If you have ever been a fan of the wonderful Asterix comics, you know that the ancient Gauls were a very brave people who did not know the meaning of fear. However, there was one thing that they were afraid of, and that was the sky falling on their heads. Of course, the sky didn't ever actually fall. But that didn't stop the Gauls from thinking that it might fall.
I think the world's financial markets have reached a stage when a lot of people are convinced that the sky is actually falling. The kind of fear and panic one sees around nowadays is unprecedented. Unlike earlier, the fear and panic is coming from some unusual directions.
Take the politicians and bureaucrats of the world. These are people who seemed to be genetically engineered to be cheerful about economic prospects. No matter what happens, the official word in most countries is always that things are fine and getting finer. But for the first time in living memory, over the last few two or three weeks, these professional optimists have changed their tune. And that's a scary prospect.
In the United States, where the crisis first appeared, the pace and the intensity of the change of tune has been stunning. As recently as September 15th, the accepted wisdom was that erring financial firms should be left to fend for themselves and the crisis would basically work itself out with a little more pain. That was the day when Wall Street giant Lehman Brothers was allowed to go bankrupt. Just one day later, the US authorities decided to change its approach and rescue the insurance company AIG. And two days after that, they decided that basically everyone who needed to be rescued would get help.
And suddenly, the apparent scale of the crisis changed. From being calm and confident and reassuring, people like the US Treasury Secretary (finance minister in Indian terminology) Henry Paulson and Federal Reserve Chairman (equivalent of our Reserve Bank Chairman) Ben Bernanke were openly expressing panic. It suddenly seemed out in the open that the sky was indeed falling.
The official panic has now rolled around the world. As I write this, an emergency summit of the heads of European governments is about to start in Paris where Messrs Sarkozy, Brown, Merkel and their friends will decide what the EU should do about the crisis. Even in India, where such pessimism has always been taboo, the mood has changed. The prime minister himself said two days ago that India could not stay insulated from the troubles of the rest of the world. A couple of weeks ago, Mr. Chidambaram said something similar.
Suddenly, the accepted wisdom is that the world is in the middle of a huge financial crisis and unless drastic action is taken immediately, things will rapidly become much worse. A global economic collapse is being talked about routinely.
To the casual observer, all this is a little bewildering. It's as if you're walking down the road and suddenly everyone starts running in panic. You keep trying to stop people and ask them what's happened but no one can explain clearly. They just keep running and pretty soon you decide to stop asking questions and start running too. Just to be on the safe side, just to be with the crowd in case the sky is actually falling.
My sense is that even the high and mighty have now joined the herd and are basically, just running. There are officials who want more powers. There are politicians who like to be in a I'm-here-to-save-you situation. And there's the media which can see a story that is selling and will keep selling.
There's no doubt there is a global financial problem and there will be some hardship before it subsides. However, the shift in official mood amounts to nothing much more than what the Americans would call a cover-your-rear strategy, although they would use a less polite word for rear.