Not beyond crisis management

Article from The Economist print Edition

Bold I deas for solving America's finacial mess

With the financial crisis going on in the Americans tacticians and strategists are deciding in each case whether taxpayers should bail out their distressed bank, firm or country. So far the government has been focing on crisis containment. The tacticians in the government have put a lot of taxpayers’ money on the line by taking over big business.

On the other hand the strategist are saying that it is time for America to shift to a more systematic approach, Barney Frank, the leading Democrat on financial matters in the House of Representatives ahs Paul Volcker, a former chairman of the Fed, as well as the editorial pages of Wall Street Journal have suggested that Congress should create a new agency to deal with the mess. The question is should congress create an agency to deal with the matter or should they continue with the containment approach.

Crisis management

Americans are focusing on the Resolution Trust Corporation (RTC) which is a government body that was set up in 1989 to deal with the fallout of the savings and loan bankruptcies. The corporation was formed when the mortgage lenders failed. It bankrupted the Federal Savings and Loan Insurance Corporation who were the federal insurer of the mortgage companies.

The difference with the financial problem that they had in the 1980s and now is that this is an ongoing problem and the one with the mortgages was an aftermath of a financial problem. The Americans should continue with the crisis containment method to keep their economy from falling apart.The government should give emergency loans to the failing banks. They should also allow the the banks to hold less capital that is normaly required or make their rules easier in a way.

Even though the study show that most of the economies that have used this method have ended up increasing the overall bill from a crisis oftenly but by doing this they might save the taxpayers' money instead of pumping money into government corporations that will be will require a lot of money and then end up being pushed around by politicians.

Americans should not rely on RTC to come and clean the mess the fiancial crisis will cause instead they should focus on the way to contain this finacial crisis from going any farther than it has, and building corporations that will take time to establish wont help the fiancial crisis because the more time the dely the finacial crisis the more damage it is going to cause.

Report by Yasser B.