This Time, Can We Finally Turn a Financial Crisis Into an Opportunity?

NEW YORK – OCTOBER 24: Protesters gather outside of the New York Stock Exchange October 24, 2008 in New York City. The demonstrators were frustrated with the goverment bailout package and voiced concerns about poor and working class Americans. It was another tumultuous week on Wall St. with the Dow finishing down over 300 points Friday. (Photo by Spencer Platt/Getty Images)

Mark Blyth and Eric Lonergan in Foreign Policy:

After sitting on its hands last week, the European Central Bank has now announced its own “bazooka”—a 750 billion euro ($800 billion) bond-buying program, looser collateral requirements, a new refinancing program for banks, and an expansion of existing “quantitative easing” programs. Various fiscal spending programs are emerging too.

The response so far has been mostly impressive. Why, then, are markets still falling?

The most obvious answer is that the fiscal response is not big enough and that more must be done. We think that’s half-right. More must and will be done. But maybe we should return to that first bad idea about the efficiency of markets. Are these markets that we have built—that we are bailing out again with taxpayer money, and that are tanking our savings and retirement plans once again—really fit for their supposed purpose?

One clue that the markets aren’t working for us are those U.S. airlines that are now asking for a $50 billion bailout. Those same airlines spent the past decade abusing customerscharging usurious fees for basic services, and squeezing their employees. They then used almost their entire free cash flow to buy back their own shares, juicing the returns to stockholders and C-suite insiders while leaving the companies themselves financially fragile. Surely their shareholders and management deserve to bear the cost this time around?

The airlines were not alone. Since 2008, the world’s corporations have accumulated debts totaling some $13.5 trillion, as they counted on the Fed and other central banks to keep interest rates near or below zero for the long term. Yet rather than invest the cash they raised in productive investment, including in their employee’s skills, they used most of the cash to buy back their shares and award themselves profits on their options. Why bother with real engineering when financial engineering is so much easier?

More here.