Echoes Through Time: Unraveling Financial Crises from Weimar to Wall Street

 

The recent utterances of the President of the United States of America have left everyone in jitters. There is panic around the world, and countries are trying to figure out how to react to these tariffs. While reading about these different reactions, I thought of the crises of the 1930s, 1970s and the sub-prime crisis of 2008. Now, for the younger generation, it is a bit difficult to connect the dots as they have not lived through these crises. Today, let's embark on a journey through three pivotal financial crises: the German hyperinflation of the early 1920s, the collapse of Herstatt Bank in 1974, and the subprime mortgage meltdown of 2008. These stories, though separated by decades, are threads woven into the same fabric of financial folly and resilience.

The Weimar Republic's Dance with Hyperinflation (1921–1923)

Picture post-World War I Germany, a nation burdened with reparations and economic despair. In a desperate bid to meet its obligations, the government resorted to printing more money. The result? A catastrophic devaluation of the German mark. By 1923, the exchange rate spiraled to an astronomical one trillion marks to a single U.S. dollar. Citizens transported wheelbarrows brimming with banknotes just to purchase basic necessities. There is  the famous anecdote of a person ordering a cup of coffee for a certain price and in the time the coffee was delivered to the table the prices went up. This period wasn't merely about skyrocketing prices; it eroded public trust in financial institutions and set the stage for political upheavals that would later shape world history. 

Fast Forward-The Sudden Demise of Herstatt Bank (1974) 

Fast forward to the 1970s. Bankhaus Herstatt was a small private bank based in Cologne, West Germany. It had developed a reputation in foreign exchange trading, especially during the post-Bretton Woods era when exchange rates became more volatile. The 1970s was characterised by the collapse of the fixed exchange currency system of the Bretton Woods, there was high currency volatility and the currency market was highly speculative. Amidst this, the Herstatt bank started speculating in the foreign exchange market to make profit. 

On June 26, 1974, the German Banking Regulator revoked the license of the bank. The problem was that the customers of Herstatt bank had already deposited the payments in Deutsche Marks but the New York market had not opened by then. As the license was revoked the payments could not be settled. Time zone variations made this misalignment even worse, leaving counterparties vulnerable to large losses, particularly in New York. The episode brought to light the complex network of international financial interdependencies and the dangers of unregulated foreign currency activities. 

The Subprime Mortgage Crisis (2007–2008) 

Now we move to the final stage of the story which played out in Uncle Sam's country.  The subrpime crisis happened which was because of the over abundance of sub prime mortagages available in the market which made the dream of owning houses a reality for many Americans. Motivated by immediate profits, financial institutions packaged these hazardous loans into mortgage-backed securities and offered them for sale to investors all over the world. However, defaults increased as housing prices fell and interest rates rose. Major financial institutions failed, world markets plummeted, and economies entered severe recessions as a result of the disastrous knock-on effects. This crisis laid bare the dangers of excessive risk-taking and the opacity of complex financial instruments. 

Interwoven Lessons Across Eras  

At the first glance it seems as if they are three different isolated events but a closer look reveals a recurring pattern: the catastrophic consequences of unchecked financial practices and the absence of robust regulatory oversight. From the reckless monetary policies of Weimar Germany to the speculative gambles of Herstatt Bank, and the imprudent lending of the 2000s, each episode underscores the imperative for vigilance, transparency, and accountability in financial systems. 

Conclusion

These three historical events tell us the difference in the policy makers initiatives and how with the passage of time, the financial market has become more complex. It also points out the fact that today in the globalised market, a single country cannot initiate a step without it having a global cascading effect. Let us see how the future unfurls itself and what more has Donald 2.0 got in store for the world. 

Rosa's Rebellion: Tracing the Path from Revolutionary Suffrage to India's Political Renaissance

 

The United Nations declared March 8 as International Women’s Day because, on this day in 1917, women played a major role in the Russian Revolution, which led to the abdication of the Tsar and the establishment of a provisional government that granted women the right to vote.

