Bailout Employees First, Not Corporations

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Globally, including in India, there’s a strong appeal to the governments to bail out employees first and directly and not businesses as they did following the 2008 financial meltdown.

Black Swan guru Nissim Taleb is leading the ‘employee-first’ campaign. He says the images of banks, big corporations and CEOs cornering most of the bail-outs globally without paying for their mistakes is still fresh in his mind. The worst imagery is how several CEOs gave themselves huge pay packets even when they were responsible for the collapse of their enterprises.

“We should bailout employees not corporations. I’m against bailout by definition. Who are they bailing out? Investors and corporations who did not have a buffer. This is irresponsible. If you haven’t focused of having extra protection, you have to pay this price,” he told a TV anchor recently.

“When in doubt, we should put people first. The first reaction to the virus, especially in the U.S., seemed to be about mitigating its effect on the stock market and economy,”  Andrew Winston, Author and Founder of Winston Eco-Strategies, wrote in MIT Sloan Management Review’s recent edition.

India seems to have started well by easing pressure on the repayment on home loans. Direct transfer of some cash, although meagre, has also been announced. This covers less than 10% of the people in the less organized and unorganized sector.

There’s no talk yet about bailing out corporates or SMEs yet because of the very complex financial and banking quagmire India finds itself today. Banks and non-banking financial institutions are already grappling with huge non-performing assets.

The list of businesses needing bailout in India is long. Who do you bailout? The proposed financial task force is expected to take care of that.

Steeply Reducing interest on savings is a twin-edged sword. But clearly it penalises people who have been saving despite difficult economic conditions in recent years.

This One is a White Swan

Swan

If 9/11 attack on Twin Towers in New York and 2008 global financial meltdown are Black Swan moments, why does Nissim Taleb think the current Corona pandemic is a ‘White Swan’ moment? This is because this one was “preventable”.

He says the world is more fragile today than it was in 2007. “We have the same disease like in 2007. It was a crisis of debt. And US has bigger debt today. The United States is accumulating more debt and has many hidden liabilities like student debt.”

He says, “we don’t cure structural problems with monetary policies.” He expects real estate in US and European economies to collapse first and the pandemic would hasten this.

Nissim doesn’t like to be known as someone who predicts recessions. He says “I don’t predict outcome but I can predict fragility of the system. The system today is the more fragile than before.”

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