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Capitalism Freezes in Worldwide Winter of Discontent
James G. Neuger, Bloomberg
As capitalism staggers through its first globalized economic crisis, the costs won’t be measured only in dollars and cents.
From newly rich Russia to eternally impoverished sub- Saharan Africa, social strains are threatening the established political order, putting some countries’ very survival at risk.
In the past month, Nigerian rebels threatened renewed warfare against foreign oil producers, Russia sent riot police from Moscow to quell an anti-tax protest in Siberia and China’s communist leadership warned of social agitation as the 20th anniversary of the Tiananmen Square massacre looms.
The disillusionment and spillover effects of the global recession “are not only likely to spark existing conflicts in the world and fuel terrorism, but also jeopardize global security in general,” says Louis Michel, 61, the European Union’s development aid commissioner in Brussels.
Somewhere in the wreckage may lurk an unexpected test for U.S. President-elect Barack Obama, 47, one that upstages his international agenda …
(12 January 2009)
Britain loses faith in economy
Julian Glover, Guardian
British economic confidence has been shattered by the financial crisis, according to a unique international poll published today. It shows that people here are now less likely to trust banks, the stockmarket or the government’s economic management than people in comparable nations.
… On most measures, British people emerged as among the most pessimistic of the 14,555 people questioned around the world.
(14 January 2009)
Financial system “could yet collapse” – even Switzerland
Matthew Allen, swiss info
An eminent political economist has warned that the global financial system is still perilously close to breakdown despite a raft of government rescue packages.
Professor Peter Katzenstein said the industry is exposed to trillions of dollars of bets that could still turn sour. Switzerland would be particularly vulnerable if the financial crisis develops further.
Governments around the world have pumped trillions of dollars into the financial industry to prop up individual institutions, cover toxic assets and to give banks the confidence to start loaning to each other again.
The Swiss National Bank announced a $60 billion (SFr67 billion) bailout of Switzerland’s largest bank, UBS, in October. UBS and Credit Suisse have between them written down some $55 billion as a result of the subprime mortgage collapse, and that figure could rise.
But Katzenstein, professor of international studies at Cornell University in New York, warned that the three bailouts are dwarfed by the existence of more than $50 trillion in complicated investments that have flooded the market in recent years.
While the total volume of these investments can be reasonably estimated, the unregulated nature of the system means that nobody knows exactly how they were distributed or the potential liabilities each institution now holds.
… “The general perception is that the system is coming back because the Dow Jones [a leading Wall Street market index] is between 8,000 and 9,000 points. But the Dow Jones could be at 3,000 – the possibility of systemic collapse is really there,” he said.
“If that were to happen, the Swiss system would go and Switzerland could turn out like Iceland [whose currency collapsed and three largest banks were nationalised in October]. It would take just one bank being wiped out. Things that were once inconceivable are now conceivable and that’s quite disorienting.”
Switzerland is particularly exposed to a financial meltdown because the total assets of banks amount to around nine times the national gross domestic product (GDP) – far greater than in any other country. The state would be unable to bail out the industry if a significant chunk of these assets lost value.
Katzenstein has previously praised the Swiss political and economic system for being flexible enough to cope with the declining watch industry. But he believes that developments in the financial sector have now outstripped the country’s capacity to absorb a break down.
(12 January 2009)
It’s not just the U.S. that is in trouble. As the article points out, even such conservative countries as Switzerland are vulnerable, thanks to globalization. -BA
