Fight the Recession

For the last couple of days, I was thinking of writing something but my work was keeping me away from all this. Today I have got some time, and there are a plenty of issues to be penned but one thing which is keeping me engrossed is the whole issue of fighting the recession. In every nook and corner of the world, there is discussions going around amongst the top business leaders, financial heads of state and other political leaders. 

The finance ministers and Central bank governors of the G20 group countries are meeting in England over this weekend to reach an agreement before the meeting of head of states of G20 in London in April. There is a division of opinions between the member countries with US and UK demanding for more stimulus packages to put economy back on track, European members demanding for more regulations in the financial sector instead of spending on stimulus packages and BRIC countries demanding for more say in IMF and other financial bodies in return for increasing the stimulus packages. The only point where there is consensus is that they want to fight the recession together.

For me, we should instead of submitting to the blues of the recession come out and fight it. The only way to come out of this recession is to start the flow of money and goods. And for that to happen we have to make sure that both the consumers and the banks are confident enough.  The banks have more responsibility as much depends on them and they should start lending as soon as possible. Its not going to happen only by pumping money into the banks  or the badly hit banks because it doesnot increases its confidence to start lending. Governments across the globe has to chalk out plans so as to make sure that the bank starts lending, because if it doesnot happen soon then almost all of the sectors will be hit and recovering then would be a difficult task. To make it simple, let's take for instance the automobile industry, it is also hit by the cause that since banks have stopped lending money, the customers have stopped booking new cars and that has led to decline in sales and this has compounded the woes of already struggling car industry. Similar is the case of other sectors.

UK has also recently started Quantitative Easing which means pumping cash into the economy. This was earlier adopted by the Japanese during the asian crisis of the 90's, which backfired and its economy went from bad to worse. Quantitative easing could be a good tool to boost the economy but only if it is able to boost the confidence of the customers as well as banks. The government should and is buying the mortgages and should also make sure that the house owners pay their mortgage amount on time. Once the government buys the mortgages, the bank should atleast gain a little confidence and start lending carefully.

It is obvious that greed of the banks played a part in starting the financial crisis but its us who defaulted on our payments and mortgages which led to the collapse of some of the biggest banks. We are almost as much responsible as much are the banks and the government. We should have gauged our limits how much we can spend. I do believe that wrong recruitment policies of these companies also led to their collapse. The big banks such as Lehmann Brothers and others hired best brains from the world's best universities irrespective of their field of specialization. Engineering, arts and science graduates were recruited for managing the banks, that is something weird. They might be indeed having the best of brains, but surely they didn't had much knowledge about business and economics. The reason why I am saying this is simple, an economist can understand the basic principle of supply and demand, but what these people did was they created demand by providing (supply) house mortgages to almost anybody and everybody without even checking their financial history.   

And its not only for banks almost every sector does that. Most of the employees in Infosys and other IT companies in India hire engineering graduates irrespective of the field of specialization. All of my friends from mechanical and other allied engineering courses are working for IT firms. I mean I dont understand the whole point of studying so hard for 4 years and then working in a totally different environment. And I don't blame the students for that, because they have to get a job because they just cannot waste an opportunity in this competitive world. 

Imagine an engineer going to perform an heart sugery on you, will you ever go for that. Every job must be given to the right people. Firms do say that they don't differentiate students as far as they are graduates, they just look for analytical and logical bent of mind and they can train them.  I mean you can train anybody for that role but whats the point in wasting so much time and effort when there are hundreds of graduates with the required field of study. 

I think I have deviated much from the topic but the point that I have raised is worth taking a note of. Lastly, we should all try to be optimistic and hope that the government does something to ensure that the confidence of consumers and banks grows. Let's hope that the meeting of G20 members brings some sign of happiness in not so happy times.

Bye for now.

A