Friday, September 19, 2008
The Government Steps In
The markets were cheered momentarily yesterday when the government announced it would be the buyer of last resort for defaulted debt. The cheering stopped a week of hysteria for at least a few hours. We will know more today.
It is interesting to see the dependency that "so-called" free markets have on government presence. They are like adolescents who don't want their parents around, except when they do. It is useful for PR practitioners to remember that. Raw capitalism isn't pretty and doesn't work well. There is need for a referee to keep players in line. Where government fails, we have such things as bad lending practices and tainted milk (in China).
On the other hand, government never seems to know when enough is enough. The fear that businesspeople have is that government will go too far in making rules so the game becomes unplayable. There is a tension that will never go away. PR practitioners should call for responsible government, government where needed, but not government that inhibits the competitiveness of business.
Should the government have let more firms fail this week? Yes and no. When a rock-solid firm like Goldman Sachs comes under pressure from rumors and short sellers, government should intervene. When a weak firm like Lehman teetered, a hands-off policy was proper. The government appreciates market risk and doesn't want poor players to gain advantages they shouldn't have. But, it is a balance that a group of men (They are all men.) are making by the hour. It won't be perfect, and they can make serious mistakes. We won't know until later.
What the financial markets fear after this is over is the government regulation that will come as a result of what happened. They would prefer to promise they will never do it again and to go on as before. That won't happen -- nor should it.
It is interesting to see the dependency that "so-called" free markets have on government presence. They are like adolescents who don't want their parents around, except when they do. It is useful for PR practitioners to remember that. Raw capitalism isn't pretty and doesn't work well. There is need for a referee to keep players in line. Where government fails, we have such things as bad lending practices and tainted milk (in China).
On the other hand, government never seems to know when enough is enough. The fear that businesspeople have is that government will go too far in making rules so the game becomes unplayable. There is a tension that will never go away. PR practitioners should call for responsible government, government where needed, but not government that inhibits the competitiveness of business.
Should the government have let more firms fail this week? Yes and no. When a rock-solid firm like Goldman Sachs comes under pressure from rumors and short sellers, government should intervene. When a weak firm like Lehman teetered, a hands-off policy was proper. The government appreciates market risk and doesn't want poor players to gain advantages they shouldn't have. But, it is a balance that a group of men (They are all men.) are making by the hour. It won't be perfect, and they can make serious mistakes. We won't know until later.
What the financial markets fear after this is over is the government regulation that will come as a result of what happened. They would prefer to promise they will never do it again and to go on as before. That won't happen -- nor should it.
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