One of the surest ways to ensure that you will raise children who will be known as “brats” by the parents of all their friends, is to be your child’s “Best Friend.” I’m not saying that parents should not have very positive relationships with their children, relationships that foster open communication and enjoyment of each other’s company. I am saying that there are times in a parent/child relationship where a parent needs to be a parent and implement discipline.
It’s easy to identify families where parents want to be “friends” and not apply discipline. The children are “uncontrolled” and whine incessantly when they don’t get their answers. The worst trait of a child that has a parent who won’t parent is repeatedly throwing tantrums in very public places. They do that because the parent has trained them that it is more important for them to “get along” than it is to hold to principles.
The tantrum of an undisciplined child is what we are now seeing in the stock markets.
It has now been nearly a month since Secretary of the Treasury, Paulson, told us about the impending financial crisis and that “something must be done!” Since then, Wachovias has failed, AIG has been saved, $700 Billion + has been allocated for asset purchases, the Fed has started to issue short term commercial loans (commercial paper) and international governments have followed suit with their own versions of all of the above efforts.
But it isn’t enough.
For at least the past 6 years, being a financial institution of nearly any kind, was easy. Interest rates were low, the economy and in turn company profits were moving with unprecedented growth and assets, especially homes, appeared to have no limit to their value. You had to be a complete buffoon to not make money as a financial institution during this time. In fact, with the exception of some hiccups during the .com bust, the same argument could be made back to the early 90’s.
Now the financial world has changed (OK, admittedly, that is an understatement). No longer can money be leant just because “I like you” or “I know you.” This doesn’t mean that stocks are worth zero or that no loans should be made. Rather, we’re back to a time where real work needs to be done. Financial institutions, and markets, need to get back to the fundamental work of assessing risk and pricing it into stock prices, interest rates or bond yields. That’s what they should be doing but they aren’t there yet. Like the child who has been coddled by their parent for far too long, the markets and financial institutions are now throwing public tantrums in an effort to get the FED and other governmental institutions to give them even more to placate their tantrums.
I’m recommending that Paulson, Cox, Bernanke watch a marathon of “The Nanny.” If they do, they will find that even the worst behaved child can be regain socially appropriate behavior once the parent sets firm boundaries and show the child that behavior outside of those boundaries is unacceptable and will not get further placating.
How do I know I’m right? Read this article at CNNMoney.com. Here’s the money quote from the article:
“It’s another step in the right direction, but it’s hard to get too excited about this because nothing yet has worked,” said Bill Stone, chief investment strategist at PNC Financial Services Group.
“Eventually, if they [the government] stack up enough things, something will work,” he said.
Until Paulson, Cox and Bernanke quit giving in and teasing that more “goodies” may yet come, the markets will not get to the work of analyzing and dealing with facts. Until some firm boundaries are established, the markets will continue to hope for more and throw public tantrums when more is not forthcoming.
It’s time for Paulson, Cox and Bernanke to establish some tough love. It won’t change the behavior overnight. However, in time, the petulant child will once again learn to be a positive member of the family. Until then, expect to see more and increasingly violent tantrums.
