The weekend is fast approaching. And with global markets in a tailspin --- the Nikkei fell 11%, the Hang Seng tumbled 7.1%, and the FTSE 100 declined 3% -- that can only mean one thing: Hank Paulson and Ben Bernanke will spend the weekend putting together another massive cash dump to announce by Sunday night. But I have a different idea -- for one weekend, how about a massive information campaign instead.
What if, instead of trying to fight fear and restore confidence with money, they decided to educate the world instead? If Bernanke is such a good teacher, perhaps he can put together an explanation for what is going on, why it happened, and how he plans to fix it. I think that a patient and honest explanation of what is really going on -- similar to FDR's fireside chats -- would go a long way to pushing away the fear.
By uttering meaningless platitudes about how "we have the tools" and "the economy will come back better than ever", the Administration is sending an unhelpful message. It is telling us a combination of things: it does not understand what is going on, it does not trust the American people to handle reality, and/or it believes that discussing the truth would make matters worse. Throwing more money at the problem without providing leadership does not seem to be working. Here are a few questions I think Paulson and Bernanke should answer for starters:
- How much capital do the world's financial institutions (FIs) have?
- How large is the pool of risky assets that FIs hold and how much of a decline in the book value of the assets is likely to occur?
- What other liabilities -- such as credit default swaps and other derivatives -- lurk off of the FIs' balance sheets and how much capital have the FIs reserved to pay them off?
- How many of the U.S.'s 8,490 banks have fortress balance sheets and profitable operations?
- What risks do collapsing hedge funds pose to the global financial system?
- What will the U.S. do to merge or close the weaker banks and other FIs?
- How much capital will be needed to make sure that the surviving FIs are extremely well capitalized?
- Where will that capital come from?
I think that over the long run we need to become much less dependent on banks to keep our economy running. But the reality is that we either have to fix the current financial system or start a new one -- as I suggested -- which is unencumbered by all the mistakes built into the one we have now.
Rather than flail around with yet another ineffective weekend rescue plan, how about slowing down and explaining to America what is really going on. If there is any hope of rebuilding trust, it will have to come with an honest admission of what we know and what we don't know. Treating Americans like children who can't handle the truth tells is just eroding confidence and creating more fear.
Let's try an information campaign this weekend, instead of cash, and see where it takes us.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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Reader Comments (Page 1 of 1)
10-16-2008 @ 9:47AM
joe said...
WHAT A JOKE I HOPE THEY COOK UP SOMETHING GOOD TO MAKE BOY GEORGE DISAPPEAR!!
10-16-2008 @ 10:17AM
bbob said...
HELL THATS EASY TO ANSWER.....
IF THEY WERE TO TELL THE PEOPLE THE TRUTH WE WOULD BE THERE TO HANG EM
10-16-2008 @ 11:07AM
ATHELSTAN said...
Since it is now apparent Senator Obama will be the next president, after Nov. 4 he should announce three objectives as part of his transition team's preparation for his inaugural January 20:
(1) Secretary Paulson will not be needed in a transition to the Obama administration, and his resignation will be accepted at the earliest possible date. Ditto for Ben Bernanke of the Fed Reserve.
(2) the Obama Justice Department will immediately start legal proceedings into the activities of president Bush and his vice president for crimes against humanity, particularly against the American people, and high treason. The same for leading Wall Street CEOs, rating agencies, a wide range of so-called "analysts" and hedge fund managers for fraud, failure to carry out their fiduciary duties, and abuse of the US mails.
(3) declare a 30 day bank holiday and close all U.S. stock exchanges for 2 weeks