Theory of Fear and Greed

In a recent New York Times article, Thomas L. Friedman opines that at their core, markets are propelled by fear and greed. “They’re just the balance at any given moment of those two impulses. Over the long run, you cannot spin the market. You cannot sweet talk it into going up or beg it not to go down. It’s going to do whatever it’s going to do — whichever way greed and fear tug it” says Friedman.

Despite active Government interventions around the world, including the G7, the European Union, Asia, Middle-East and Africa, capital markets around the world remain bearish, and as many experts believe, will continue to be bearish. Ofcourse, the collapse of the old financial order on the back of US-mortgage crisis exacerbated the global economic situation, which was already reeling under tremendous pressure. But equally important is the contribution of greed and reckless spending by everyone, and specifically the Western world led by the United States. Ergo, no amount of sweet talk is likely to allay the fear factor that has become deeply embedded in the minds and hearts of people – post the collapse of the old financial order.  

Consider the following - The Finance Minister of India is a cabinet position in the Government of India. He drafts the general budget of the country, and is in charge of the national economy. The current India’s Finance Minister, P Chidambaram came out openly to persuade investors to stay tight! I quote Chidambaram’s statement in a recent press briefing - “Before you sell, you must remember that for every seller there is a buyer. You must ask yourself why the buyer is buying in these times of perceived uncertainty and, therefore, ask yourself the further question whether there is a need to act in haste or in panic. In my view, there is no reason at all to act in haste or to give room for panic”. What was he thinking, and what was he trying to accomplish?

What mankind needs today is not just some piece-meal measure or sweet-talk, but a new financial order – one which will not only compel the rich economies to curtail reckless spending; but also encourages the developing countries to use their hoard of forex reserves in a much more prudent fashion. There must be an immediate end to developing countries’ financing the consumption binge of rich nations. Indeed, the perpetrator of the current financial crisis, the United States, must be brought under the supervision and oversight of the IMF- not just to ensure economic stability, but also to ensure confidence and morality around the world.