Laws of causality

01 October 2008

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What a return from the summer this has been! Curiously enough, experts now say they saw the current global financial crisis coming. If indeed their observations are not the products of hindsight, then the next logical thing to ask is how did it happen if they all knew it was coming?

The strong feelings and opinions surrounding the US Government's controversial $700bn bailout of several banking institutions are understandable. Although failure to act threatens to allow the US financial system to crumble, hastily commiting to rash decisions could lead to alternate disasters sooner rather than later. To safeguard against unforeseen calamity, many believe the government should ensure it automatically takes stakes in the institutions it is coming to the rescue of, makes curbs on executives' pay and reforms bankruptcy legislation to allow judges the means to modify the terms of mortgage loans.

However, opponents to this more poised decision-making call it "financial socialism". I say call it what you will, the name does not negate the circumstances of the situation at hand and the very real concerns being expressed on both sides. I must confess that I find some degree of irony in the position of those who, by nature, deplore and oppose government intervention in financial and economic matters, but who now don't seem too keen to object to it. Maybe their definition of interventionism can be redefined as need must.

Regardless of name calling, more questions are posed than "satisfactory" answers advanced. Will the proposal go through? Were it to pass, how would it be structured? Can the measures taken guarantee the system will remain afloat and that it will recuperate? Or will they indeed have an adverse effect in the longer term?

I have my reservations about tampering with the invisible hand at this level; this is, after all, how precedents are established. To every action there is at least one reaction; causality can perhaps be bent and meddled with, but it cannot be altogether broken. Over the next few months everyone in the industry, from private equity to general financial services, will be watching how these events and their ensuing repercussions unfold.

Perhaps it is my aversion to extreme sports but this is what I'd imagine stepping into the void and free falling feels like.

Yours sincerely,

Francinia Protti-Alvarez

Editor, Southern Europe unquote"

Tel: +44 20 7004 7476

francinia.protti-alvarez@incisivemedia.com.