The Financial Times has generally been positive and “hopeful” about our new leadership, but the performance of the Obama Administration has them deeply concerned. They think that the Obama team is a little too “hopeful” and not serious enough. In spite of their overall approval of Obama you can’t miss the subtext of the article. It is the lack of focus and experience they have exhibited on the financial crisis that has FT wringing its hands.
Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.
The article points out the real issue here and the failure of TARP as it is being proposed. They offer some solid advice. “Yes you can”… learn from history, Mr. O.
The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new “good banks”, leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new “bad banks”, leaving cleansed old banks to survive. I also am inclined to the former, because the culture of the old banks seems so toxic.
Let’s remember that Japan did not take our advice and the rest is history. In simple terms, let the bad banks (and other institutions like Fanie and Fredie) fail and cleanse the system of chronically toxic financial practices. The free market works because it rewards smart behavior and punishes bad.
Not to be overly pessimistic, but all I have seen from the Obama Administration is naive partisan ideology. The lack of experience and the belief in their own infallible intellect should have us all jumping out of bed in the middle of the night in a cold sweat.
Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best.
As much as they admire our new President, their financial instincts prevent them from giving Obama a total pass. They seem impatient with the hopiness of changiness and are desperately wanting Obama to put away the fluffy minded Utopinism and embrace reality.
Let’s hope things will change…