise of change.
–Shahida Rasheed and Abdul Hamid A. Aziz contributed to this report.

SPEAKING ON THE ECONOMY, What the critics said about the first bailout, as other rescue attempts ensue:

CONGRESSMAN DENNIS KUCINICH OF OHIO: “We are now facing the perfect financial storm. The elements are the deficit spending for the war … the lack of serious investment in our country and now $700 billion to Wall Street. We are being hollowed out.”

CALIFORNIA CONGRESSMAN, BRAD SHERMAN: “A few members [of Congress]were even told that there would be martial law in America if we voted no. That’s what I call fear mongering, unjustified, proven wrong.”

PAUL CRAIG ROBERTS, FORMER ASSISTANT SECRETARY TO THE U.S. TREASURY: “All it [the bailout] does is take troubled financial assets off the books of the banks and puts them on the books of the United States Treasury, that is [to say], puts them on the taxpayers books.”


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