Paul Krugman (‘Brown does good’, October 14) is absolutely right in pointing out that British Prime Minister Gordon Brown has come up with the best solution to tackling the financial crisis. This is heartening since, despite being the sole superpower in the world, the US hasn’t shown any great leadership qualities for a very long time. While the US shortcomings were always evident, the UK has generally been seen as playing second fiddle to the US. Brown’s predecessor, in particular , was seen as the mouthpiece of the US president.
The good thing is that, after the UK unveiled its sensible plan, other members of the G-7 didn’t hesitate to adopt a similar approach, and we are now being told the US will also adopt a similar strategy once it has spent its $700 billion to buy up the various sub-prime bombs that litter its financial sector. It is not clear why the US chose to buy up the toxic assets at a price which is still to be specified instead of the UK model of buying shares of existing banks which are in trouble.
One argument made by experts is that the government couldn’t buy shares of banks till it knew what their value was; and that it could not know what their value was until there was a market for the sub-prime/toxic assets they held. It is not clear as to whether this is indeed the correct explanation. Another one is more plausible. That while the continent is more comfortable with a larger role for the state, this is not true of the US. So, while Europeans are relatively comfortable with a higher state ownership of banks, the same cannot be said of the US. Given the severity of the crisis, of course, the US will eventually have no option but to have larger government shareholding of banks.
Sarita Chopra, New Delhi
