Financial Crisis could use more focused Politicians

Bernanke’s, Paulson’s and many other authors’ pork-barrelled rescue plan passed the House of Representatives last weekend. That’s good and bad news. Bad news because it probably had  to be passed without attaching conditons to the rescue plan  – conditions that would ensure more responsible decision-making in the future – ; and good news, because in times of crisis, only the state is able to convince the public that the economy – people’s jobs, savings and lives will go on. Besides, the tax-funded bailout is an encouraging signal for foreign investors, too – Chinese, Japanese, and beyond. Germany is going through a similar process, although so far (and hopefully for good), the trust of private depositors has to be the main goal of government intervention here. It’s too early to take anything for granted.

Common sense would suggest that nothing is lost with passing the American bailout program without too much delay. But common sense and lobbyism are different things. Floor traders acted like banks (and were often perceived as if they were), and the American and British governments kept telling critics that this was alright, and that the market was the answer to everything. It may not take long until they’ll have the nerves to sing that same old “free market” tune again. The American government has now delivered in the short run, but a consistent policy will have to include long-term reforms of the institutions that oversee the markets. Only that will fulfill the promise of accounting for the taxpayers.

Trading has long developed beyond classical bonds or company shares. Financial derivatives can be sold in unlimited quantities. They can be good for avoiding risks, but for entering additonal risks, too. And different from company shares, no authority exercises even a minimum of control over derivatives in the United States, according to an article in Die Zeit.

To understand how these mechanisms have worked during the past decades is pretty difficult – some independent experts would be needed for that, and it seems that they either don’t exist, or that they get very little airtime in the media. But it would take this kind of public availability of information to make us endusers smarter. Then next time, when we see another ordinary yuppie couple crying on a tv talk show, we’d be less obliged to commiserate with them. (Investing with Lehman isn’t a deposit, folks!)

But above all, if the state is good enough to save the top dogs of Wall Street and Frankfurt, plus the global economy, from the consequences of “private enterprise” exorbitance, the state must be good enough to exercise control over some crucial actions of the market, just as well. It would take international cooperation (China, Japan, Europe, Brazil, Russia) and an American initiative to create approval standards for financial tools that apply for every marketplace worldwide. But chances are that this isn’t going to happen. It would take a lot more focused policies, and much less attention for lobbyists.

Related: Anything wrong with US Treasury’s Bailout Plan?

Related: Did China and Japan push US government to intervene?

Update: An Amateur’s Take on the Big China Bust (FOARP, Oct. 5)