Wilberne Persaud, Financial Gleaner Columnist

Three huge stories: 4,000 troops have died, 80,000 civilian lives lost, US$800 billion bill at fifth anniversary of Iraq war; race in the United States as Barack Obama speaks candidly hoping 'adult America' will listen; and the United States Federal Reserve intervenes to save Bear Stearns from collapse.

Each one of these stories is worth a column in itself, perhaps more than one. But they occurred simultaneously. Are they connected? I guess one can find connections in everything.

They are, of course, not linked in any direct causative way, but they do have connections I believe, particularly for the way in which the world economy will unfold.

BBC America provides a look at 'world news' subtly different from the 24-hour cable news networks that must move swiftly from story to story trying to keep listeners attention with all the sensation-grabbing stuff they can muster.

So it is not strange that BBC would report on how 'Europe', and indeed, the world, views the prospects of a new US president and Obama, specifically in America. Some television talk shows produced episodes on these issues - one was actually satellite-fed from London.

Ambushed

Generally, the view was that firsts of this election cycle - unprecedented female and 'black' candidate - plus the range of support for Obama made a highly positive impact on the way Europeans view developments in America going into the rest of the 21st century. This was reporting beamed at Americans. Then the inevitable hit: race, an issue the Obama campaign was clearly hoping not to bring to the forefront, at least not now, ambushed them.

YouTube screamed out parts of a sermon of Rev Jeremiah A. Wright Jr as he "denounced the United States as endemically racist, murderous and corrupt" [New York Times editorial March 19].

So Obama had to respond. In his speech he emphasised what's obvious, but a part of America's denial: his heritage is multi-racial. The impact of this speech has been global. The New York Times compared it to inaugural addresses by Abraham Lincoln and Franklin D. Roosevelt and John F. Kennedy's 1960 speech on religion.

"It is hard to imagine how he could have handled it better," the NY Times argued in its editorial. "We can't know how effective Mr Obama's words will be with those who will not draw the distinctions between faith and politics that he drew, or who will reject his frank talk about race. What is evident, though, is that he not only cleared the air over a particular controversy. He raised the discussion to a higher plane."

Milder versions of such praise emanated even from conservative organisations.

'Perfect Union' speech

I watched the YouTube speech, guess where from - The New Zealand Herald, whose staff referred to it as the 'Perfect Union' speech that has become the most watched YouTube video of all time.

Next day, Obama moved on to Iraq, fittingly.

At the war's fifth anniversary, oil rose to $112 a barrel, the dollar is at its lowest for decades and Bear Stearns moved off the block, initially at a price of US$2 a share but later increased to US$10 per share, purchased by JP Morgan Chase, under an arrangement guaranteed by the Fed.

There were some who thought such a move impossible. How could the Government bail out big money while leaving little folks to suffer mortgage foreclosure? For this outcome though, there are real interconnections.

The Iraq war is funded by deficits, no sacrifice: go out and shop, consume and keep the economy turning. That's the process.

If the big 'R', recession, is coming, then something must be done. High gas prices, rising budget and trade deficits, increased borrowing from China and other trading partners - these amount to a scenario that presents problems for the US economy.

Then there is the basic fact that some institutions in the private sector financial economy are indeed too big to fail. And the time to create a special purpose vehicle such as the Resolution Trust Corporation for the savings and loan problem did not exist.

So Fed funds had to be provided through an existing entity that by law it is allowed to support.

Many ask: How is it that Bear Stearns deemed healthy on Friday night, was up for sale for US$2 a share on the weekend?

Remember Jamaica's financial meltdown of the mid-1990s: Eagle purchased for $1; bank runs?

There was a run on Bear Stearns. Lenders wanted their money and felt the company was unable to meet its obligations. Left alone it would have collapsed and taken down with it who knows what else globally. This classic case of moral hazard emphasises uniqueness of financial markets. If the supermarket across the road fails, its competitor benefits, demand soars, so too could profits. In financial services the opposite is likely because of systemic risk.

Our government vows not to rescue members in investment clubs or alternative investment schemes should they fail. It shall be able to keep to this decision only if the reach of these schemes does not suggest systemic failure.

The fact that our commercial banks appear to have little exposure to them or if they had, are attempting to cut off such relationships means such risk is remote.

If an entity benefits from government support or the possibility of it, the other side of that coin should be regulation. The US Government allowed its financial services firms almost complete freedom in the run up to this debacle.

The irony of this particular one is that at the time of the rescue of long- term capital management a decade ago, Bear Stearns was the only big player that refused to participate.

Regulation is on the way. We certainly have not heard the end of this tale.

wilbe65@yahoo.com