Rosa Luxemburg, a Marxist activist and politician, wrote an article titled “Women's Suffrage and Class Struggle” in 1912. In her piece, she quoted the French philosopher Charles Fourier, who stated, “In any society, the degree of female emancipation is the natural measure of the general emancipation.” This article discusses the rights of proletarian women to vote. The capitalists of the time opposed granting women this right, fearing that it would ignite further social change. However, the unionization of proletarian women turned them into a formidable force. These women were economically independent, and according to the norms of pre-1848 absolutism, they were deemed mature enough to exercise political rights.

A very interesting point raised by Rosa Luxemburg in her article concerns the participation of bourgeois women in politics and the possibility that capitalists might have conceded to their demands for voting rights. She uses the term “parasite” to describe bourgeois women, referring to them as “parasites of the parasites” because they are “nothing but co-consumers of the surplus value their men extract from the proletariat.” She asserts that granting direct suffrage to women would further the overall struggle for the liberation of the proletariat.

In the present context, this article remains highly relevant. While virtually every country now extends direct suffrage to women, the critical question remains: have these rights translated into substantial influence over societal and environmental changes? In India, women were granted the right to vote alongside men in 1947. However, their representation in Parliament has been dismally low. Although the 33% reservation bill has been passed, it comes with several conditions that undermine the effective participation of women in the political process. Moreover, systemic issues such as socio-cultural barriers, entrenched patriarchal norms, and unequal access to political resources have further limited their influence.

Recent data from governmental and academic sources indicate that the underrepresentation of women in key decision-making roles is not merely a statistical anomaly but a reflection of deep-rooted structural challenges. For instance, despite constituting nearly half of the electorate, women in India continue to be marginalized in legislative bodies, which affects the prioritization of policies on economic reform, social justice, and environmental sustainability. Research published by institutions such as the Centre for the Study of Developing Societies (CSDS) and reports available on the official websites of the Election Commission of India provide evidence that only a fraction of parliamentary seats are occupied by women, despite the introduction of affirmative measures.

In addition, entrenched political practices and cultural stereotypes often relegate women’s issues to a secondary status. This underscores the urgent need for a more robust framework that not only legislates for greater female participation but also ensures that women have the requisite support and resources to influence policy effectively. In the Indian context, targeted policy interventions, capacity-building programs, and stricter enforcement of reservation policies are essential to dismantle these barriers. Only by addressing these structural impediments can India hope to unlock the full potential of its female electorate and foster a more inclusive, equitable political landscape. Such a transformation is critical not only for the progress of women but also for the overall development and democratization of the society.

Why Left has all the Answers but LEFT is not the Answer?

 The world is going through a turmoil that is to a large extent man-made. The pandemic has exposed many wounds of the past which were left unattended but a veil was placed upon them. In 2020, India underwent one of the worst economic slowdowns because of an ill-planned lockdown imposed and the worst was the exit from these lockdown without any clear guidelines. The economy came to a standstill and to hide the inefficiency of the state, communal disharmony was spread. While the entire drama was played out, the wealth of a few increased exponentially. Oxfam came out with a report which says that it will require a decade for the poor to recoup their lost wealth whereas the rich did so in just 9 months. In India too the wealth of Ambani and Adani increased by about 35 per cent whereas about 22 million people lost their jobs (CMIE Data).

Now, what about the solution to this increasing inequality. Abhijeet Banerjee, Amartya Sen, Raghuram Rajan, Kaushik Basu, Jayati Ghosh- some of the most well known Indian economists have advocated the increased role of the state come out of this rigmarole. State spending in the form of investment in infrastructure, welfare programs, direct transfer etc. is seen as a way of improving the demand side crisis in the economy. As this pandemic has given rise to both supply-side and demand-side problem, only fixing the supply side by using monetary policy will not help the economy to recover.

This crisis has reiterated the fact that capitalism has crisis inherent in its system. It creates crises to create islands of paradise in the sea of despair. This is something that Left ideologues have been indicating for a long time. We know for a fact that whenever an economic crisis hits a country, the solution is always sought from the government and not from the private entrepreneurs or messiahs of laissez-faire economy who forbid the state from taking care of the masses. The basic requirements of health, education, housing, power, transportation are expected to be responsibilities of the state and when they become profitable, they are gifted away to private players to build Antila and dictate terms to the state.

