This comes via Gallup:

The latest Gallup Daily tracking results show 49% of Americans approving of the job Barack Obama is doing as president, putting him below the majority approval level for the first time in his presidency.

Although the current decline below 50% has symbolic significance, most of the recent decline in support for Obama occurred in July and August. He began July at 60% approval. The ongoing, contentious debate over national healthcare reform has likely served as a drag on his public support, as have continuing economic problems. Americans are also concerned about the Obama administration’s reliance on government spending to solve the nation’s problems and the growing federal budget deficit. Since September, Obama’s approval rating had been holding in the low 50s and, although it has reached 50% numerous times, it had never dropped below 50% until now.

Of the post-World War II presidents, Obama now is the fourth fastest to drop below the majority approval level, doing so in his 10th month on the job. Gerald Ford dropped below 50% approval during his third month in office, and Bill Clinton did so in his fourth month. Ronald Reagan, like Obama, also dropped below 50% in his 10th month in office, though Reagan’s drop occurred a few days sooner in that month (Nov. 13-16, 1981) than did Obama’s (Nov. 17-19, 2009).

But all presidents except John Kennedy dropped below the majority approval level at some point in their presidencies, and all recovered after the first time below this mark to go back above 50% approval.

The full article is linked below. Good data for political historians.

Obama Job Approval Down to 49% – Gallup

See also It’s [Still] The Economy, Dumbass by Nate Silver and CNN Poll: Blame for recession shifting from GOP to Democrats

Related posts:

• 2010 elections: “Completely out of control” for Democrats
• Statistic of the day: George W. Bush’s ratings
• SNL skewers Barack Obama
• Barack Obama as Herbert Hoover
• Polls: George W. Bush at new low

Barack Obama has now come clean about his thinking on why his administration has decided to focus first on reducing the deficit and next on jobs. He fears a double-dip recession will occur if foreigners lose confidence in the U.S. dollar, causing interest rates to spike. 

This is nonsense and it demonstrates how much at odds Obama’s economic thinking is with reality. This is the clearest indication that the Obama Administration doesn’t understand how modern money works. In fact, by focusing on deficit reduction, he has increased the chances of a double dip instead of decreasing them.

If he wants to reduce deficits, knowing it will precipitate a double dip and would decrease malinvestment. Fine. That’s not my solution, but it is accurate view of the economics.

What Obama actually said

At issue is whether the federal government’s enormous debt burden in the U.S. could cause investors to lose confidence in the U.S. government and shun its debt.

In an interview on Fox News today, the President said the following:

I think it is important though to recognize that. If we keep on adding to the — Even in the midst of this recovery that at some point. People could lose confidence in the US economy in a way that could actually lead to a double dip recession.

Is this really true though?

How deficits really work

Think of an economy this way: the people in any economy buy goods and services from one another and from the outside. In any given time period, one person, one company or one group/sector might use credit in order to buy more goods and services than it makes in income. It’s like spending future income by using credit. This puts that individual, company or group/sector in deficit i.e. they have spent more money than they have earned. Now obviously, if one sector is in deficit in a given period (i.e. they have spent more capital than they have earned), then the other sectors are in net surplus (i.e. they have received more cash than they have earned).

Let’s give these groups/sectors of the economy names: the private sector, the public sector and the foreign sector.  Giving the groups names makes it plain that if the public sector is in deficit, the combined foreign and private sectors must be in surplus.  Simply put, if you look at all of the households and businesses that make up the private sector and aggregate them together, you can determine if the private sector has a net surplus or a net deficit in any individual time period. And if the private sector has a net surplus, the combined foreign sector and public sector must have a deficit for that time period. The sector financial balances move in concert.

What this means for today is that a government which reduces its deficit in a given time period is forcing an equal reduction in surplus in the private and foreign sectors. So that means, in aggregate, the private sector and the foreign sector will reduce the surplus cash it is taking in over what it spends.

Scott Fullwiler has a good graph depicting how the private sector surplus/deficit moves in concert with the public sector deficit/surplus, the difference being the current account deficit:

We can look historically at how these sector financial balances have moved over time. Figure 2 shows how closely the private sector surplus and the government sector deficit have moved historically, which isn’t surprising given they are nearly the opposing sides of an accounting identity. The difference between them, more visible starting in the 1980s, is the current account balance.

Figure 2: Historical Behavior of Private Sector Surplus and Government Sector Deficit as a percent of GDP

Below, I am now providing figure three from Fullwiler’s post at reader request, as it shows the current account deficit as the missing link since the 1980s.

