Federal Government Intervention In Us Financial Institutions

The article ‘Plunge Averted, Markets Look Ahead Uneasily’ published in New York Times (18th March, 2008) shows the dwindling fortunes of quoted stocks in the United States Exchange, especially in the financial sector and other sector taking cue from the financial sector; such as the oil and gas recession market in the United states market and global market. The article gives an extensive role of US Federal Government intervention in the plight of those financial firms, such as Bear Stearns which it quickly sold to JP Morgan Chase in order to salvage it against financial lost.

Similarly, Lehman Brothers; another financial firms quoted in the Wall Street stock market, is facing the same problem as Bear Stearns. Its’ price is crumbling, thereby prompting the Federal Government giving more assurance that it would continue to safeguard the recession and dwindling stand of financial system to safeguard investors interests. The Federal government intervention still has not doused the fear of investors regarding the recessions in the Wall Street stock market.

This is especially as some significant raise in other stock market prices in Asian worries investors and Specialists, alike, who perceive more recession in the US economy. The US Federal government intervenes to salvage the situation through its central bank. It has cut down its benchmark short interest rate, giving financial institution the ample room to borrow more. Other strategy adopted by government is to lend to bank with lower collaterals, which is lower than what is tradable at the floor. Government has also started lending directly to securities dealers operating in the Wall Street.

This move is seen as a way of protecting the system. However, the prices of these securities firm has continue to plummet in recent times. Critics are of the view that government will continue to be the looser, while the individual financial firms benefits from the intervention of the Federal government. Furthermore, the argument id made that the intervention of government do not permit the moribund and unsuccessful financial institutions to die their natural death. This will make investor to have trust and confidence in the existing; after the demise of the not too successful ones.

NEO LIBERALS PERSPECTIVE OF GOVERNMENT INTERVENTION POLICY Government intervention in the activities of the economy has being severally being condemned by the neo liberalists, who argues that government roles should be to put in place policies and regulates the economy. The price mechanism has being over and over being buttressed by neo liberals such as the World Bank, IMF and the Britton Institutions generally. It is argued that when the price mechanism is allowed to operate freely, the state resources would be judiciously allocated. This tends to promote the development of the private sector; leading to increase in productivity.

Government over the years has being seen as a poor manager of public enterprises, thus being a strong argument for the proponents of privatization policy. Its intervention has lead to mismanagement of public funds, and resulted as a conduit pipe for wasting tax payers’ money. Government has in the past never benefited much from its intervention roles. However, certain commanding heights of the states, as utility goods are better handled by government. This is argued in favor of the essential nature of such services to the progress of the state. As it is observed, inefficiency has characterized many of these services.