The whole is so big that investment cannot do it. There is a new paradigm in the following sense. The past seven recessions post WW II have taught the world that the effective way to tackle a recession is to allow the Fed/Governments to cut interest rates. That sees the economy coming back, typically led by housing. But current situation, in the credit markets is currently so dysfunctional that low interest rates are not leading to credit growth. So, you go back to an old paradigm. Again, fiscal policy got discredited because of long delays and lags. A fiscal policy can work even with the lags. This recession is so much longer than many of the previous ones that even if there are these long delays, there will be enough time for the fiscal policy to work.
Monetary policy is not getting any traction because of frozen credit markets. Monetary policy could come during the next recession when credit markets won’t be frozen and there won’t be am enormous drop in aggregate demand in the current situation, even zero interest rates are not working. It is inducing people to buy houses because interest rates are falling by 1-2% when home rates are falling by 15-20%. This is a sustainable in the long run.
There is a lot of evidence there to support a permanent rebound in equity prices. The fact that Citi and some other banks said they made profits for two months does not tell anything. It could make profits for a few months but then have to recognize enormous losses on the balance sheets.
Where they are going come from? They have talked of SDRs (special drawing rights). But SDRs are a fruit salad made up of dollars, yen, euros and sterlings. There are no shortages of dollars in the world if China is worried about its holding of dollars, they should diversify their portfolio.
THE BIG PROBLEM is economic recovery and today’s problem is not how we are going to manage future financial regulation. Moreover, the G 20 heads of government is not the place to talk about the size of the capital requirement or whether institutional simulation can substitute for external rating. That is not the comparative advantage presidents and prime ministers can have. They ought to be focusing on what kind of stimulus there can be for economic activity. But there is a substantial difference between thinking in US, China, Europe and Japan. That is the key issue: how to persuade participating governments to deal with this. Instead they will spend time talking about protectionism and long term regulations.
We have portrayed management as a practice with many aspects that can be linked to twin common denominators: time and relationships. Dynamic engagement is the term we have coined for you to keep time (“dynamic”) and relationships (“engagement”) in mind whenever you think about managers and management. Dynamic engagement is beginning to have significant effects on the control process. It can spawn new standards by which managers can control organizational activity. It can also spawn new control processes. We will briefly consider both developments below.
First, a dynamic engagement approach implies that time and relationships, rather than finances and organizational goals per se, can be measured and controlled. If managers take the “dynamic” idea seriously, they might ask in the control processes, “How well are we remaining consistently true to our values as an organization? This question links past performance with present performance. If managers take the “engagement” idea seriously, they might ask in the control process, “How strong are our ties with our customers? and “How prepared are we to engage a new kind of customer or a new kind of supplier? The questions make relationship building a central part of management control.
Second, a dynamic engagement approach implies that all the parties to organizational relationships should have a meaningful voice in control processes and control decisions. This is radical departure from an autocratic model of control that has long dominated American organizations: It is our organization and we will control it. Through dynamic engagement, control should be shared because relationships are joint endeavors. Through dynamic engagement the parties to an organizational relationship such as a manufacturer and a supplier and a customer must devise their own processes for jointly controlling the relevant organizational activity.
College presidents participate in these shared control processes all the time. A key constituency at a college consists of the alumni. Alumni are part of a college’s past. In addition, through their donations and perhaps their children’s decisions to attend that same college, alumni are also part of a college’s present and future. Alumni are not averse to raising voices of praise or protest about what happens at their “dear old college”. College presidents thus have strong reason to incorporate alumni in put into the college’s control process. Alumni boards and alumni membership on Boards of Trustees and boards of Regents are two vehicles for controlling in a manner that puts a “dynamic engagement” belief into regular practice.