They have provided ideological opposition to privatisation of public sector banks
¨ Governments in the West have realised that public ownership and much greater regulatory oversight alone can ensure the survival of the financial sector
Trade union activity in the banking sector has gone far beyond usual issues dealing with service conditions of employees. Unions of both officers and employees have resisted government policies that they considered inimical to the country’s interests. One such activity — till now a largely unrecognised role — has gained prominence in the context of the ongoing financial sector crisis.
Iconic banks and financial institutions in the U.S., the U.K. and the E.U. have collapsed in the face of waning investor confidence. Only massive capital infusion of public money could help them to stay afloat. Even banks which were badly hit by the crisis but did not go under have received dollops of tax payers’ money. By many norms the banking system in the West is more ‘nationalised’ than in India. Governments there, opting for prudence over ideology, have realised that public ownership and much greater regulatory oversight alone can ensure the survival of the financial sector.
This development, as pointed out by D. S. Rishabadas, General Secretary of the State Bank of India Officers’ Association (Chennai Circle) recently (at a seminar on the financial sector crisis in Chennai), vindicates the stand of many trade unions against one facet of reform, namely, withdrawal of government ownership from banks. Trade unions have launched agitations to safeguard larger economic issues too, he said. The view was shared by G. D. Nadaf and T. N. Goel, respectively general secretary and president of the All India State Bank Officers’ Federation. The former is also general secretary of the All India Bank Officers’ Confederation.
Other related issues discussed included the government’s moves to encourage consolidation in the banking industry. The merger of State Bank of Saurashtra with SBI has already taken place despite trade union opposition. The All India Bank Employees Association (AIBEA) has organised protests across the country to stop banking reforms forthwith.
If India has been spared the worst consequences of the global financial crisis, a large part of the credit should go to the prudent policies followed by the government and the RBI. It may appear to be big news now but there were very few influential voices in those days that saw in the alleged conservatism of public policy the seeds of a safe domestic financial system. That is because in the 1990s (when economic reform started) and even more recently no one could foresee a financial crisis of the current magnitude materialising and that too imported from the advanced U.S. financial sector. So what saved us? Is the prudent conservatism the outcome of a conscious policy choice?
A few points need clarification here. Economic reform, liberalisation and globalisation mean different things but in the context of India’s financial sector, they have a few common connotations. One, the extent of government involvement. Commercial banking and insurance have always been dominated by the public sector. Since 1969 — after bank nationalisation — public sector ownership became particularly pronounced.
In practice, reform in India has come to imply a range of policy choices involving a larger role for the private sector: at one end is privatisation or handing over the majority stake as well as control of government owned banks to the private sector. Such a course was out of the question in the Indian context although such ideas kept floating from time to time. It was only recently that some ‘high level’ committees suggested such a course of action. Their reports were released days before the crisis erupted in the West. Surely a case of extraordinary bad timing.
The government continues to retain majority stake in all the PSBs, most of which have accessed the share market. This has certainly saved Indian banks from slipping into a panic induced crisis.
Traditional arguments to lower the threshold for government ownership include the need for raising additional capital to comply with new regulatory norms. The NDA government had sought to reduce government stake to a third of a PSB’s paid up capital but simultaneously wanted the government character to be retained. Ideological justification for privatising the PSBs has always looked weak. After the crisis it is non-existent. Bank trade unions must be credited with not only providing the ideological opposition but also including it in the trade union agenda.
There are other defining characteristics of the reform era such as advent of competition and improving the financial health of the government banks but none of these has been as controversial as the one suggesting withdrawal of government from the PSBs. Can trade unions do more now that their stand on public ownership has been vindicated (though still unappreciated)?
Here again, the global financial crisis can be a guide. In the name of financial innovation, banks in the West introduced highly complex instruments which, as they turned out, even their creators did not understand. In India, financial innovation, by whatever name called, may not be at levels that are causing so much distress across the globe. But there are signs that Indian banks are trying to catch up. In ‘frontier’ areas, Indian banks, especially government ones, have been dabbling in areas outside their traditional domain.
