One of the reasons that the government continues to pump bailout and stimulus money into the economy is that they don’t believe the private market has enough money to cover themselves. Wrapped up in this is a belief that many firms are too big to fail, and a lack of faith in the free market working out its own problems because this does involve some pain. But the reality is that there is a good amount of investment money out there, and the more the government tries to fill a void that is unneeded, the longer we will sit in economic malaise.
This report from the Economist shows that in the first quarter of 2009, private-equity firms raised $46 billion–roughly on par with levels in the early part of the bubble:
“..in the first quarter of 2009 investors handed over $46 billion, well below the dizzy extremes of the bubble, but still on a par with the levels of five years ago. Half of this was directed to buy-out funds. That might make some sense—these funds have historically performed better during bear markets, when they can buy companies on the cheap.”
And given that the bubble was a period of high levels of investment coming from an unstable base, this probably shouldn’t be a concern.
Ideally, bank lending power through liquidity will soon return, and investor confidence will bounce back, but we shouldn’t hope for a rapid return to 2007 levels of growth. And that’s because that kind of growth isn’t sustainable. It was based on poor business models and loose lending standards. The government shouldn’t be pushing us back into a place of instability.