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Do Government Bailouts of Banks Worsen Economic Conditions?

 Ruchir Sharma in The FT 

As bank runs spread, it has become clear that anyone who questions a government rescue for those caught underfoot will be tarred as a latter-day liquidationist, like those who advised Herbert Hoover to let businesses fail after the crash of 1929. 

Liquidationist is now challenging fascist as the most inaccurately thrown insult in politics. True, it’s no longer politically possible for governments not to stage rescues, but this is a snowballing problem of their own making. The past few decades of easy money created markets so large — nearing five times larger than the world economy — and so intertwined, that the failure of even a midsize bank risks global contagion. 

More than low interest rates, the easy money era was shaped by an increasingly automatic state reflex to rescue — to rescue the economy from disappointing growth even during recoveries, to rescue not only banks and other companies but also households, industries, financial markets and foreign governments in times of crisis. 

The latest bank runs show that the easy money era is not over. Inflation is back so central banks are tightening, but the rescue reflex is still gaining strength. The stronger it grows, the less dynamic capitalism becomes. In stark contrast to the minimalist state of the pre-1929 era, America now leads a rescue culture that keeps growing to new maximalist extremes. 

Today’s troubles have been compared to bank runs of the 19th century, but rescues were rare in those days. America’s founding hostility to concentrated power had left it with limited central government and no central bank. In the absence of a financial system, trust was kept at a personal, not an institutional level. Before the civil war, private banks issued their own currencies and when trust failed, depositors fled. 

Had the US Federal Reserve existed at the time, it would not have helped much. The ethos of contemporary European central banks was to help solvent banks with solid collateral — in practice they were tougher, protecting their own reserves and “turning away their correspondents in need”, as a Fed history puts it. 

A restrained government was a key feature of the industrial revolution, marked by painful downturns and robust recoveries, resulting in strong productivity and higher per capita income growth. Right into the 1960s and 1970s, resistance to state rescues still ran deep, whether the supplicant was a major bank, a major corporation or New York City. 

Though the early 1980s is seen as a pivotal moment of broader government retreat, in fact this era was marked by the rise of rescue culture when Continental Illinois became the first US bank deemed too big to fail. In a move that was radical then, reflexive now, the Federal Deposit Insurance Corporation extended unlimited protection to Continental depositors — just as it has done for SVB depositors. 

Recent bank runs have been compared to the savings and loan crisis of the 1980s. Triggered in part by regulation that made it impossible for S&Ls to compete in an environment of rising rates, the crisis was resolved by regulators who wound down more than 700 of these “thrifts” at a cost to taxpayers of about $130bn. The first preventive rescue came in the late 1990s, when the Fed organised support for a hedge fund deeply tied to foreign markets, in order to avoid the threat of a systemic financial crisis. 

Those rescues pale next to 2008 and 2020, when the Fed and Treasury smashed records for trillions of dollars created or extended in loans and bailouts to thousands of companies across finance and other industries at home and abroad. In each crisis, rescues held down the corporate default rate to levels that were unexpectedly low, compared with past patterns. They are doing the same now even as rates rise and bank runs begin. 

The hazards are not just moral or speculative, as many insist — they are practical and present. The rescues have led to a massive misallocation of capital and a surge in the number of zombie firms, which contribute mightily to weakening business dynamism and productivity. In the US, total factor productivity growth fell to just 0.5 per cent after 2008, down from about 2 per cent between 1870 and the early 1970s. 

Instead of re-energising the economy, the maximalist rescue culture is bloating and thereby destabilising the global financial system. As fragility grows, each new rescue hardens the case for the next one. 

No one who thinks about it for more than a minute can wax nostalgic for the painful if productive chaos of the pre-1929 era. But too few policymakers recognise that we are at an opposite extreme; constant rescues undermine capitalism. Government intervention eases the pain of crises but over time lowers productivity, economic growth and living standards.

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Raga Narendra Modini NAMOstute

Akshaya Nath in The Print

Indian classical music has a grand history of ragas — Melakarta and Todi for the morning, Brindavana Sarang for the afternoon, and Hindolam and Mohanam for the evening. Now the repository has another addition—Narendra Modini—for any time of the day for anyone who wants to pay a tribute to Prime Minister Narendra Modi.

It was a casual conversation on 11 March, ahead of a concert in Delhi, between Rajya Sabha MP and dancer Sonal Mansingh and renowned vocalist-cum-instrumentalist N Ravikiran that sowed the seeds for a new raga in the latter’s mind. Within hours, Ravikiran was singing Narendra Modini over the phone to Mansingh.

Eight days later, Narendra Modini, and Ravikiran’s Sanskrit composition “Surendra muneendra narendra modini sangeeta vani” was uploaded on YouTube.