Why then the Left which is pro-poor, pro-people not successful at the global level or in the country? Why apart from USSR, China and Cuba, there are no major success stories? Why has lambasting the Left become a fashion statement for people advocating nationalism? Why does Left have all the answers but LEFT is not THE answer? 

The proponents of Left ideology may counter this by saying that capital with its vicious fangs has dug so deep in the society that it does not leave any alternative. It is the capital that manipulates the world order to destabilise the socialist regimes. There is no questioning of this argument but the Left also needs to reassess itself. In India, Tripura, West Bengal and Kerala have been the bastions of the Left for a long time. However, currently, only Kerala has a Left-led government. If all these governments worked for the welfare of the people at large, why were they booted out of power? Since the New Economic Policy got implemented, the labour force has been the most distressed section, especially the semi-skilled and the unskilled and they have always been the supporters of the Left. But of late they too have deserted the party. During the lockdown, there has been large scale labour layoff, pay cuts became common and reverse migration took place and the owners kept piling their profit but none of the Unions or Leader has mustered the confidence of this section. In the past three decades, legislation has changed to protect the rights of the private players, Unions have been disbanded, the aspiration level of the millennial has changed but the Left party has not kept itself abreast of these changes. On the other hand, the Right has fanned the flames of pseudo nationalism and religious one-upmanship to distract the masses from the real issues.

There is still time for the Left and parties with similar ideologies to regroup and re-strategise. The intellectual elitism of the Left has to be done away with. They have to become part of the mainstream, choose young leaders and become part of the education narrative to regain their lost relevance. 

Indian Railways: The "Tejas" Way

Indian Railways holds a place of pride not just for India but at the global level too as it ferries lacs of customers every day from far lung areas and is one of the cheapest source of transportation. 8116 million travel by trains generating revenue worth INR 462.801 billion every year and from freight the earnings are INR 1020.28 billion annually. Even today rail connectivity means that the place can be easily identified on the national map. There are still small towns and villages which do not have proper connectivity in terms of railway lines which is a matter of concern for the government and every year the Railway Minister promises centum connectivity. Currently, the privatisation of Railways has raised many questions that should become part of public discourse.

            The liberalisation of the economy in 1991 had set the stage for what was coming for the economy in terms of state intervention and the role of the market in it. Since the late nineties, there have been constant whispers about the privatisation of Konkan railways but so far it has not materialized. When Lalu Prasad Yadav became the Railway Minister, part-privatisation started with a lot of services being outsourced to public vendors making the department profitable for the first time. After him, the precedent was set for slowly privatizing bits and pieces of the services provided by the organisation without inviting the ire of the common man or the intelligentsia, all in the name of better services and general good. However, over the years there have been cases of theft, loot and arson which have revealed the confluence between the perpetrators of these acts and the private vendors.

            Coming back to the privatisation of railways or the first private train Tejas which made its maiden run on 4^th October 2019, the basic question is that are we ready for such an experiment and secondly is the timing good. The new Managing Director of International Monetary Fund, Ms Kristalina Georgieva said that India is the most affected country by the current bout of recession and as the incumbent government has often quoted the predictions of World Bank and International Monetary Fund, this statement needs to be taken seriously. In this time of recession and disparities becoming wider and more visible, thinking of a product only for the corporates and the rich shows poorly on the government. Secondly, though this train is being run by the subsidiary of IRCTC, they are not paying for the infrastructure that has been built by the state. Here, we come back to the old age question of why state-run businesses cannot be run as efficiently as private companies even with the welfare dimensions in place. I am remembered of a similar thing happening in my home state of Madhya Pradesh when Department of Roadways was closed down citing losses and lack of passengers. Now the same routes and roads made by the government are helping the private players to ply their buses on them and making sizable profits. The case of Railways too, is the same as the same track from Lucknow to Delhi will help Tejas to cut down on time and be “efficient”.