Unless the increasing current account deficit switches direction violently, this can only mean that reducing the government’s deficit reduces the private sector’s surplus. Net-net, the government’s decreased deficit spending will decrease savings in the private sector. And no deleveraging can occur if savings in the private sector are reduced.

Is that what we want? Reduced private savings means continued high private sector leverage. In the U.S., the private sector has much greater debt burdens relative to the size of the economy than the federal government does. You would think we want the private sector to reduce leverage more than the public sector.

Long-term deficit reduction

What I have suggested is long-term deficit reduction.  If the President is concerned about deficits as far as the eye can see, he might want to look at retiree healthcare costs.  In June I said:

Yesterday, I argued that the United States faced a policy dilemma in avoiding debt deflationary forces while maintaining fiscal prudence.  The reality is that President Obama faces political constraints in Washington right now in regards to budget deficits.  He is not likely to get another stimulus package through the Congress unless he can credibly demonstrate a longer-term deficit reduction outlook.  In my view, this necessarily means changes to Social Security and/or Medicare.

But, of course, President Obama is not going to do that because this would mean cutting Medicare benefits, a political loser.

This looks like Hoover more every day

The President just doesn’t seem to understand how the economy works frankly. Reducing deficits by cutting spending or raising taxes decreases aggregate demand. And it is a decrease in aggregate demand which would induce a double-dip recession. So, the President’s logic just doesn’t work.

But what about a strike on U.S. government debt?  As you probably surmised from the above, if the U.S. private sector is increasing its savings, there is automatically a greater domestic bid for U.S. treasury securities.  So, it is a misnomer to say the U.S. is dependent on foreigners, thinking that this must continue. If the private sector saves more, a larger percentage of government bonds will be bought with domestic savings. In Japan, interest rates did not spike when the government increased deficit spending for this very reason.

The only question we have to ask ourselves is whether we want to reduce debt by:

1. The Liquidation Scenario. decreasing aggregate demand and precipitating a major depression in order to liquidate zombie companies and malinvestment. This would cause a massive wave of defaults and decrease debt burdens significantly through bankruptcy and debt repudiation. or;
2. The Glide Path Solution. increasing aggregate demand by maintaining government spending while trying to liquidate zombie companies and malinvestment. This would allow the private sector to decrease debt burdens significantly over time through increased savings. It also has the benefit of reducing dependency on foreign sources of capital. The downside is a major increase in government debt, the spectre of big government and a long muddle through.

As I have said previously, the Obama Administration is doing neither of the above. It has opted for a third Herbert Hoover solution:

• The Hoover Status Quo. decreasing aggregate demand and precipitating a double dip recession in order to reduce government deficits. This would cause a wave of defaults and decrease debt burdens through bankruptcy and debt repudiation. Meanwhile they will try to prop up zombie companies and maintain malinvestment. This would simultaneously prevent the private sector from decreasing debt burdens through increased savings and maintain dependency on foreign sources of capital – all without ending the spectre of big government.

I have advocated the glide path solution. But I see the liquidation scenario as much better than the present path – especially since, with the present course, we are witnessing crony capitalism on a massive scale. The problem with the liquidation scenario is a lower standard of living and the prospect of geopolitical tension, social unrest, poverty, and war.

The Herbert Hoover solution we are now using leads to a Japanese outcome at best or a Great Depression outcome at worst.

Obama: Debt Could Fuel ‘Double-Dip Recession’ – FOXNews.com

Related posts:

• Minsky: Turning neoclassical economics on its head
• The choice is between increasing or decreasing aggregate demand
• I am now moving from multi-year recovery to a double dip baseline
• Barack Obama as Herbert Hoover
• Japan does not demonstrate the failure of stimulus

China on Friday accused the US of protectionist and biased trade policies less than a week before president Barack Obama’s first visit to Beijing.

In a stinging rebuke to Washington, China’s commerce ministry promised to take measures to protect its domestic industry after the US slapped anti-dumping duties on $2.6bn of Chinese steel pipe imports. The duties are part of a growing roster of trade conflicts between the two countries, despite a high-level meeting last week in China aimed at reducing tensions.

“China resolutely opposes such protectionist practices and will take steps to protect the interests of our domestic industries,” Yao Jian, ministry spokesman, said on its website.

I see this coming to a head.  More here.

Related posts:

• China launches retaliatory investigation into U.S auto subsidies
• China: reflation play spells trouble for rest of the world
• China issues bonds to “promote the RMB in neighbouring countries”
• Beijing starts a ‘Buy China’ policy
• Free trade is dead: victim of a poor economy

The Obama Administration is captured. To understand why it has acted as it has, one doesn’t have to take the view that its efforts to save the banking industry were a deliberate attempt to line bankers’ pockets by transferring money from taxpayers to the banking industry. One need merely read the last post I wrote on this topic.

