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- iHaveNet.com: Politics
Ian Bremmer and Sean West
The response of
While firm management may be committed to seeing a crisis through, markets are often skittish, moving out of firms and industries at the first hint of scandal. They update valuations to reflect the financial costs of an event as more information is revealed, and they discount to reflect uncertainty. But they often fail to appreciate that there is a pattern that political response follows. Those who do realize that there is more certainty than markets expect about political outcomes are prepared for dependable negative announcements related to lawsuits and congressional hearings. They can avoid overreacting in response to political noise, and they can take opportunities where others have overshot. They can pick whether the political process will impact individual firms or reshape entire industries. They can be prepared for legislative responses that usher through a host of negative regulatory changes, including some that barely relate to the crisis itself.
We are firm believers that political events can be anticipated -- especially in the wake of crisis. There is remarkable consistency to how Washington stakeholders respond to domestic U.S. catastrophes: In the last two years, the Obama administration and the Democrat-controlled congress have responded to financial, auto safety and environmental crises in strikingly similar ways. Indeed, it's almost as if there is a list of steps followed every time.
Understanding Washington's Crisis Checklist can help observers prepare and not be caught off-guard by a nasty CEO-drubbing by the
1. Stop the Bleeding
The private sector tries to remedy the problem -- firms do recalls or try to plug a deepwater hole spewing oil or raise capital to cover losses. If they can't do it, they ask the government to help by stabilizing the market or providing technical assistance or whatever else is necessary. The longer it takes and the more expensive it is to stop the bleeding, the nastier the impact of the rest of the steps. If the crisis is easily mitigated, there may be only an individual firm impact, which presents opportunities for competitors. If it is hard to stop the bleeding, this may presage a more punitive response to industry as a whole.
2. Identify the Cause
The blame game starts immediately to identify culprits. Many politicians reflexively blame the private sector, asserting that profit motive (greed) has led to negligence. The media begins looking for evidence, and often trumpets even the most circumstantial proof that the private sector cut corners somewhere in the chain of events that precipitated the crisis. In today's world of 5-second sound bites and 24/7 news cycles, perception is reality: Regardless of whether there is truth to the assertions, claims of negligence can establish guilt in the minds of the public.
But private-sector negligence cannot be the only explanation in a market that is regulated by the government. Soon the media blames Washington, and administration officials and members of
In a quest to understand just how such a catastrophe could have happened, to look like they are on top of the problem, and to extract a pound of political flesh from the actors,
3. Change Policy
If, as in the case of the financial crisis, the magnitude of the incident is catastrophic, it exposes the sitting president politically, and it resonates strongly with the general public, then the president will likely attempt to set the policy agenda and sell a proposal to
But to rewrite regulation,
While all this is going on, the existing regulator tries to anticipate congressional preferences by being more proactive in issuing rules and using existing powers to try to prove it deserves its mandate. Insofar as the regulator in question has the ability to sue, a deep investigation that results in lawsuits like that from the
4. Enter a Post-Crisis World
After legislation has been passed, the media continues to monitor the story, but as time goes on the public and politicians gradually lose interest. The next auto recall or financial scandal or suspected oil leak elicits far more scrutiny than it otherwise would have, and markets may overshoot in response to the specter of another crisis simply because there is more focus on what is otherwise noise. Gradually, everyone assumes the new policies passed in the wake of the crisis have been correctly interpreted, but many often fail to properly appreciate that regulators have been given new powers and have refocused on doing their job more effectively and with less influence from the private sector. The full impact of this may only be clear many months later when their new powers are used. This is precisely the risk with the financial regulation package and for the oil and auto industries in the wake of their respective crises.
Available at Amazon.com:
The Disappearing Center: Engaged Citizens, Polarization, and American Democracy
The Virtues of Mendacity: On Lying in Politics
Bush on the Home Front: Domestic Policy Triumphs and Setbacks
The Political Fix: Changing the Game of American Democracy, from the Grassroots to the White House
AMERICAN POLITICS
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Washington's Crisis Checklist | Politics
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