            I am not against privatisation per se but I firmly believe that the infrastructure that has been built by the state should not be handed over to the private players overlooking the interest of the common man. The employees have to be taken into confidence so that they too become stakeholders in the upliftment of the organisation. The business model needs to be changed so as to accommodate the aspirations and requirements of the common man without giving way to crony capitalism and corruption. The sense of belongingness to such a huge organisation is very necessary to make it a corporate.

            Another area which needs to be very seriously taken is the security and safety of railway tracks and trains. The government has sanctioned INR 114.18 crores for the safety and security of railways which needs to be increased and provisions have to be made to technological uplift the railways keeping in mind the weather conditions of the country so as to avoid mishaps. Every year there are many reported and non-reported accidents mainly because of human negligence and technologically also we fail to use the means at our disposal raising questions on the credibility of the organisation, though, in 2018-19, the railway's department has overhauled its tracks, the largest in the past fifty-five years. The separate Railway Budget needs to be restarted as this gave a clear picture of the finances and the vision of the government. There have also been constant voices stating that instead of starting new trains, the present trains need to be run on time with mechanization. The services that have been leased out to the private players have to be made more accountable, both in terms of quality and delivery.

            On 7^th October 2019, Amitabh Kant, the CEO of NITI Aayog wrote a letter to the Chairman of the Railway Board talking about the privatisation of 50 stations and 150 trains in the first phase. This is in relation to making the services world-class forgetting that these services will come at a cost which a large majority of people using this service are unable to bear. If the sole motive is to pull customers from airlines to railways, especially the fringe buyers, then too, this strategy reeks of high handedness of the government and is almost like a slap on the face of the commoners. This systematic withdrawal of the state from the basic services is a matter of concern. The society has to be equitable for the state to be just administrator.  

           

Indian Polity, Democracy and its Current Status Continued

           This is an extension to an earlier blog by the same name where I had discussed the present day polity and the interpretation of democracy. However, there have been friends who have raised a valid question that I have not offered any solutions to the problem but have just deliberated on the present status. This blog is dedicated to solutions which according to me are valid and implementable (therefore the length). But before I come to the solutions it is necessary to discuss the term Democracy because many readers are confused about the very meaning of this word. As per the Webster dictionary, it is "government by the people" or as Abraham Lincon said, "by the people, for the people, of the people". The Greek origin of this word also defines it as "people's rule". In today's parlance, it means a popular government or a government which has won maximum seats but not necessarily the votes of the majority, for example, the incumbent government got 31.3 percent votes in 2014 and this time it got 37.4 percent votes, which translates into 282 and 303 seats respectively. Very interesting to note that 62 percent of the population have not voted for this government, but democracy says that once the government has been chosen it governs all, however, today there is a different take to it. It is believed and propagated that if you have not voted for the present government then there is an element of anti-nationalism and therefore the government is free to treat you differently or turn a blind eye towards the atrocities meted out to them.

