The financial mess continues
The US Government is now in the business of picking winners and losers. A couple of days after letting Lehman Brothers fail, the Federal Reserve lent eighty-five billion dollars to AIG. Apparently, there was concern that if AIG failed, the impact would be felt across the entire financial sector. Unfortunately, this is indicative of two problems. The first problem is the concept that any particular company is "too big to fail". With capitalism, companies are supposed to be able to fail, as it is the ultimate correction for poor leadership. If a company has reached a size where it is too big to fail, then it really needs to be regulated, as the US taxpayers will be on the hook for bailing it out. Second, without clear criteria for which companies should be bailed out, it is entirely at the whim of the Federal Reserve which companies it will bail out. At the moment, the Fed seems to be acting based on perceived threats to the market. But what happens if the Fed starts factoring in political leanings or campaign contributions when it decides which companies to bail out?
posted by David at 9/18/2008 08:30:00 AM
1 Comments:
Not to mention that the current fed's position seems to be entirely reactive, and fear based. There's no stated criteria for which companies will be bailed out, and there's no attempt to figure out who's in trouble and proactively work on smaller interventions which would avoid the large crisis events that seem to precipitate very rapid action by the fed.
That's not a recipe for good decision making, nor is it a recipe for confidence building.
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