[October 11, 2008] EDITORIAL: Doing less is best way out of this Tweet (Northwest Florida Daily News (Fort Walton Beach) Via Acquire Media NewsEdge) Oct. 11--If anyone doubted that we live in an interconnected and globalized world, the swiftness with which the financial crisis in the United States spread to the rest of the developed world should eliminate those doubts. In ordinary times, a globalized world economy has more benefits than costs. When things start to go sour, however, and especially when a panic psychology takes over and buyers of financial instruments retreat to the sidelines, the virtue of financial interconnectedness becomes a curse. Thus we have seen severe downturns not just in the United States, but in the stock markets in England, France, Germany, Belgium, China, Japan, India and elsewhere. Many Europeans want to blame it all on the United States, and insofar as banks and investment houses held bonds and financial instruments from the United States that were declining in value or for which there was no effective market, shaky financial instruments have caused some of the problems in the rest of the world. But it is also true that the crisis in the U.S. exposed the fact that some banks and investment banks around the world have become too highly leveraged -- or too exposed to risky investments whose risks had not been properly evaluated -- and that corrections were necessary. As Esmael Adibi, who heads the Anderson Center for Economic Studies at Chapman University in California, explained, prices for assets that have been overvalued will eventually have to stabilize, and in the process those who took unwise risks -- builders, financial institutions, homebuyers who bought more house than they could really afford -- will suffer. The more quickly this is allowed to happen, the shorter the period of pain, but pain there will be. Lee Ohanian, who teaches international economics at UCLA, said his major worry is that the current panic will lead to bad policies. When the government announces a new action every day and the stock market goes down the next day, the uncertainty already present growing from the subprime mortgage crisis is compounded, and ever more intrusive interventions are contemplated -- which can delay and distort the necessary corrections. Our advice to the world's financial ministers, then, would be to resist the urge to make matters worse -- and allow the crisis to run its course. First, do no harm. To see more of the Northwest Florida Daily News or to subscribe to the newspaper, go to http://www.nwfdailynews.com. Copyright (c) 2008, Northwest Florida Daily News, Fort Walton Beach Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. [ Back To TMCnet.com's Homepage ]