The Economist's Digest20

The financial crisis
What next?
Originally from Economist.com Sep.18th, 2008

Summary:
The bankruptcy of Lehman Brothers and Merrill Lynch’s rapid sale to Bank of America were shocking enough. However, the government rescue means a new low in this bad year, because AIG (American International Group) was taking one the risk due to its financial-products division writing so many derivatives contracts (信託商品) to destroy the firm and shake the world.
Actually the AIG has done little to diminish the fear. There are still many banks emerged by big ones, and many banks are going to be emerged. Banks will lose funding and the contagion (感染，原文中指好多金融相關品) will suck in hedge funds and companies. In principle, American government letting Lehman Brothers go bankrupt is right, yet the bigger AIG shouldn’t be done in this way because it’ll threat the authority of USA .
Studying the 1930s (USA Economy Crisis), houses and promises to pay debts were worth less than most people thought------just like today. Today, the credit boom inflated both assets prices and finances itself. However, it makes this industry (financial industry) make money harder, since it will have to keep the too large size and expand at the same time.
Then governments should deal with these problems and thus become a buyer. For, good reason, it has wiped out risks for others to buy dangerous banks’ shares. Most importantly, each rescue lessens the worry and encourages the next booming. However, the costs of it would sometimes be higher, which may lead to deflation. Unemployment raised yet industrial production fell in America ; ( America ’s) output is shrinking in many other developed countries.
There’s no need to take such a big risk to save the emergency situation now------even if it’s very urgent, because it’ll become a very big potential danger. It’s more important to improve financial laws, which will make the finance more transparent, and may let more collapses. Financiers know more than those regulators, while these regulators are more powerful in policy making
It would take a big recession to wipe out those gains, and to produce healthy economic growth and low inflation for a generation.

My opinion:
No loss, no gain. It’s capitalistic regulation to have a big recession after years of booming. The English economists and some American economists agree that we should let the market collapse spontaneously and make a more careful regulation.
However, the USA has passed the rescue policy recently. (9/28) We still have to prepare for a short-term recession, about at least one year, or a long-term collapse, hoping EU or newly-developed Asia will support global economy.
Actually, many developed countries and their governments should have prepared for this.