For those who came late/ For those who are still clueless

The world is going through one of the worst crises in the modern era. We’ve seen incidents starting with a few bad mortgage loans in the suburbs of Florida to the Bankruptcy of Ireland. The stock market in India has fallen to lesser than half of its highest point on January 21, 2008. The world is staring at a global recession and some people even talking about a depression of the types we saw in America in the 1930’s. So how did we reach here?

We start in 2001 when, the companies that were in the frenzy of the dot-com fever started going bust one after another. The winds of recession had already started blowing then. To add fuel to the fire, was the attack of 9/11 which resulted in sending the whole American population into paranoia about security both financial and physiological. To stop the sentiments of recession, the Federal Reserve cut all interest rates to 1%- the lowest level for a long time. The lower interest rates encouraged people to buy houses. This spurt in housing sector made mortgage firms and real estate merchants sit up and take notice. The prices of houses started spiralling up. Mortgage started relaxing their lending criteria trying to capitalise on the booming property market. They even sold mortgages to people with bad credit histories and low income. The debtors in US are differentiated according to a grading system based on the credit history of a client. Sub-prime borrowers are the ones with a poor credit worthiness rating, normally due to bad debts in the past or inability to pay debts. This is how the whole issue gets its name “sub-prime” crisis.

Mortgage salesmen were paid on commission and therefore often hid the true cost of adjustable rate mortgages and did little to check whether the homeowners could actually afford repayments in the long term.

Many people took out adjustable rate loans. These were easy to pay initially when the interest rate remained low for the first two years. However, the reign of low interest rates did not remain for long. Inflationary pressures caused the interest rates to rise to around 4%. Well, normally an interest rate of 4% is quite normal. However, for people who had bought homes at the outrageous sums of money due to the cheap interest rate, this was a great blow. The mortgage payments became unaffordable. Quite naturally, the first ones to default were the ones with a bad credit history, the ‘sub prime’ segment. Companies started losing large sums of money. Seems the real estate agents saw this as a temporary phenomenon after which the housing market would bounce back. They kept building new homes, increasing the disparity between the supply and demand such that the prices of real estate plummeted. This exacerbated the situation.

The fall in prices of houses made the mortgage defaults very costly for the companies. It meant that they would be able to realise only a meagre fraction of the properties they had a lien on. Usually in such a case we would expect that such mortgage companies who had high bad debt would go out of business. However, the property boom saw several other financial institutions wanting to have a share of the pie and so the default was spread across the whole system.

Mortgage companies in order to finance and lend to new customers had borrowed from other financial institutions. They sold the collateralised mortgage debt to other banks and financial institutions. Such subprime mortgage debt was bought by ‘responsible’ banks like Morgan Stanley, Lehman Brothers, etc and were insured by AIG. This helped them to get a high safety rating in the securities market. Thus banks were unaware or tended to ignore the amount of risk they were getting exposed to.

Finally when the whole palace of cards started tumbling down, all these parties started realising the mistake. The first to go down was Wall Street giant Bear Sterns who was bought out by JP Morgan Chase for just $2 per share, with help from the US Federal Reserve. Merrill Lynch was sold to Bank of America due to cash shortage. Lehman Brothers was a worse ending with the institution going bankrupt and no takers. Freddie Mac and Fannie Mae was nationalised by the US government to restore confidence in the financial institutions. AIG was provided a loan of $85 billion to cope up with the immense losses they had to write off. Other banks like New Century Financial, Net Bank, American Home Mortgages, American Freedom homes, etc filed for bankruptcy. Back at home, ICICI bank was the one among Indian banks with highest exposure to the US subprime mortgage crisis and had to write off huge sums of money

In addition to bad debts, the other problem was one of confidence. Banks usually rely on lending to each other to conduct everyday business. However, many banks had lost a lot of money and had deterioration in their balance sheets such that they were not in a position to lend to others or conduct even their own business. The ones who had cash were highly distrustful of the others. This led to the wide spread credit crunch in the market. Since banks were short of liquidity, they sold off their assets in such mortgages. This further led to a downfall of asset prices and further liquidity shortages.

The US $700 billion bailout plan tries to reverse this cycle, by buying such financial assets that no one else is interested in. This would lend some comfort to the banks holding high amount of such instruments of relatively no value now. The UK plan is aiming at buying share capital in their banks, Royal Bank of Scotland, HBOS and Lloyds TSB to the tune of 37 billion pounds in order to give greater confidence to the banks and to enable them to raise sufficient funds. Several Central banks across the globe are pumping money into their banking systems in order to maintain the stability of the economy. Only time will tell how effective these plans will turn out to be.

