Yunus blames casino capitalism for global financial meltdown

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FE Report
Nobel laureate and Grameen Bank chief Professor Muhammad Yunus has said greed has destroyed the world's financial system and market mechanism rather the governments should be used to fix the crisis.
"Today's capitalism has degenerated into a casino. The financial markets are propelled by greed. Speculation has reached catastrophic proportions," Yunus told respected German online magazine Spiegel.
The global financial meltdown began last year when the United States sub-prime housing market collapsed, dragging down some of the top European and American banks.
The massive financial contagion spread through the world in the past few weeks after giant US investment bank Lehman Brothers became bankrupt, forcing most of the developed nations to launch unprecedented multi-billion dollar packages to rescue their banking system.
"There are huge holes in the current financial system that need to be plugged. The market is clearly not able to solve these problems itself, and now people are having to run to the governments to ask for emergency assistance."
"That is not a good sign because it shows that trust in the markets has evaporated."
The 2006 Nobel peace prize winner whose ground breaking micro-credit banking system changed the lives of millions of poor people across the globe blamed speculation and lack of regulations for the financial tsunami.
"Today's capitalism has degenerated into a casino. The financial markets are propelled by greed. Speculation has reached catastrophic proportions," he said.
"For a long time, the main priorities have been the maximization of profits and rapid growth -- but that focus has led to the current situation", he added.
The United States and Britain have together announced US$1.4 trillion of rescue package for their financial systems and partially nationalised or recapitalised banks, insurance and housing companies to fight off the meltdown.
But the markets across the world continued to nosedive, wiping of $2.7 trillion of capitalisation in the last week alone. The Group of Seven rich nations are now meeting in the American capital to devise a united response to the crisis.
The chairman of Grameen Bank said the financial system in the for years United States financial market steered off the real economy, resulting in the worse financial disaster since the 1930s depression.
"Finance and the real economy have to be connected. In the US, the financial system has completely split off from the real economy. Castles were built in the sky, and suddenly people realized that these castles don't exist at all."
"That was the point at which the financial system collapsed."
He said the crisis has hardly affected the countries like Bangladesh because the banking system remained in touch with the real world.
"The fundamental difference is that our business is very connected to the real economy. When we provide a loan of $200, that money will go to buy a cow somewhere. If we lend $100, someone will maybe buy some chickens. In other words, the money goes to something with concrete value."
Yunus said the bailout packages launched by the governments should be temporary and the market should be reactivated as soon as possible.
"At the moment, there is unfortunately no other option than for government takeovers and government support.
"That is currently the method being used to combat the crisis -- a method kicked off with the $700 billion bailout package passed in the US. In Germany, the government has likewise jumped into the fray," he said.
"There has to be regulation, but governments should not be allowed to steer the market," Yunus said.
"The point is that we have to return as soon as possible to market mechanisms that can ameliorate the crisis and solve problems. Solutions should come out of the market and not from governments," he added.
The economist who has been championing "social enterprises" that would create jobs and but won't be profit making machines, backed capitalism despite all its ills.
"Capitalism, with all its market mechanisms, has to survive -- there is no question," he said.
"What I excoriate is that today there is only one incentive for doing business, and that is the maximization of profits. But the incentive of doing social good must be included."
"There need to be many more companies whose primary aim is not that of earning the highest profits possible, but that of providing the greatest benefit possible for human kind." he added.
Presently Yunus's Grameen Bank lend collateral-free micro credits to over seven million mostly rural poor in the country, some half of which have successfully used the loans to change their lives.
The bank also owns enterprises including the country's largest mobile phone company, Grameenphone, and renewable energy giant Grameen Shakti that it says are meant for creating social good.