In 1969 and in the 1970s, when banks were nationalized in India, one of the stated objectives was to encourage banks increase their lending and outreach. Here, the government is assuring all account-holders with PSU banks that their deposits are safe no matter what. That was seen as a socialist move, keeping in line with the policymaking mood in India at that time. It is strange/interesting to see socialist policy instruments bailing out institutions that suffer from unsustainable capitalistic greed.
The loan-waiver in India throws up interesting similarities with the financial crisis which indicate how great a leveler this crisis has been – The millionaire CEO is in reality as unaware of factors beyond his control as the poor farmer is. What the farmer knows about the monsoon, pest attacks and sale prices is exactly what the I-bankers and the whizkids know about portfolio quality, futures valuation and market trends.
The farmer is not rational in his expectations – he will farm even if he knows outputs and prices are falling and he has no chance of surviving if he depended only on agriculture – their counterparts being eternal optimists, who believe people can live off credit, a stream of expected future income, never mind what the reality is; and curbing their risk-taking instincts is sacrilege.
Farmers in India are a political constituency – only they vote – and corporates in USA, on the other hand, are a constituent of the government, riding on the millions that fund campaigns.
So what is the solution? Educate the farmers, tell them how to manage their money, teach them other skills, teach them how to farm and everything else that we presume we know better. What about their friends in the west? Ah – let them take their bonuses home, lets bail them out and wait for an encore!