What do corporations, parents and President Bush have in common? A goal of life without any growing pains. So it was with keen interest that I read yesterday about President Bush's view that lenient credit had helped foster an over ebullient housing market, but no intervention was necessary as the situation would correct itself. More articles appeared today that investors would have to share in some of the pain of the excesses, although the debate is as to how much and whether it can actually be controlled this time around.
I am frightened because I actually agree. But, pardon my cynical side (as a former sell side analyst, some might argue my only side). All of Bush's initial policies as it related to the economy and environmental issues were meant to forestall any near term pain in favor of foisting it onto future generations. Even my fiancé, who readily acknowledges having voted for Bush during both Presidential elections, (he likes his tax policy although would have preferred it coupled with a restraint in spending), is amazed at Bush's remarks.
Why the sudden change in heart? I obviously have no idea but am willing to bet it is a simple calculation that by doing nothing it will make the problem worse for the next administration which he probably realizes is likely to be led by Democrats. (Or maybe, he is just echoing remarks made of late by Alan Greenspan also acknowledging that he knew there would be some ramification of his sustained policy of easy credit). As it comes on the heels of an about face on his environmental policy, it could merely be a public relations move to improve his rankings among the worst ever Presidents.
So, maybe corporate management has just been taking its cue from the President. Increasingly companies have resorted to unnatural acts to maintain growth rates that were unsustainable. Backdated options, irregular accounting practices, corporations will seemingly do anything to boost near term earnings. Students of the stock market are supposed to be taught that the market is risky. Only money you can afford to lose should be invested. Of course, I also believed investors were investing in companies but increasingly it is more about derivatives and financial contrivances.
We are certainly experiencing a bout of pain in the financial markets the duration of which remains unknown. To those of us painfully grounded in reality, it was bound to happen. The great debates of last year as to whether we were in a housing bubble or not, preceded of course by the well documented Internet bubble five years prior to that, were seemingly indicative of a culture that couldn't believe there would be any price to pay for all of the prior financial gains.
Much like President Bush is using the current environment to shift his strategy, I would welcome a change among corporate managements. Had newspaper companies been more honest with themselves (and shareholders) about the radical changes taking place in the business, there is no question their stock market valuations would have declined anyway. However, would they be in a better competitive position today had the seemingly random headcount reductions been more thoughtful and with an effort to redirect resources to growth businesses? It's hard to say with any assurance and the final chapter on that industry is likely still a long time in coming. More consolidation is likely but at some point we will look back and realize a little short term pain might have allowed more of them to survive. Adversity and confrontation are OK, as is short term pain, if it leads to better long term decisions.
I will resist the temptation to get on a soapbox and compare today's parenting with our increasingly less beloved President and management of public companies but will simply note it seems to share the same philosophy of no growing pains.