The interface between commercial banking and investment banking has caused enormous pain to Indian banks. Bank managements in their eagerness to report higher profits have forced their institutions to undertake such activities without providing a framework or, equally important, a support mechanism if things go wrong. Trade unions already have a record in educating their employees. The time is right for them to go farther and caution their members (employees) on what could go wrong in being a pioneer.
Jobless ranks hit 10 million, most in 25 years
By JEANNINE AVERSA – WASHINGTON (AP) —
The nation's jobless ranks zoomed past 10 million last month, the most in a quarter-century, as piles of pink slips shut factory gates and office doors to 240,000 more Americans with the holidays nearing. Politicians and economists agreed on a painful bottom line: It's only going to get worse.
The unemployment rate soared to a 14-year high of 6.5 percent, the government said Friday, up from 6.1 percent just a month earlier. And there was more grim news from U.S. automakers: Ford Motor Co. and General Motors Corp., American giants struggling to survive, each reported big losses and figured to be announcing even more job cuts before long.
Regulators, meanwhile, shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday, bringing the number of failures of federally insured banks this year to 19.
The Federal Deposit Insurance Corp. was appointed receiver of Franklin Bank, which had $5.1 billion in assets and $3.7 billion in deposits as of Sept. 30, and of Security Pacific Bank, with $561.1 million in assets and $450.1 million in deposits as of Oct. 17.
Barack Obama, in his first news conference as president-elect, said the nation was facing the economic challenge of a lifetime but expressed confidence he could deal with it.
"Immediately after I become president, I'm going to confront this economic crisis head on by taking all necessary steps to ease the credit crisis, help hardworking families, and restore growth and prosperity," he said after meeting with economic advisers in Chicago. "I'm confident a new president can have an enormous impact."
Wall Street revived somewhat after two days of big losses. The Dow Jones industrials rose 248 points.
Still, the Labor Department's unemployment report provided stark evidence that the economy's health was deteriorating at an alarmingly rapid pace. The jobless rate was 4.8 percent just one year ago.
About 10.1 million people were unemployed in October, the most since the fall of 1983. More people have jobs now, since the population has grown, but it's still a staggering jobless figure. With employers slashing jobs every month so far this year, some 1.2 million positions have disappeared, over half in the past three months alone.
Like Obama, President Bush expressed confidence that things would get better: "Our economy has overcome great challenges before, and we can be confident that it will do so again."
But economists were much less upbeat than politicians.
"There is no light at the end of the tunnel, and the outlook is pitch black," said Richard Yamarone, economist at Argus Research.
And Bernard Baumohl, chief global economist at the Economic Outlook Group, said the report "depicts an economy still in free fall and without a safety net anywhere in sight."
All the economy's woes — a housing collapse, mounting foreclosures, hard-to-get credit and financial market upheaval — will confront Obama when he assumes office in January. Unemployment is expected to keep rising during his first year in office, while record budget deficits will crimp his domestic agenda.
October's jobless rate was the highest since March 1994 and now has surpassed the 6.3 percent 2003 high after the most recent recession. The government also said job losses were worse than first reported for the preceding two months, 284,000 rather than 159,000 in September and 127,000 rather than 73,000 in August.
Many economists believe the unemployment rate will climb to 8 percent or 8.5 percent by the end of next year before slowly drifting downward. Some think unemployment could even hit 10 or 11 percent — if an auto company should fail.
In any case, the rate is likely to move higher even if the economy is on somewhat stronger footing by the middle of next year as some hope. That's because companies won't be inclined to ramp up hiring until they feel certain that a recovery has staying power.
Joshua Shapiro, chief economist at consulting firm MFR Inc., said another reason the unemployment rate can keep climbing — even after a recession is over — is because people tend to flock back to the labor market when they sense their job prospects might be better. "It takes (people) awhile to figure out, 'Hey, there's jobs out there,'" Shapiro said.
