Tuesday, October 07, 2008
I believe that one thing the actual financial crisis showed us is that free markets do work, it is the old rule of demand pull inflation, (if someone comes and offers 20 % interest rates a year, should no one start to be suspicious? The old economic rule; low interest rate low risk, high interest rate high risk?) if there are people interested in buying any asset at any risk at any price regardless of his true value, we can have at the end bubbles that will blow when this balance starts shifting.
So should the government intervene and take care of the so called "toxic assets"? (By the way I still struggle with the content of that definition.) Normally politicians are not the most suitable persons to manage taxpayers' money, that reminds me one of the lessons of the late Milton Friedman, it is a different thing spending your money on someone else (Warren Buffett) or spending someone else's money on someone else (government intervention). Should we let the free market forces act and start a self-healing process? Or should bureaucracy intervene and start to regulate what is anyway difficult to regulate? It is a bit like the old analogy of the glass that is half full or half empty; on one hand we can see this as a collapse of the existing financial system with all its negative impact, but we can also take a look at it as a major and new business opportunity.
There are solid companies in the marketplace whose share values reached an all-time low in the stock markets. Those willing to buy now will be able to make some excellent deals. There is liquidity out there, so a major opportunity to see companies and individuals start to purchase shares massively. A huge opportunity to invest - probably that is what Warren Buffett is all about. In these times we see true entrepreneurs start a workout and help a deregulated economy to recover from this downturn and start to rise again, but at what cost, in what timeframe and at what speed?
Those are questions whose answers I do not have, but I truly believe that markets will stay frozen until confidence is restored, and to achieve that goal all involved agents have to behave responsibly and with transparence, acting like they would always and in every situation be spending their own money on themselves.
So should the government intervene and take care of the so called "toxic assets"? (By the way I still struggle with the content of that definition.) Normally politicians are not the most suitable persons to manage taxpayers' money, that reminds me one of the lessons of the late Milton Friedman, it is a different thing spending your money on someone else (Warren Buffett) or spending someone else's money on someone else (government intervention). Should we let the free market forces act and start a self-healing process? Or should bureaucracy intervene and start to regulate what is anyway difficult to regulate? It is a bit like the old analogy of the glass that is half full or half empty; on one hand we can see this as a collapse of the existing financial system with all its negative impact, but we can also take a look at it as a major and new business opportunity.
There are solid companies in the marketplace whose share values reached an all-time low in the stock markets. Those willing to buy now will be able to make some excellent deals. There is liquidity out there, so a major opportunity to see companies and individuals start to purchase shares massively. A huge opportunity to invest - probably that is what Warren Buffett is all about. In these times we see true entrepreneurs start a workout and help a deregulated economy to recover from this downturn and start to rise again, but at what cost, in what timeframe and at what speed?
Those are questions whose answers I do not have, but I truly believe that markets will stay frozen until confidence is restored, and to achieve that goal all involved agents have to behave responsibly and with transparence, acting like they would always and in every situation be spending their own money on themselves.
By Henrique Abreu
Extract of the open forum discussion on the Harvard Business Review Working Knowledge October 2008
Subscribe to:
Posts (Atom)
