I haven’t seen much of legislative procedures(debates, voting etc) in other parliaments but for the Indian one, until last evening when most television channels were showing US congressional debate on the grand $700 bn bail out which it seems will be the anti dote for everything toxic that is going on in financial world. The debate took the turn of socialism vs free markets. I thought such issues were settled almost a decade ago after a prolonged fight between non interventionists like von Hayek, Friedman, Thatcher, Raegan etc and interventionists ranging from Keynes to Lenin.
Let us take the case of two bailouts, one cleared & being implemented and one proposed.
Bailout 1: Many banks in India(mostly public sector) were carrying huge “Bad assets” on their books, thanks to repeated agricultural failures and the subsequent non payment of farm loans by poor farmers. In this case, banks were never greedy to give them loans, but were told to do so by the government as a national obligation. Federal government had to something about these bad assets. So one fine day, the finance minister announces a bail out plan where in all the farmers will be liberated of the debtor status, and the tax payers will be paying back the loans to these banks on behalf of those poor farmers. I do not know the exact quantum but it is somewhere in the range of $10 bn.
Bailout 2: Many banks in the US were carrying “Toxic assets” on their books, purely because of their greed. They had lent unlimited money to sub prime people (poor people) to buy homes. These people could not pay back the mortgages and as a double whammy, the value of the collateral- the house itself started falling. The banks ran out of liquidity and one was willing to lend them for fear of default(counterparty risk). The situation worsened with banks either becoming insolvent or them finding it tough to meet capital adequacy requirements. So one fine day the federal government announces a $ 700 bn bailout. This money can be used in multiple ways. One of the ways was that the federal government would buy these toxic mortgages from banks, which meant the tax payers bear the risk or reward (if at all there is going to be any in few years) of these mortgages. Other way was to capitalize the banks by buying stakes into them, to meet the capital adequacy. As this article went to server, the first of the above described plans was in the draft bill.
Just compare both the cases. The first bailout is no doubt socialism. The poor farmer was liberated from the loan, bank recovered its money and the tax payer had an extra cheque to write. The second bail out- socialism, well hardly. The poor house owner was not liberated from the mortgage, in fact the mortgage was foreclosed and he kicked out, bank got its money and the tax payer had an extra cheque to write. Probably aristocracy is what this can be called.
Inference- No matter what shape the bail out takes, banks are always in a win-win position finally though they had to go through some tense moments, in both the cases and the tax payer always in a lose-lose position.
Oh yeah, finally, the Indian parliament should probably source the real time electronic voting system from the contractor who supplied to US congress, because the present one sucks. People who watched the voting farce in Lok sabha(lower house of Indian parliament) during the voting of Indo-US nuclear agreement will definitely agree with me.
