It is too late and too little has been done in the United States to come out of the financial turmoil, a crisis of $240 trillion cannot be stemmed with bailout packages of about $10 trillion, Arun Kumar, professor at Jawaharlal Nehru University, said in Ahmedabad on Thursday.
"When the US President-elect Barrack Obama assumes office in January, the crisis will still be bigger," Kumar said while delivering lecture on Current Financial Turmoil and Lesson for Future at Ahmedabad Management Association.
"$150 billion tax cut package for the housing sector was too little and too late to stem the collapse of a much higher magnitude," Kumar said, adding that "every aspect of financial sector got sucked into the financial turmoil."
"In last two decades the financial markets in the US got deregulated, under the guidance of Alan Greenspan as he worked on the assumption that the markets are self-stabilising, but in a recent testimony Greenspan admitted he was wrong for 16 years," Kumar said.
This deregulation led to the collapse of Lehman Brothers, Bear Stern and other troubled entities, he added. "The government has intervened, the crisis has slowed down, but there is crisis of confidence now amongst the banks. The financial and money markets work on certain degree of trust and confidence and this should not be shattered at any cost," he added.
"The collapse in the US was very sharp because the banks were interlocked in deals. Due to deregulartion there were instruments promising much higher returns and even a marginal fall in assest pricing triggered it all," Arun Kumar said.
US economy was thriving on borrowed funds, so after the crisis countries such as Japan, China, Iceland, Ukraine and others are in deep trouble. China is finding ways to delink from the dollar, after corporate profits began falling showing early signs of heading into recession, Arun Kumar said.
Now protectionism of economy has crept in due to lack of confidence, that too is dangeruus, he cautioned. So when US President-elect Barrack Obama takes office he will prioritise job creation, Kumar said.
So at this historic juncture an out-of-box re-architecturing is required for the $600 trillion financial sector, he added.
In the backdrop of such a scenario the G-20 initiative is important and extensive coordination between the government's including Indian should be evolved to come over it, Kumar added.