What do we learn from this crisis? Well, first of all we cannot rely on the free market system to regulate itself. This probably comes as a direct blow to capitalism. The greatest voices for capitalism is now acting like socialists by nationalising big corporations and bailing out ailing banks. This doesn’t mean that is the answer either. We need more regulation on the part of the government regarding companies that operate with such huge amounts of public money.

Second is the need for savings. One of the key factors that will help the Indian economy in this crisis is the amount of savings of the people. The culture of living off debt is dangerous and needs to be controlled. Hopefully the western society would learn from this.

India: In need of a second Green Revolution.

India is today a nation of 1.1 billion people, 1.1 billion mouths to feed. India has gone through many phases in its struggle for food security after independence.
The world's worst recorded food disaster happened in 1943 in British ruled India. Known as the Bengal famine, an estimated 4 million people died of hunger that year along in eastern India. Even after independence there wasn't much change in the situation. During the 1960's India's trade was defined by the ship-to-mouth of food grains.
Then came the phase of green revolution (1967-68 to 1977-78) envisaged by the legendary M.S. Swaminathan. It is considered as one of the cornerstones of India’s march towards being self sufficient and being a leading agricultural nation.
However, lack of proper attention, growing corruption, increase in economic clout of middlemen and global market environment has rendered this great revolution obsolete. This stagnation in the sector has been due to the slowdown in agricultural investment, lack of planning in public irrigation, water management, storage and marketing and decline in public (technological) extension services.
India and the world at large today are facing a crunch in food supply. The demand constraints due to an alarming rate of population growth are the major factor that led to this present situation. The issue becomes more complex due to the diversion of land for bio fuels. It is for the first time that the price of oil and food has come to directly affect each other. More and more people have been pushed to consider use of non-edible oils and other bio fuels along with petrol and diesel to counter the rising price of oil. Now, more and more bio fuels are being generated from edible farm products like corn and sugarcane. Moreover, the western countries, due to their high consumption and demand of fuels are subsidising farmers to grow crops for energy.
Rising food prices and decay of the agricultural sector pose a very serious threat to the whole country. It slows down the process of poverty alleviation, impedes economic growth and retards employment generation. We as a country definitely cannot return to the era of blind controls for restricting trade practices and depressing terms of trade in order to safeguard the economy from the global turbulence. That would only hurt the welfare of the farmers as well as long term growth off the economy.
To add to this, the agricultural sector hasn't seen much development in terms of its stability. Sixty years of planning has still left the Indian farmer at the mercy of the monsoons.
The first green revolution has run its course. It’s time for new policies, new technologies, better organisational structure and institutional responses. We need to frame creative and imaginative solutions for increasing productivity, increasing farmers' income and food production and greater purchasing power in the hands of the poor.
The major challenge is to make farming viable at small scale, otherwise it would be virtually impossible to reduce rural poverty and distress. One form of solving this problem would be collectivisation, corporatisation and consolidation. It is essential that we educate the rural population about the advantages of working together in terms of procurement, production and marketing. Collective effort by the small scale farmers would help in achieving economies of scale and better bargaining power for these communities.
Advances in new technology and related progress also play a major role. It is necessary to evolve technologies that make cultivation of crops by marginal and small scale farmers viable. In addition, we should try to put in place systems and institutional backup that helps such farmers achieve economies of scale in other farming operations such as provision of farm inputs, credit and marketing support.
Hence, the need of the hour is to combine economics of small farms with economics of mass production and modern marketing. We need to work on institution building, capacity building and empowering farmers through investing in their capabilities.
We require firm political commitment on a sustained basis as what we saw in the 1960 and 1970s during the Green Revolution; not election chasing sound bytes of commitment to agriculture sector and debt waivers as we are witnessing currently. It is essential to create new compact between the farmers, traders and consumers.
Overall, it is essential to that we bring about development that is inclusive, equitable and environmentally sustainable. This can be attained only through livelihood security and food security for the entire nation ...every one of that 1.1 billion.