In their wildly optimistic view, the banking industry is solvent and always has been. All that was needed to ‘solve’ than banking crisis was a lot of liquidity, government backstops and, most importantly, time. This blinkered view sees a looting of taxpayer money to bailout the banking industry as necessary to save banks whose credit is the ‘lifeblood of our economy.’

They are wrong. The banks did not need to bailed out. The banking industry industry needed to made solvent again. There is a big difference between those two sentences (banks versus banking industry and liquidity versus solvency) that goes to the core of the captured and politically damaging world view we have seen on display by the Obama Administration.

Change you can believe in

Think back some 18 months when Senator Obama was in a horse race with Hillary Clinton to see who would go up against John McCain in the Presidential election. If you asked any reasonable individual who had the least experience and the thinnest political resume of the three, he or she would have said Barack Obama. If Americans wanted someone long on inside-the-beltway experience, they would have chosen John McCain – or, at a minimum, Hillary Clinton, not Barack Obama.

So, Barack Obama did not best both Hillary Clinton and John McCain and get to the White House because Americans felt him more qualified for the job.  Rather, Americans believed the U.S. was on the wrong path and wanted a qualified person to lead the country who would also change course. They believed that person was Barack Obama.

And when it came to the economy, the presence of two men, Paul Volcker and Warren Buffett, born some 80 years ago, gave one the sense that, despite Barack Obama’s perceived relative youth or inexperience, he had the ablest of wise old men who would be his and our counsel in resolving this crisis.

Bailing out the banks

So when Barack Obama took office, it came as a rude awakening for many that he chose to bail out the too big to fail institutions with little or no strings attached, allowing them to later make record profits and pay record bonuses, while the economy was in a deep slump and ordinary Americans were being bankrupted and losing their jobs and homes at record rates. This was not change you can believe in.

What could or should the Obama Administration have done?

If you had listened to the chatter inside the beltway early this year, you would realize that Obama’s team believed it was not politically feasible to ‘nationalize’ Citigroup or Bank of America and force top executives to resign as was done at RBS, Bradford and Bingley or Northern Rock in the UK. This was a blinkered view which can only be described as captured (if not outright disingenuous).  We need look no further than Fannie Mae and Freddie Mac to see that nationalization was an option.

But this is not the kind of solution we needed.  What we needed was a solution by the Administration to take prompt corrective action in seizing bankrupt institutions, dismissing management, punishing any misdeeds and setting up a timetable to sell off the institution’s assets. That is change you can believe in.

I laid this out fairly comprehensively in February in my post “America needs a pre-privatization plan.” So I am not going to cover that ground here except to quote the key relevant passage in that post:

To my mind, there are three ways to deal with an insolvent financial institution:

• Bankruptcy. Allow the  institution to collapse (like Lehman Brothers)
• Nationalization. Seize the assets of that institution and nationalize it (like Northern Rock, AIG, or Fannie Mae)
• Bailout. Inject capital into the institution in order to allow it breathing room until it can meet capital adequacy levels.

As you can see, governments have tried all three solutions.  However, there are vast differences between the three.

The bailout solution is the most ‘anti-free market’ choice and seems to be the favored solution of governments everywhere.  It props up organizations, giving them an unfair advantage at the expense of other more prudent institutions.  It also acts as a subsidy, which favors domestic institutions over foreign rivals.  Bailouts increase moral hazard by rewarding risky and reckless lending practices.  And they are often the result of crony capitalism due to the power of the financial services lobby. There are many other problems with bailouts. All around, bailouts are a poor solution.

So what we have here is a case of crony capitalism and kleptocracy, plain and simple – whether by design or not is immaterial. And the American people are on to this. That is why people are resistant to other changes this Administration has put forth.

Don’t let the media’s spin fool you: Washington insiders are on to this too. Politicians in Congress realize that Obama’s bailouts have cost him political capital  and they are challenging his policy agenda as a result. This is why the health care bill, which Obama wanted passed before the summer recess, may not see the light of day before year’s end.

Are we home safe?

I would advise the Obama Administration not to run any victory laps about having slayed the beast. The lingering effects of crisis are still there. The Fed’s liquidity is still liquid. Impaired assets are still impaired. And zombie banks are still zombies. As I indicated in my depression piece:

In reality, the problems of high debt levels in the private sector and an undercapitalized financial system are still lurking, waiting for the government to withdraw its economic support to become realized.

