Microsoft says crisis will impact tech
The way economists see it, there's the financial economy and the "real" economy. While Wall Street is in a genuine crisis and there's clearly been a tightening of credit, it's not clear that the collapse of the investment banks has severely impacted non-financial companies yet.
But while politicians talk about Wall Street and Main Street, the road between Wall Street and Redmond (and White Plains and Mountain View) is quite a bit shorter. Steve Ballmer, for one, is pretty concerned about Congress's failure to pass the bail-out bill. Speaking in Oslo, he said:
"Financial issues are going to affect both business spending and consumer spending, and particularly ... spending by the financial services industry.
And in a conversation with Reuters, he added:
"We have a lot of business with the corporate sector as well as with the consumer sector and whatever happens economically will certainly effect itself on Microsoft. I think one has to anticipate that no company is immune to these issues," he said, but declined to be more specific.
Ballmer's comments echo an official statement yesterday from Microsoft general counsel Brad Smith said:
“Microsoft strongly urges members of the U.S. House of Representatives to reconsider and to support legislation that will re-instill confidence and stability in the financial markets. This legislation is vitally important to the health and preservation of jobs in all sectors of the economy of Washington State and the nation, and we urge Congress to act swiftly.”
I agree that government should take action with a comprehensive plan, rather than considering every failure in a series of mini-bail-outs. But, what's important is for the bad seeds to be flushed out of the system and to do it as quickly as possible. That means this thing needs to be thought out carefully; action needs to be properly considered. If businesses have at a minimum made bad decisions (in many cases, acted with fraud and criminal intent), the market does need to be able to cleanse itself.
Listen to Stephen Pizzo, author of the 1989 bestseller on the S&L crisis, Inside Job:
the instant it became clear to those guys and gals that there will be no government rescue you can bet your last dollar will, in near unison, reach for their cell phones and begin dialing for dollars. They call others in the same boat, or about to be in the same boat, and they will start making deals. Of course they will lose billions in the process. But what they won't do is just roll over and die. That's just not in their DNA. The weakest, or slowest, companies will die, and the strong will feed off their bones.
Indeed, in Japan, the financial crisis of the 1990s reduced that country's banks from 21 to 4. Is Japan any worse off today for having fewer banks? What hurt Japan was a policy that dragged the crisis on for year after year. The U.S. should act decisively not to prop up banks that have thrown themselves over the cliff but to assure that good businesses can continue to get credit.
Certain institutions are "too big to fail" because government has outsourced operation and management of economic infrastructure to the private sector. What is needed now is a "reboot," as a friend said this weekend, putting the infrastructure back in the hands of government, coupled with appropriate oversight and pretty strict regulation of "innovative" instruments.