Monday, July 27, 2009

What next?

Bernanke said that he had to hold his nose over the bailouts. Obama says that he doesn't want to run car companies. These are good feelings to have. Whether you supported the bailouts or not, we can still agree that we should reduce the need for them in the future. The best way to do this is to draw the line and say that no business will be bailed out again. Businesses will be more careful about taking risks in the future. Such a policy may very well slow economic growth (companies may have to pass on certain "opprotunities"), but it will reduce the risk of future recessions.

If you think that is too harsh a policy, then at least it should be firmly established under what circumstances a bailout should take place. Last year when the crisis started, it was argued that there was an understanding that these companies would be not be allowed to fail. Until TARP was passed, this was an informal understanding. If Congress is willing to provide more bailouts in the future, please let the rest of us know and pass a bill stating such. If Congress is ready to commit to quit being an enabler of poor responsibility, then a resolution should be passed stating that companies should not expect anymore bailouts.

1 comment:

Daddy said...

Companies or government bodies do not make decisions. Their CEOs and directors do. These decisions needs to be justified to look as they are in the companies/government best interest. HOwever an actual interest of CEO types or government-body directors, is their own interest, which is to get larger pay and get less liability exposure, especially criminal exposure.

Those CEO types, having 4 year to mature stock options, more often than not, with their action boost their company valuation price to that date to sell it well, after which it may not matter to them as much, noone is taking it away from them. CEO types choose their own boards of directors, not the other way around, so I am really at odds who is still buying stocks, besides those following the 4 year cycle together with CEO type.