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DorobekInsider: The Wall Street crisis could impact the government too

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We have all been watching the mess on Wall Street — and I think most people in government sit back and think, “Thank goodness I’m a fed and I don’t have to deal with this stuff.”

Unfortunately, in today’s hyper-connected world, what happens on Wall Street has ramifications on Main Street… and around the Beltway. (Ah — the world is flat!)

We seemingly hate to say it, but… it seems we just don’t know.

In my own mind, I keep going back and forth on the potential impact of this to government.

But here is some reading/listening on the subject.

* Michael Lent, the editor and publisher of Government Services Insider, wrote a excellent column for the current issue of Washington Technology headlined, Five ways the financial crisis makes things tougher for contractors. The headline could have just as easily have read, “Five ways the financial crisis makes things tougher on agencies,” to be honest, particularly given that agencies are increasingly dependent on contractors to get their jobs done.

I should note that we had Lent on Federal News Radio’s Daily Debrief with Chris Dorobek and Amy Morris on Thursday. You can hear him for yourself here. [.mp3]

His five ways:

1. Regulation — in general — is now in, with gusto, easing passage of more rules.
2. The bailout will infect the discretionary budget, snuffing growth in some areas.
3. Financing for M&A deals will be constrained as “deleveraging” proceeds on Wall Street.
4. Small businesses will suffer a continuing credit pinch.
5. Boards of directors will be compelled to proactively surveil management.

One of the somewhat scary parts of this situation seems to be that the longer it goes on, the less we seem to know. For example, last weekend, when Treasury Secretary Henry Paulson was on the Sunday news shows talking about the $700 billion package, my immediate thought was that this would have a huge impact on agencies. Why? Because, just as Lent says, the debt would essentially choke the government spending.

But — and we all hate this phrase — we just don’t know. Elsewhere on Federal News Radio, on InDepth with Francis Rose, our mid-day program, Rose spoke to Henry Aaron, a senior fellow at the Brookings Institution and the former Assistant Secretary for Planning and Evaluation, Department of Health, Education, and Welfare. His point: We just don’t know what this will mean. [You can listen to the interview with Aaron here. (.mp3)] It depends how much the government pays for these troubled debts… and how much it can then sell them for.

Meanwhile, CNet’s Dan Farber says that we should get ready for a new wave of consolidation, at least in the information technology world.

Global domination. That is the dreamy aspiration, mostly unspoken, of CEOs around the world of companies large and small. Market share domination is probably a more accurate description of the goal. In times of economic distress, companies with the stronger balance sheets are like sharks in the water, seeking to gain market share through acquisition or attrition. With the dawning of a new era of government regulation, spawned by the current and ongoing financial meltdown and the Enron generation, the sharks are circling but keeping an eye on antitrust regulators.

While tech spending doesn’t exactly correlate to the credit crunch, IT purchases are expected to slow down over the next three quarters, according to Forrester. Advertising spending in 2009 could be curbed if the economy spirals downward. Of course, no one knows which direction the gyrating stock market and spending patterns will go. If the $700 billion government (taxpayer) handout brings more confidence into the markets, the outlook will be better. But the majority of companies lacking strong financials or sales pipelines will be looking for reasonable exits or ways to conserve cash while the economy sorts itself out.

One other piece that is worth reading. (Hat tip to Federal News Radio’s Francis Rose.) Over the weekend, WP money columnist Robert J. Samuelson provided insights into one of the big questions coming out of all this economic mess: How did we get here in the first place?

His column, headlined The Confidence Game , is worth a few minutes.

It’s all about confidence… Every financial system depends on trust. People have to believe that the institutions they deal with will perform as expected. We are in a crisis because financial managers — the people who run banks, investment banks, hedge funds — have lost that trust. Banks recoil from lending to each other; investors retreat. The ultimate horror is when everyone wants to sell and no one wants to buy. Paulson’s plan aims to avoid that calamity.

Written by cdorobek

September 26, 2008 at 6:47 AM

Posted in budget, Industry

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