Search This Blog

Tuesday, September 23, 2008

Rescuing the economy from financial excess

The Treasury has come up with a very expensive, but probably necessary, plan that responds to the risks to the economy caused by the gross excesses of the financial sector. Since the USA is not a dictatorship, spending as much as $700 billion (not a typo - BILLION) requires Congressional approval.

While the Congress is asking for some sensible changes - including the creation of an independent oversight board - it is also playing games. Unfortunately, but not unexpectedly, a piece of "must pass" legislation has become a target of ideological and special interest blackmail. Among other issues, the arguments raging over CEO compensation and direct help to improvident speculators (sometimes called "homeowners") are likely to delay any resolution.

Delay creates uncertainty and there are few if any other conditions that markets hate more.

So, accepting the fact that a rescue is necessary to save the real economy from serious trouble, the Congress should act quickly, although not hastily, and leave the question of a giveaway to unwise home buyers for another day. It wasn't immediately urgent last week and it isn't immediately urgent now.

With respect to financial executives, these lines written by Rudyard Kipling (The Law of the Jungle) are worth considering:

Now this is the Law of the Jungle -- as old and as true as the sky;
And the Wolf that shall keep it may prosper, but the Wolf that shall break it must die.
As the creeper that girdles the tree-trunk, the Law runneth forward and back --
For the strength of the Pack is the Wolf, and the strength of the Wolf is the Pack.

Believing that highly compensated financial executives did not break the Law of the Jungle is a real stretch! The U.S. Treasury should accept that severe consequences - albeit stopping just short of death - are appropriate.

No comments: