Global Investing

There’s no reset button

March 3, 2009

Mohamed El-Erian, chief executive officer of PIMCO (not pictured below), painted a bleak picture of the global economy at a press briefing of Allianz Global Investors earlier today.

“This is not the crisis within the global system. This is the crisis of the global system,” El-Erian says.

“Internal circuit breakers are meant to deal with crises within the system. The crisis of the system challenges all the circuit breakers. There is no reset button.”

For the patient — the world economy — who is in intensive care after a cardiac arrest following the collapse of Lehman Brothers in September, governments will play a bigger role in getting the patient back on a recovery path.

“You can no longer predict asset value without thinking about the role of governments. Governments are no longer referees, they are players,” El-Erian says.

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In the Globe and Mail, Brian Milner assails “the professional purveyors of doom and the opportunistic politicians who, to paraphrase an aide to U.S. President Barack Obama, consider a crisis of any kind a terrible thing to waste.” (http://business.theglobeandmail.com/ser vlet/story/RTGAM.20090227.wtakingstock02 28/BNStory/SpecialEvents2/home) Milner warns us against “a psychological phenomenon known as the Recency Effect”:
“When you reach extremes, emotion causes people to justify a continuing trend and ignore history and long-term data,” says SMU finance professor Brian Bruce.
What do you think about this problems potential impact on the economy?

Posted by webmed | Report as abusive
 

referring to MR Mohamed El-Erina’s comments about how the government is going to play a important role in the economy restructuring,i think we are headed to an eventual nationalization of banks in the US. does this mean end of capitalism may be not in fact it could lead to a new avatar of capitalism one that of responsibility and less greed.

Posted by sanket | Report as abusive
 

Deregulation doesn’t work. Capitalism is a failure. Rather than governments bailing out corporations they should be breaking those corporations into cooperative and local businesses and the government should amend legislation so that corporations no longer have rights beyond those of you and I…They are not people and should not be protected from the effects of their greed, stupidity and negligence. Finally, they should be removed as far as possible from the political system – where they have given us the best governments that money can buy.

 

Bernanke defends AIG rescue, says U.S. had no choice.
There is always a choice.
If you have 100 million dollars would you buy AIG stock or buy US Treasury bonds which are is used by government to bailout AIG. I know in today market I would buy the Treasury Bonds.
Therefore why would anyone invest in AIG, CITG, or other shaky banks when the government will be selling more Treasury Bonds after it gives out more bailout money.
Last is reason for saving AIG because it has Congress Federal Employee retirement fund?

Posted by Morris | Report as abusive
 

There actually is a reset button: Let failed companies fail and die. Expending more resources in propping up failed business models only spreads, increases, and prolongs the pain. The end result of the Bush/Obama “too big to fail” policy is a stagnant or declining market where success is determined more by pull in the houses of politicians than performance in the market.

 

Reports of gloom and doom are no longer news. Why don’t the purveyors of these happy tales just borrow from the Book of Revelations, do a little word smithing, and offer the result as their forecast?

Posted by Fed up | Report as abusive
 

Taxpayers are compelled by law to pay taxes to their governments; the federal government through the Treasury and Federal Reserve are rewarding carelessness and abject greed by bailing out these very same people who caused this crisis in the first place.

These cheating card sharks of the “shadow banking system” (gee, I had a mathematical formula that guaranteed that I would be paid first…) and AIG- an insurance company that bet the farm by guaranteeing both sides of very dangerous gambles, have squandered private fortunes and now are squandering public fortunes. Now the entire country is in play.

Capitalism works and Socialism is a failure but Capitalism needs rules- regulation and transparency. It is time to bust up these sloth-built banks and dinosaur corporations. TOO BIG TO FAIL, IS TOO BIG. PERIOD.

Posted by Kevin | Report as abusive
 

Lack of regulation has given world trading back to the Governments. It is wrong to expect a quick fix. Politicians even who are dedicated to the responsibility through Socialist ideology do not have in this crisis the experience or money to save the present position. Take a soft landing if we can get it, and then let it fall to the level where it stabilizes and re-build on good sound financial basis. We do not need rocket science, just good common sense.

 

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