SAFFRON TERROR

The continuing large-scale violence targeting Christians in Orissa’s Kandhamal district is indicative of a constitutional breakdown in the area. More than a month after the organised violence broke out in the wake of the August 23 murder of an anti-conversion Hindutva activist, Swami Lakmananda, by suspected Maoist elements; the district continues to be out of bounds for the secular constitution and the rule of law. Numerous atrocities have been committed – including murder, rape, arson, assaults on Christians, their churches, and service institutions, the intimidation of Dalits to make them give up the Christian faith, and the conversion of large number of people into refugees. However, the state government’s response to the crisis has been worse than inept.
What is evident from the published accounts of the victims, clerical and lay, is that in several instances the police have watched the atrocities in silence. They have refused to register cases – even when the crime was murder – on the basis of complaints made by such affected families. Such extreme indifference suggests complicity of a dangerous political kind. So bad was the situation that the Orissa High court had to direct the Superintendent of Police of Kandhamal district to take stringent action against policemen found sympathising with the rioters. The rape of a 28 year old nun and the brutal assault of a priest on August 25 at K.Nuangaon took place in front of a police outpost. It was only after the media focussed its attention on the shocking case that it was handed over to the state police’s crime branch, four persons were arrested, and the inspector in charge of the Baliguda police station was placed under suspension. Unfortunately, under the circumstances, there will be little confidence that any arm of the state police can uphold the law, free from political interference.
The issue didn’t end with Orissa. Within weeks the wave of brutal attacks against Christians spread to other parts of the country. Prayer halls in Karnataka and Jharkhand started to be attacked by Pro-Hindutva activists and a person was even stabbed. The Bharatiya Janatha Party has been in power for less than five months in Karnataka, but the saffron brotherhood has already begun to flex its muscles in a show of strength and given a previously peaceful state, a saffron tint. The BJP is has started using Karnataka as the gateway for its southern conquests and plans to adopt a “Gujarat model” of development; a phrase that send a chill through the minority groups. The military precision with which the attacks are being carried out show that these have been done after meticulous planning and that it is not an uprising of individuals or common people.
It is high time to enforce the rule of law upon Sangh Parivar organisations which blatantly flaunt their decisive ideas. After Gujarat they have now taken Orissa as their laboratory for creating a “Hindu Rashtra”. Within just months coming to power in Karnataka, they have already started unleashing releasing religious terrorism in this previously peaceful state with respect to religious matters. Even after there was ample evidence that the Swami Lakshmananda was murdered by Maoists, the VHP general secretary, Praveen Togadia made a statement that the killing was carried out by Christians. Several other Sangh Parivar leaders like Gauri Prasad Rath, Subhash Chavan, Ram Madhav, Kuppahalli Sudarshan, etc have been engaged in delivering similar messages filled with contempt against “the candle bearers” and inciting violence against the Christian community. Such irresponsible statements should be met with the full force of law. They are all culpable for penal action for the crime of creating enmity between communities and religions.
At another level, the situation calls for effective intervention by the central government. Up to this point, it has done precious little to stop the mischief, with its Article 355 advisories failing to have any effect on the ground. As many as 77 companies of central paramilitary forces are available to the state government but it has avoided their effective deployment to act against the thugs and protect their target. Now after enormous damage has been done, the central cabinet has bestirred itself over the “very grave situation” and Home Minister Shivraj Patil has issued a stern warning to the Patnaik Government and sent its officials to the states to review the situation.
The violence in the states continue without adequate police forces to stop mobs which break curfew and harm innocent civilians, chasing the citizens of this same country like animals in the forests.
In this context, the governments, both at the centre and in the states, should get their act together. Rescue and relief measures for the affected persons, victims should be taken up immediately and the people who have fled into jungles out of fear should be brought back and complete security, food relief, medical treatment and shelter for the homeless should be ensured. Compensation to the next of kin of the deceased persons during the violence should be declared immediately. The government should also bear all the medical expenses of the people who had been injured during the riots. Proper action must be taken against the present state governments for their utter failure of the governance systems to protect the lives, property and dignity of the people and stern action must be against the individuals and organisations, including the ministers and leaders who instigated/ participated / involved in the violence. Equally important, disciplinary action must be taken against senior police officers guilty of dereliction of duty. All the organisations under the Sangh Parivar, especially the Bajrang Dal, VHP, RSS be need to be declared as terrorist organisations and should be put under the same category of other banned organisations in the country with immediate effect for spreading such large scale violence across the nation. In the interest of an objective and speedy investigation, pressure must be brought on state government to hand over the case to the Central Bureau of Investigation; if this fails, the higher judiciary can be approached through a petition seeking the transfer of the case, by court order, to the CBI. The killers should be punished in accordance with the law so that the truth is revealed to the common man of this country.