Tue | Jun 22, 2021

Wall Street 'elephant hunt' and Caribbean fiscal crisis

Published:Friday | April 13, 2012 | 12:00 AM

Wilberne Persaud, Financial Gleaner Columnist

First a definition: 'elephant hunt' refers not to out-of-favour big game hunting in Africa. Rather, courtesy of recently resigned Goldman Sachs 12-year veteran Greg Smith, it means "get your clients - some of whom are sophisticated, and some of whom aren't - to trade whatever will bring the biggest profit to Goldman"

Last week's column, 'Crisis of capitalism and the broccoli mandate', prompted several reader emails and responses. I share one with you, act on its suggestion, and comment on another.

The first, a bit flattering, says: "Incisive! Eloquent in its lucidity. Article should be run on the front pages of the daily rags ... now please elaborate as to what could happen at our 'periphery'! With an unreformed Wall Street exercising muscle globally, the prospect of the 'mother of all recessions' looms. Not even China, India, Brazil ... other countries poised on exceptional economic growth paths render this scenario anything but alarming."

Ponzi scheme havoc

Yes, it is useful to elaborate on what could, indeed what is, happening in 'our periphery'. Throughout the OECS, the CLICO meltdown and evaporated Stanford Ponzi scheme undoubtedly created havoc not yet comprehensively addressed. Jamaica's mid-1996 indigenous financial meltdown, with later Cash Plus and OLINT implosions, still present as fiscal undercurrents and reduced consumer demand.

These events and their repercussions had nothing to do with Wall Street's September 2008 meltdown. Consequential events of the latter, however, in Britain, the United States and Europe have taken their toll.

UK taxes on airfares, reduced investment and dwindling potential tourists' disposable income have all had negative impacts on the region.

Consider US disposable income, wealth holdings and jobs. The Great Recession reduced US median household income. Today, that value approximates US$52k per year. Calculated in 2011 dollar values, this puts household income approximately where it stood in 1997 - all of 14 years ago. Not good. But the bigger hit comes from the wealth effect of the devastating impact of the burst housing bubble.

House prices peaked in 2006. By 2008 the bust wiped out US$7.4 trillion in home equity values. For most households, equity in the family home is the single most important bit of their stock of wealth. This slide in value may not be over.

Millions of homeowners owe more mortgage debt than the current value of their house. The effect of this wealth reduction is a powerful drag comparable to gravity - perhaps too strong, but the situation actually is grave.

If Wall Street and the banks continue current foreclosure practices, the situation cannot change for this group of the population anytime soon, if ever. A weak economy makes the condition worse.

Now to jobs. President Obama is a bit happier because private-sector job creation in the US has been positive for each of the past three months. But this job growth proceeds at a reducing rate. Analysts estimate getting back to pre-Great Recession unemployment of five per cent from currently hovering around eight per cent, could take as long as up to 2017.

When you add to this mix Republicans worshipping tax breaks for the rich and loathing Keynesian demand-stimulating expenditure - which, so far, has partially stymied efforts to keep folk like teachers and firemen in their jobs in several states - the picture looks bleak. The old saying, 'when the US sneezes the Caribbean catches cold' is apt.

This brings me to the comment by "jamaicarev" in the Financial Gleaner.

The greatest blame

He or she credits the column with and offers thanks for a 'few good thoughts'. But thinks its "comment about the polarisation in American politics being due to race is off the mark ... . There is plenty of blame to go around for the polarisation, but the greatest blame lies at the feet of the leader who is responsible to move the country forward rather than remain entrenched in his ideological positions. This has more to do with the fact that President Obama is the 1) most liberal, left-leaning leader of a mostly center-right country, and 2) his inflexibility. Politics functions best when there is willingness to compromise. And it works most poorly when there is ideologically driven pridefulness, which is evident on both sides of the aisle in Washington DC, but the president, by virtue of his office, has to be the leader in compromise. President Obama has failed miserably in this. America is blessed to have a president of colour, but she needs one with a little more humility. He could take lessons from the first 'black president,' Bill Clinton, who was able to move the country forward at least, because he was able to cross the aisle."

Race was specifically mentioned as 'partly' responsible, not the sole reason for political polarisation evident in the US.

Republicans' self-declared job-one is to make Obama a one-term president. He is somehow 'alien', not US-born, not a Christian and now Romney claims he promotes anti-religion as a secularist.

Fragile planet

A majority of those vehemently opposed to what they call 'Obamacare', always, when asked about specific elements of the Affordable Healthcare Act, express strong support for them. The right wing propaganda machine consistently tells lies about policies Obama espouses and the media often allows these to go unchallenged.

Falsehood guides much of the opinions and misguided self-interest of a big swathe of the US population. Were it not for the fact that the US packs so much global power and influence, they could keep their M-16s, concealed guns with 30-round clips and take them to the mall. That would be their business only. But we all live on one fragile planet.

Jamaicarev cannot have informed him/herself of the countless episodes of President Obama offering compromise to Republicans only to be rebuffed. The health insurance mandate began as a Republican idea, established and promoted during the Clinton administration. Today they call it unconstitutional, comparing it to being forced to buy broccoli.

Justice Scalia takes this political talking point into questioning during the US Supreme Court's oral argument. Does the Emperor need some clothes?

Wilberne Persaud is author of 'Jamaica Meltdown: Indigenous Financial Sector Crash 1996'. Email: wilbe65@yahoo.com.