Archive for the 'economics' Category

G20 stimuli

Author: Sofia
04 2nd, 2009

Today an commitment of another stimuli of $1,100,000,000,000 will be introduced to the world economy from the G20 leaders.

This better be co-ordinated with the previous announced stimulus from the different countries. That would be a monumental task but funds are in short supply and every dollar needs to allocated efficiently. The funds need to going to the right place otherwise, it will deepened the crises.

I’d also like to see accountability and openness to where the previous stimuli has been spent with the information of the desired effect and then later on with the actual effect. Anything that can be salvage out this situation needs to be done as this crises comes with a huge negative impact of so many people and companies.

During the G20 protests there were signs with ‘Capitalism is not working’. I’d like to point out that neither did Socialism or Communism. One of the roots of the problem, in my view, is the issue with management in banks.

The management’s power are too strong and does not have an effective counterbalance. It should be the shareholders that keeps the management at bay but they are not involved into the day-to-day activities. Shareholdes are mainly pension funds – who has no experience to review and control management – and small shareholders. Both of these parties main focused on the return of their investment and not what is for greater good of the society.

The management of the banks have proven that they can not control themselves. They have failed themselves, the companies, the employees and society in whole – in short everybody. This is an area where the Regulator needs to make clear new rules. Any new financial products developed needs to be run by the Regulator in similar fashion when a new drug is being introduced to the market. This is needed to avoid any new sub-prime products produced where the actual risk was carefully made difficult to be calculated.

Old ways needs to come to an end. One major issue with the credit crunch problem is that the banks do not trust each other as they can not calculate the risks of lending out funds. All full discloser of that risk and bad debts are needed by all financial institutions. The risk are there and they will not disappear so it is better to deal with the issue then prolong any uncertainty. For the financial institutions that the worst cases then here where the help needs to be injected and salvage what can be saved. However, there will be no 100% success rate.