        Democracy under the pure form of capitalism and socialism cannot be termed as proper democracy because both are at the end of the spectrums and therefore as Gandhi ji had suggested a middle path needs to be taken. The common man needs to be empowered to understand and utilize the rights that they have constitutionally received.
         The problem that people like me have with the present version of democracy is that in the name of "people's rule", illogical things are thrust down our throat. We need that the incumbent government in its present term talk of the "people" that it represents. The state has a certain responsibility towards the masses which it cannot overlook the benefits of the bourgeois. I feel that the most important thing or sector that needs to be worked upon is education because empowerment will come from education and awareness. Right now entitlement has been given but the real power will come only when people are conscious about their rights and duties. The dichotomy of the society can be understood from the fact that though literacy rates have gone up, the percentage of people exercising their franchise has come down. The part of the cities where the elites inhabit are the ones which have the least voting percentage because they are sure that in the name of "democracy", it is feudal who will rule whether they vote or not. Parties have become more important than issues, certain people have been given cult status which is very much against the very grain of democracy which says that everybody is equal and there has to be a collective leadership. The Election Commission has to be realistic when it comes out with figures of what a candidate can spend because we all know what mockery it is. People too, have to be proactive when they elect their representatives because they are the ones who will get funds for the constituency and take decisions on behalf of the masses which according to them are "best" for the people.
            A very important part of democracy is that state does not have a religion (in case of India, this has been mentioned in Indian constitution) but this is not visible in today's time. In India, the word "secularism" is the most abused. It surely does not mean minority appeasement (read Muslims) but it also does not mean that the majority would incite religion in the name of nationalism and worst the state stands as a mute spectator. This is facism and it is better to stick your neck out and call it so. The legislative has to be very strong and firm in its decision making if we do not want to become a fascist state. People too should not include politicians and parties in religious affairs for their petty benefits.
        The opposition has to play a very active role if the democracy is to be conserved because they represent 62 percent of the voters who have not voted for the present government.  Currently the opposition is in a mess as they are playing opportunistic politics and are being run as fiefdoms. The Left needs to reinvent itself in the present age when regional parties have become a reality and there hardcore voters are shifting not to the like minded parties but to the right. The intellectual arrogance has to make way for pragmatism and plurallity. The law needs to play its role because as I write this blog, the legit government of Karnataka is being destabalised through horse trading. Goa and Tripura are the wrong precedents which have been set by the ruling party.
    Freedom of speech is the fourth pillar of democracy and now with a few media houses ruling the roost, the alternate media needs to be exploited to the fullest. And this is where the "libtards" or the intellegentsia have to let go their egos and instead of humiliating the representatives have to raise valid questions and talk in a language that is understood by all. Most importantly people have to be critical and the state has to take in the views of the critics too because otherwise there will just be an echo chamber.
      Democracy is just not about fighting and winning elections, it is also about serving people whom you represent. The political class has forgotten this and therefore civil society has to now enter into this realm, call the representatives amidst themselves to involve these representatives in their day to day issues. The plans need to be localised and questions raised in the parliament.
     As this is the budget season, it is imperative that shayari be interwoven in the narrative. I end with the famous lines of Shailendra

Humare Karwan ka Manzilon ko Intezaar Hain

Ye Andhiyon, Ye Bijlion ki Peeth par Sawar Hain

Jidhar Padenge ye Kadam Banegi ek Nayi Dagar

Agar Kahin hain Swarg to Utar la Zameen Par

Fifty Years of Bank Nationalisation

      

This year we are celebrating the fifty years of bank nationalisation decision taken by the then Prime Minister of India, Mrs Indira Gandhi which then and now creates a lot of debate amongst economists, bankers and policymakers. Lord Meghnad Desai while opinionating on this in the month of January commented that it was one of the worst steps taken by the government and the state should rid itself of this white elephant as soon as possible as it is bleeding the taxpayers' money. He is not alone to raise this point as the pro-capitalist section have always been baying for their blood and the policy measures that were introduced as a part of it.  They have argued that it created a very inefficient system which was used for welfare when a bank needs to be a purely commercial entity with profit making as the main goal. The priority sector lending has created a stress on the balance sheet of these banks without creating proper accountability, also not helping the cause for which it was introduced. In recent years, Non-Performing Assets (NPAs) have become the bone of contention as BASEL norms have tightened their noose on the Central Banks of the countries and RBI following the lead has asked all the banks to reduce their NPAs to manageable limits. Bank mergers are also a part of "commercialising" the nationalised banks as Raghuram Rajan have often reflected on the size of Indian banks, wanting a tier system with few very big banks at the top, followed by some medium-sized banks and then a large number of small/payment banks. Reserve Bank of India has been working on these lines and the analysis of the recent licences given to new banks shows the intentions of the Central Bank very clearly.