The video has received over 16,000 views so far. “The raga, the Sanskrit composition, all of it was created in an hour’s time,” says Ravikiran. “As she [Sonal Mansingh] was the one who had planted the idea, I wanted her to hear it first,” Ravikiran adds.

A child prodigy, Ravikiran was recognised at the age of two by the Music Academy with a scholarship after he identified and rendered 325 ragas and 175 talas. Ravikiran, who was tutored by his father N Narasimhan, created his first raga at the age of two or three. “It was called Choodamani, a raga that we named after my mother,” Ravikiran says. He later went on to become a 21-string chitravina instrumentalist as well. Ravikiran has also created Indian ragas as tributes to Beethoven (Veetavanam) and MK Gandhi (Mohini).

The Narendra Modini invention, however, has met with a variety of responses, from nonchalance to amusement, with musician TM Krishna even saying that he does not consider it as a “serious work of art”.

A tribute with a message

Ravikiran considers Narendra Modini a “cousin” of popular ragas like Poorvikalyani and Sunadavinodini, also known as Hindol in Hindustani. “This raga has five notes in the ascending sequences and seven notes in the descending sequence,” explains Ravikiran. The composition in the raga was produced by Ravikiran’s disciple, 20-year-old, Samanvi. “It is similar to some popular ragas but very different in taste,” says Samanvi. “It was a bit of a challenge to perfect the feel of the raga.”

The Sanskrit composition praises the goddess of music — Sangeeta Vani. But Ravikiran says that the words Narendra Modini were embedded in the opening line as a tribute to the PM. He also added that the word “namostute” at the end of the song was “pure coincidence that it suggests the PM’s shortened name (NaMo)”.

This new raga is also an appeal to make classical music and arts accessible to every child and initiate a special programme for rural empowerment, says the 56-year-old musician.

In 1992, Ravikiran had written to then-Madras Corporation commissioner pitching for an initiative called ‘Music for Masses’ where school children would be taught classical music. In 2006, under the Sarva Shiksha Abhiyan, he headed India’s largest music camp with over 31,000 children from diverse backgrounds. “Brain drain is typically understood as emigration of the empowered. But, the real brain drain is in the rural segments, where the artistic potential of millions of children remains untapped,” says Ravikiran.

Scope for new ragas

It appears that Narendra Modini arose out of the immense possibilities for new ragas that Indian classical music offers.

“A raga is a set of notes and intervals. There are 12 tones including microtones, and to set it in a scale of seven, it means the permutations and combinations are endless and many ragas are waiting to be explored,” says pianist Anil Srinivasan.

Ravikiran says he has followed due diligence before announcing his discovery to the world. “In theory, there is a possibility to have 7.2 million ragas through permutation and combination. But in practice, not all of them will sound good. There is a database of 5,000 ragas. I went over it, and for Hindustani music, I went through online resources and also spoke to a couple of Hindustani artists,” he adds.

Recounting classical composers from the past, Anil says that M Balamuralikrishna had composed many ragas like Mahati. Ravishankar was very well-known for creating ragas by combining two different ragas and even Lalgudi Jayaram had created many compositions. Although Anil hasn’t heard Ravikiran’s composition, he says that composing ragas is a difficult job. “You need to have a compositional bent and be very much in command of music, which Ravikiran is. Kudos to him for this,” he adds.

Reaction from within the musical world 

Senior vocalist OS Arun, too, appreciated Narendra Modini “as an artist’s creativity,” though he hasn’t heard it.

Several other musicians that ThePrint got in touch with either refused to comment or said they have not heard the composition. “I have not engaged with Narendra Modini seriously. Musicians have a long tradition of singing the praise of their kings, zamindars, politicians, and patrons. This is another in that line. At the same time, we have stories of musicians such as Tyagaraja refusing to sing the praises of a living king for any kind of benefit,” says Krishna.

For the Ramon Magsaysay Award winner, each musician must decide for themselves which route they would like to take. “In 2014, when Modi became Prime Minister, many Carnatic musicians participated in World Music Day where he was described as a king and compositions that had the word ‘modi’ (pronounced with a hard D and meaning something else) were presented! This sycophancy continues,” he adds.

And Krishna says free speech and judgement has taken a hit even in the music industry now.

“The musicians who forwarded me the recording did so in amusement and with ridicule. But I guess in the present political scenario, it is very difficult to say anything critical in public when it has something to do with PM Modi. People are afraid of backlash. Do keep in mind that the Carnatic music world is filled with those who strongly believe in Modi, BJP, RSS, VHP, and anyone else who propagates hyper-Brahmanical Hinduism,” he adds.

Ravikiran who has won Music Academy’s Sangita Kalanidhi award in 2017, was in 2018 named in the #Metoo movement and in the same year Madras Music Academy barred 7 artists including Ravikiran from performing during the prestigious Margazhi festival. Ravikiran too had responded to the allegations and had said, “Taking a stance to suspend my performances until I can clear the air to my satisfaction.”