<B> By Nicholas Rainer</B>

The financial world seems to be coming apart at the seams. A few days after Fannie Mae and Freddie Mac, the US government has had to rush to the rescue of AIG, the world?s biggest insurance company. For reasons that remain unclear, the US bank Lehman Brothers has not been doted on with such generosity. Comparisons with the mother of all financial crises, the 1929 Wall Street Crash, are already flying thick and fast. The fact that an administration behind the Katrina debacle has had to cushion the fall of these erstwhile giants is a damning indictment of a system that has run out of its most precious commodity: trust. Does this financial crisis herald the end of free-market capitalism or is it simply another blip in its already checkered history?

If I knew the answer to that question, I?d either be taking to the hills or buying stock at bargain basement prices, something that the world?s richest man, Warren Buffet, is always quick to advocate. The failure of these companies to heed the monitory messages, which came to a head with the subprime crisis, does however highlight the intrinsic fragility of a system based on greed. Writing in the left-leaning Catholic weekly, The Tablet, British journalist Clifford Longley rightly questions the nature of the free-market system and, most importantly, the extent to which it?s at sixes and sevens with the human psyche. ?The tendency for economic systems eventually to self-destruct is notorious, as economies in the West seem determined to demonstrate once more. Is their fatal flaw the fact that they are using a wrong model of human nature, an abstraction called homo economicus (or in an earlier period, Marxist man), which bears little resemblance to the real people who work in real economies? Instead of bullying people to behave more like the theory says they should and wringing one?s hands when it all goes wrong, why not design a system around a true appraisal of human nature??

Despite attempts by policymakers to reassure the hoi polloi, consumers in the US and Europe are worried about the effect the crisis will have on their savings and investments. The steep rise in the cost of living coupled with a newfound infatuation with all things material means that many Mauritians are living way beyond their means. Naturally, this lifestyle is heavily financed by debt. It remains to be seen just how far the global meltdown will spread. If it turns out to be as far-reaching as many fear, the consequences could be felt very keenly indeed here. And, because recessions are usually followed by scapegoatism, our social harmony could also be threatened.

Despite sending the US into a depression that lasted nearly a decade, the crash of 1929 did not deal a deathblow to free-market capitalism. On the contrary, it led to years of unprecedented wealth (with a little help from World War II), as baby boomers can attest. However, in those halcyon days of capitalism, the world economy was not nearly as integrated as it is today.

The Mauritian government?s embrace of free-market forces has made the country a good place to invest. But it also means that the health of the economy is inextricably linked to that of the world financial system. In the current climate, that?s a mightily preoccupying premise.