The present government is perceived to be led by a party which has "rightist" economic orientation or in other words, favours the laissez-faire system. However, in 2014 when it first came to power the Prime Minister in his first Independence Day speech declared the ambitious Jan Dhan Yojna promising that the entire country or every family will have a bank account by 2018 would have a bank account. Analysis of data shows that these accounts were opened by Public Sector Banks (the bête noir of capitalists) and were used by the "capitalist opposers" during Demonetisation to park their "clean money" meant for development. The state wants these banks to continue their aggressive drive to counter NPAs by not giving loans to the new entrepreneurs, students, women with low income or anybody who is not complying with the image of "developed" Bharat. It asked the SBI to give a loan of up to $1 billion for an Australian Coal mine project which was 0.9 per cent exposure of the total 5 per cent exposure of SBI for the coal industry. It is a different matter that the deal had to be called off because of pressure from the Australian environmentalists and widespread criticism of SBI's deal within the country. These two decisions highlight the dichotomy that is there in the economy with the state using these instruments for their political benefit, on one hand, encouraging crony capitalism and on the other hand encouraging privatisation of the Public Sector Banks.

My take is that in a country like India where 62 per cent of the population is living below the poverty line, where about 89 per cent of the industries are in the informal sector, where agriculture is still the main occupation, we cannot expect banks to be purely commercial entities. They have to play a bigger role and my personal study shows that Public Sector Banks have done much better than the Private Sector Banks, both at the national and international level. Employment provided by the nationalised banks cannot be overlooked or ignored, nor can be the credit facility provided to the priority sector. Prior to 1969, India had the private sector looking after the banks and historical data shows that between 1947 and 1955, about forty banks collapsed each year. Credit was monopolised by industries, agriculture was left to fetch for itself which was corrected after nationalisation. The RBI policy to allow one urban branch only when four rural branches would be open was the initiation of financial inclusion. As far as NPAs are concerned, it is true that Public Sector Banks have a higher percentage of them, to be precise 90 per cent of INR 8.41 crores is with them, but the origin of these NPAs have to be evaluated. Most of them have been due to the bank's exposure to huge industries who because of their capitalisation and goodwill have taken advantage of these banks. The recent case of Yasvardhan Birla is a point of proof. We as a nation require the banks to remain strong pillars to support the superstructure as the non-state actors cannot be allowed to take decisions of "rashtr hit"

Indian Polity, Democracy and its Current Status

First things first, let me put out a disclaimer that I am not an authority on Gandhi's writings so my views may be of someone who has read very little on him, but still whatever I have read, I wanted to share because today the form of democracy that we are seeing in the country is not your regular textbook democracy or for that matter polity. Last week I read two writings which have had a prolific impact on me and made me thinking on the issue of democracy in particular and Indian politics in general.  One is S N Agarwal's "Gandhian Constitution for Free India" and the other was an article by popular psephologist Yogendra Yadav. In Agarwal's writing, one can easily decipher the turmoil between a capitalist structure and the socialist structure with Gandhi coming up with a middle path. His idea of democracy was based on non-violence as he said that any democracy that is established via violence cannnot be a true representative of the people. His views on decentralisation are well known and documented, have been implemented in the name of Panchayati Raj but the reality of it is not hidden from any of us. Yogendra Yadav did not write directly on democracy but he writes about how "nationalism" which according to him has been abandoned which Gandhi too often mentioned in his writings and public speeches and opined that Indian Democracy has to be based on "nationalism".

Now the question that arises is whether the dirigiste regime that we have today or even earlier really understands the meaning of democracy. It is just not the advocacy of adult franchise, nor the way of conducting elections or haveing numerous political parties, but actually giving voice to the masses. Unfortunately today in the name of politics and democracy, there is constant demeaning of the masses, to create a "bigger picture" the innumerable smaller pictures are overshadowed and most importantly "nationalism" has become jingoism whereby questioning the government/governance is translated into being unpatriotic or downright anti-national with the "nationalists" distributing free visas for the neighbouring state of Pakistan.  Its time that Democracy is not just centred around vote bank politics or winning elections but rather creating an environment for the conducive living of all brethren and sisters because as will be the polity of the state, so will be the socio-economic policies. Gandhi said that when direct elections will take place at the village level, communalism and violence will decrease but today, just the opposite is happening as elections are being fought in the name of religion, caste and creed. Time has come to ponder on the thoughts of Gandhi even by them who abhor his views because this "fakir" has answers to many of our present woes.