Those following the current global financial crisis, particularly events unravelling in Europe (EU) would have taken note of the call by French President Nicolas Sarkozy and German Chancellor Angela Merkel last week to ban ‘short selling; and ‘naked credit-default swaps’ on sovereign bonds.
Credit-default swaps are derivatives that pay the buyer face value if a borrower — a country or a company — defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own. Naked short selling involves selling a security without ever being in possession of it.
On the back of this news the market was further disheartened by the news release that owning Europe’s Corporate Bonds has become more risky. On the domestic front the negative economic landscape in Europe is a foreboding prospect given its importance as a tourist market to the Caribbean. The latest Caribbean Tourism Report 2010 mentions a 6.5% and 1% growth in the USA and Canada markets but a 4.3% decline when describing tourist arrivals originating in Europe.
Is it reasonable for world citizens to have expected that many of the causal factors which precipitated the economic crisis in 2008; when the world witnessed the demise of Lehman Brothers and Merrill Lynch two of the largest Wall Street investment banks should have been plugged by now? The biggest irony exposed by the financial mess is that we live in a world which now places value-added on the need for interconnectivity, this has facilitated the contagion effect. Simply defined, we live in a world where high salaried suits sitting in offices high above the ground can make decisions which can negatively impact our future and that of our children in seconds. They engage in speculative behaviours by accessing ‘synthetic investments’ which commonsense dictates should have been banned or severely curtailed soon after the collapse on Wall Street in 2008.
The USA and the UK are reported to be debating banking (financial) reform. Is it unreasonable if all* the other countries loudly voiced concern about the slow pace of such reform? BU continues to be kuhfuffle by a reality where injudicious financial decisions made by a few in a handful of developed nations around the globe can precipitate a global economic crisis the likes which has not been seen since the Great Depression. In the ensuing crisis fledgling economies like ours in the Caribbean and the developing world are wiped out in the process. The ridiculous state of affairs which continues to fuel discussion in our media are the decisions by Credit Rating Agencies like Standard and Poor’s and others who downgrade the investment ratings of poor countries around the world. Bear in mind the state of the global economy was caused primarily by the USA and other developed countries. A failure to police its governance structures and a healthy dose of greed has driven us to where we are now.
The controlling environment which exist to the detriment of vulnerable economies forces the question – What can we do to ameliorate our position to safeguard the well being of our citizens now and in the future?
BU is minded that the prevailing economic climate is a state never* experienced by Barbados in its history of recorded existence. A big reason for the calm which Barbados has enjoyed in the last 18 months has been the willingness of companies in Barbados to dig deep into reserves to maintain employment. While this is a commendable effort at some point the crap will have to hit the fan. That time maybe rapidly nearing. Those in the political opposition who cite their record as a resume to inspire confidence as the government in waiting ignore the current reality.
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