In the 1980-1982 recession — considered the worst since the Great Depression in terms of unemployment — the jobless rate rose as high as 10.8 percent in late 1982 just as the recession ended, before inching down.
Friday's report was worse than analysts had expected. They had been forecasting a jobless rate of 6.3 percent with payrolls falling about 200,000.
Factories, including auto makers, construction companies, especially home builders, retailers, mortgage bankers, securities firms, hotels and motels and educational services, all cut jobs. As did temporary help firms — a barometer of future hiring. All those losses more than swamped the few gains elsewhere, including in the government, health care and in accounting and bookkeeping.
Private companies cut 263,000 jobs, the most since the country was beginning to emerge from the 2001 recession. It marked the 11th straight month of such reductions.
The grim numbers spurred calls from Democrats on Capitol Hill to provide fresh relief. House Speaker Nancy Pelosi said Democrats, in a lame-duck session later this month, will push to enact another economic stimulus package of around $100 billion, possibly including provisions to create jobs through big public works projects.
Obama said if the session doesn't bring passage, the measure will be his first priority as president in January.
He has called for about $175 billion in new stimulus spending, including money for roads, bridges and aid to hard-pressed states. He wants a rebate of $500 for individuals, $1,000 for families and a new $3,000 tax credit for businesses for each new job created.
Workers with jobs saw only modest wages gains in October. Average hourly earnings rose to $18.21, a 0.2 percent increase from the previous month. Over the past year, wages have grown 3.5 percent, but paychecks aren't stretching far because high food, energy and other prices have propelled overall inflation at a faster pace.
The economy has lost its footing in just a few months. It contracted at a 0.3 percent pace in the July-September quarter, signaling the onset of a likely recession. It was the worst showing since the 2001 recession, and reflected a massive pullback by consumers.
As consumers watch jobs disappear, they'll probably retrench even further, spelling more trouble. Analysts say the economy is still shrinking in the current October-December quarter and will contract further in the first quarter of next year. All that more than fulfills a classic definition of a recession: two straight quarters of contracting economic activity.
"The U.S. recession is deepening," said Michael Gregory, economist at BMO Capital Markets Economics. The final quarter of this year is getting off to a "particularly ugly" start.
AP Economics Writer Christopher S. Rugaber contributed to this report.
Franklin Bank becomes 18th US bank to fail
The Houston-based Franklin Bank Corp., controlled by Mr Lewis Ranieri, was closed by US regulators on Saturday, the 18th U.S. bank seized this year amid mounting real-estate losses and slumping home sales, say agency reports.
The bank, with $5.1 billion in assets and $3.7 billion in deposits, was shut by the Federal Deposit Insurance Corp (FDIC). The closely held Prosperity Bank acquired all the deposits, the FDIC said on Saturday in a statement.
Franklin is said to have possessed total assets of $5.1 billion as of September 30, 2008 and total deposits of $3.7 billion.
STOP BANKING SECTOR REFORMS FORTHWITH
ALL INDIA DAY BY AIBEA – 11TH NOVEMBER, 2008
at NEW DELHI – From NOV. 15 to 18, 2008
¨ Neo Liberal Globalisation policies - a failure
¨ Unregulated Free Market – a myth
¨ Efficiency of private sector banking – exposed
¨ Big Banks are strong banks – a fallacy
¨ Foreign investments – not dependable
¨ Government intervention – a necessity
¨ Nationalisation & Bail outs - a reality
WELCOME TO SPECIAL SEMINAR
AT 5-00 PM ON SUNDAY, 16TH NOVEMBER, 2008
PRABHAT KAR AUDITORIUM, PARVANA NAGAR, RAM LILA GROUNDS
¨ PROF. BABU MATHEW, noted Social Activist
¨ SMT. SUCHETA DALAL, noted Journalist
¨ PROF. ARUN KUMAR, noted Economist, JNU, Delhi