What we need to do with the current economic crisis

What we need to do with the current economic crisis:

Who is responsible for the record breaking worst financial crisis in recent history, which has hit not only the U.S. but also the rest of the world ? Should the U.S. government draw the line on whom to help? Are regulation and government take-over the ultimate answers for the current crisis?

This week, Treasury Secretary Henry Paulson and other prominent policy makers asked Congress to pass a bill that bails out the financial firms in the securities and credit business. The cost of this bail-out will be over 700 billion U.S. dollars, and this will weigh down tax payers for many years to come should it take effect.

If small businesses and individuals have to face the consequences of their own financial mistakes by going out of business or filing for bankruptcy, why should these mammoth financial institutions be spared the consequences of their own actions? Surely, the impact of big corporations failing can have a fiercer impact on our economy compared to the one of small companies. For instance, when a big financial company fails, the stock market becomes volatile, resulting in a credit crunch, as we now see in the recent financial market. This credit crunch can directly influence our daily lives in many ways: not being able to get a loan for business or school, unemployment, fewer home sales and foreclosure. However, in the long run, helping big corporations may not be the wisest and most effective way to regain good health in the financial market.

Firstly, if big companies are rescued by the government, then the result may undermine their sense of risk management among corporate executives and social corporate responsibility. Also, if the government ignores small businesses in contrast to rescuing big companies, the only market survivors will soon be big corporations instead of small business owners. This can cause some serious imbalance in our economic market and could cause the collapse of true “capitalism”.
Capitalism in this country has steadily grown and became solidly rooted in the country’s economy largely with the aid of small business owners. If the new financial rules push away the demographics of small business owners, the capitalism practiced by this nation in the last 60 years either needs to reshape its definition and form or gradually may even disappear.

Secondly, there is no way that the U.S. government can help all the big corporations that are on the verge of collapsing. Where does the government draw the line? How does the market define the word “fairness”? Why didn’t Lehman Brothers get any rescue package, while Bern Stern, about the same size as Lehman in financial assets, was helped by the government earlier this year? Just because Bear Stern was run by executives who had closer access to the government than those at Lehman Bro., it does not mean that Bear Stern should be given special privilege or different quality rescue ?

These haphazard decisions made by the government, as if trying to fix the hole of a sinking boat with band aids, are not only unfair but also dangerous. Although the world financial market probably will not wait for the U.S. government to rectify its economic situation to reassess their upcoming strategies and to implement programs when the credit market is on the verge of collapsing, we still should not rush into a hasty solution. Understanding the fundamental new connection and emerging tendencies in the world financial market is crucial. Without in-depth analysis on what exactly lead us to this historic financial crisis, we cannot get through recession or possible upcoming depression.

In the midst of turmoil, we still do not know if simple regulation and government take-over of big corporations is the ultimate solution. Now is not the time for government and many private companies to simply panic and grab at straws. Rather, they should carefully focus on building long term strategic plans to fix this failed financial market.