God Save The World…And The Investors

Imagine being father to a daughter who’s just cleared her entrance exam to get into the country’s best engineering college.

You are elated, and proud as your daughter would be your family’s first engineer, and that too from a coveted college.

Then you get the news that the college has decided to do a re-test for students who failed to qualify, and that the selection process would be done again.

Would that disturb you?

Now, what if you come to know that the re-test has been forced by a few politicians whose sons and relatives failed to qualify?

What justifies a re-test of those who could not qualify? How can the college support those who failed to clear the hurdle to get a place in it?

Such situations are indeed disturbing for well-meaning parents.

Well, a similar situation is panning out in the global banking system. And it’s not something new.

You have already heard of thousands of banks failing in the US and other western countries after the financial crisis broke out in early 2008.

And you have already heard of several large banks being saved by the governments of their respective nations, simply because they were too big to fail (like politicians’ sons).

Now, something similar is happening in Europe, where officials have ‘vowed’ to save banks that fail the stress test (a test that is conducted to check whether a bank is fit to survive or not).

The European officials have said that once they are able to identify the vulnerable banks (or bad banks) they will use taxpayers’ money to infuse capital into them to help them survive (think about the politician’s son getting the college’s backing).

Such is the sorry state of affairs of the global (especially western) economy today.

There’s desperation and artificiality all around.

Businesses (especially banks) that are likely to fail are getting saved using taxpayers’ money. And if taxpayers’ money isn’t enough, the central banks are creating new money out of thin air to save such banks.

What this money is doing is creating artificial bull market in stocks, real estate, and commodities. So there are several bubbles forming all around.

When these bubbles are going to burst is anyone’s guess.

But the fact remains that overconfidence rules roost among global policymakers – overconfidence that all will turn out well finally.

What these policymakers need to know is that it was overconfidence that had led to the last financial crises, and all the previous ones.

God save the world, and the investors from such policymakers and their ill-intentioned policies.

In the meanwhile, we at Safal Niveshak look out from our perch for things to calm down. But alas, the mess seems dirtier than what everyone is seeing.

So, we’ll wait.