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Analysts cite dangers of government intervention

January 20, 2009 by  

Government intervention in the market may not be a good ideaAs the damaging effects of the financial crisis continue to spread, there has been a tendency for people to turn to the government for solutions.

However, many analysts argue that government intervention in the free market may not be successful, Reuters reports.

According to the World Economic Forum’s 2009 Global Risks report, one of the problems at the heart of addressing these concerns is that the financial crisis is global, with the actions of a single government able to affect – and be affected by – countries around the world.

"That intervention will be both reactive and uncoordinated by a series of local, regional and national political actors," commented Ian Bremmer of Eurasia Group in his 2009 outlook.

The world is moving toward a situation in which politics and the free market are necessarily intertwined, he said.

According to the WEF report, this could end up disrupting the natural system of incentives that encourage growth.

"Intervention in support of the financial and manufacturing sectors carries the risk of rewarding failure or propping up inefficient corporations and industries," it states, according to Reuters.

Companies who do not receive government funds may also find themselves at a disadvantage, it explains.

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  • Dolores Reed

    It is foolish for the government to use taxpayer’s dollars to bail out an industry that could have, and should have been made to, take care of their own problems.
    They gave loans to people who could not afford to re-pay the debt. The banks, and or lenders, knew this, but the sales people got their percentage and the CEO’s bailed out before the plane went down.
    First the Golden Parachuters should have returned the money. They did not do their job properly and were responsible.
    Second they (the parachutists) should have sat down with all of the borrowers and re-written the loans so they could be be paid even if it meant the percentages were to be lowered and the time extended. The lenders must share a part of the blame and the solution, not the taxpaying public.
    When you remove all of that money from government coffers, who is left to pay for the needs of the government next year.
    Anyway, I do believe the bailout is unconstitutional. I would like a decision by the Courts.

  • Ron Jamieson

    Dolores is 100% right. The Financial Times of London had an interesting article in their 1/22/09 issue. There was a graphic showing how much smaller US and Non US banks are in terms of market capitalization, compared to 3/1/07. They included the two worst US offenders:

    Bank of America had a market cap of $225.3 billion on 3/1/07. On 1/21/09, the cap was $36.7 billion. The Fed has a “stake” of $45.00 billion (so far), or 121% of the 1/21 capitalization. Citigroup is even worse. Citigroup had a market cap of $250.4 billion on 3/1/07. On 1/21/09, the cap was $17.2 billion! the Fed has a “sake” of $52.00 billion, or 302% of the 1/21/09 capitalization. Don’t forget, the “Fed stake” is OUR taxpayer dollars. Where were the SEC, Treasury, and Federal Reserve when this crisis was developing? Looks like greed and corruption between Washington and Wall Street to me.

  • s c mailen, Jr.

    Delores and Ron are right. I want to add that there is a basic point that many people ignore. That is, whenever government intervenes, STOP calling it a free market. FREE is FREE. What we have is anything but free.
    Our government has a major, consistent trait.
    EVERYTHING IT TOUCHES TURNS TO CRAP (define the word any way you choose).
    What we must have is REAL LEADERSHIP. Washington no longer has any. It is time for complete citizen involvement, a return to the rights of the individual states, and elected leaders who are kept on a very short leash.

  • Laurence Tuitt

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