Government action seems likely to extend the pain of the Global Financial Crisis
February 5th, 2009 by Daniel Young | Filed under Life, Politics.The global financial crisis or GFC is dominating the news agenda, which is no surprise given the rapid decline of financial markets and the onset of recession in most major economies around the world. Oh, and the fact that everything might be worth nothing soon.
This story in The Guardian by Dan Roberts provides a great explanation of how ‘we’ got ourselves in this mess. My tax driver reckons its a conspiracy. There seems to be little or no clear or easy solution and Governments around the world are announcing or have announced stimulus packages.
I write this as the Australian Senate debates the Labour Government’s A$42bn rescue plan – a combination of tax cuts, incentives and Government spending that will take this country into deficit for the foreseeable future.
In the US, Barack Obama has imposed a cap of A$782,570 (US$500,000) on the compensation paid to top executives at companies receiving Federal Government assistance or bail outs.
I agree with the concept of salary caps but I can’t help feeling that applying these only to companies that have been bailed out is only likely to exacerbate the problem, slowing down the recovery. These companies are being bailed out because they are basically bankrupt – they are going to require the best industry talent in order to solve these problems.
Surely, that talent is going to choose the multi-million dollar package offered by companies that are not receiving assistance.
A recent BusinessWeek article highlighted some of the other issues associated with Zombie Debtors, which are defined as: ’has-been companies that are feeding off taxpayers, investors and workers – sapping the lifeblood from their competitors and from their market’. The article claims that these bail out assisted companies have actually little or no chance of recovery – if ever there was a case for corporate euthanasia…
It seems to me that the stimulus packages are actually pursuing the path that got us into this predicament in the first place – DEBT. There is no guarantee that these rescue packages are going to succeed and as we’ve seen in the US, there is every chance that companies and executives will callously bleed them dry (an attitude which I find shocking, literally). The Guardian piece very clearly demonstrates that the total international investment by Government represents a drop in the ocean when we consider the size and scale of this problem.
Surely, a short sharp pain (market correction) is better than the protracted and debilitating ache, which will come as a result of Government’s bailing out failed industries and shot systems.
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