Since I covered this ground in that article, I will leave you to read my further thoughts there. What I want to turn to now is the ‘why.’

The Cheney-Rumsfeld replay

Now, I am not writing off Barack Obama’s presidency. I do worry he still could see a recessionary relapse which would cause him to seem more Herbert Hoover than Franklin Roosevelt.  But, despite his Nobel Prize, it is much to early to know what his legacy will be.

Nonetheless, I believe he has wasted a lot of political capital and this will make ushering through a meaningful legislative agenda very difficult.

Why did Obama throw it all away?

Here’s my answer: I call it the Cheney-Rumsfeld replay.

When historians look back at the Bush 42 presidency, it will be defined by 9/11 and the wars in Iraq and Afghanistan.  While George W. Bush was politically pre-disposed to the Neo-con world view, it was really advice from Dick Cheney and Don Rumsfeld which made Afghanistan and Iraq possible. George W. Bush was famously not well-versed in foreign affairs, having almost never travelled abroad.  He was completely dependent on Dick Cheney and Donald Rumsfeld to make foreign policy (although he could have listened more to Colin Powell, his actual Secretary of State; again it goes to predisposition).

So, I see George W. Bush’s presidency as having been defined by foreign policy and the War on Terror and, by extension, on Rumsfeld and Cheney.

Fast-forward to Barack Obama’s presidency and you have an almost identical situation, this time with the economy instead of foreign policy and Tim Geithner and Larry Summers instead of Donald Rumsfeld and Dick Cheney.

But, as with George W. Bush, it goes to pre-disposition. Paul Volcker was a critical member of the Obama 2008 campaign. He also was a key member of Obama’s economic policy team. But, he has been speaking a very discordant message that is not in sync with team Obama. So, as with Bush and his marginalization of Powell, one has to believe Barack Obama has chosen to side with Geithner and Summers over Volcker. Why anyone would do so given Volcker’s experience is beyond my comprehension.

The obvious conclusion, therefore, is that Barack Obama shares the blinkered and captured view of his policy makers and that this is why he has decided to go down this chosen path. And when it comes to Obama’s other ‘change’ decisions on the Guantanamo closure, torture, rendition, state secrets, and health care, the same logic also applies.

Is this change we can believe in? I will leave that for you to decide.

Related posts:

• The wildly optimistic view of Treasury’s handling of the crisis
• Bush Administration turns the TARP over to Obama
• The 3 a.m. moment – McCain blows it
• Greenspan: “If they’re too big to fail, they’re too big”
• Automakers likely to be bailed out

I was reading Kid Dynamite’s account of the recent Treasury – Finance Blogger meeting after having read a bunch of others (see them all in Abnormal Returns’ Nov 4th links). And I was struck by his characterization of the thinking at Treasury in regards to the financial crisis. I want to highlight two points and ask the question: didn’t the Treasury plan work as designed?

I will try not to editorialize and let you draw your own conclusions based on my (hopefully neutral) narrative of their goals.

Here is point #1 I want to highlight:

The first point that caught my ear was the description of the stress tests as having been designed to restore a level of confidence in the banking system.   The STO mentioned that the focus was now on reducing the footprint of economic intervention cautiously, quickly and prudently…

a number of STO’s present in the room, who quickly banded together to clarify that no one knew the results of the stress tests before they happened, and that they were designed to restore confidence by identifying the levels of capital needed by the banks, and requiring them to raise such capital.  I said that if they wanted to restore confidence, they should require banks to mark assets to market, and depict the true financial situation.

As I read it, Treasury wanted to show that it had a credible plan to identify any capital shortfalls amongst our biggest banks and to take corrective action.  Their belief is this would restore confidence.

Here is point #2 to highlight – why the need for secrecy:

I [Kid Dynamite] mentioned that the problem was that even if we had a "Counterparty Risk Czar" who somehow managed to magically quantify the exposures of each firm (which may be quite a difficult task in itself), we’d see the same problems we saw when the government went to give out the TARP funds. The government didn’t want to "bail out" select firms (ie, BAC and CITI) because they feared that the stigma attached to such assistance would create panic and runs on the bank – so they asked a large pool of financial institutions to take the money to hide the truly sick cows.

I read this to say that Treasury feared identifying ‘loser’ institutions would have a negative impact and cause bank runs (think Washington Mutual). therefore, they had to hide the ball, so to speak.  The same philosophy is behind the Fed’s refusal to release more information to Bloomberg on the Fed’s emergency lending counterparties.

The overall gist of the strategy was that Treasury wanted to identify the weak, give them time to grow stronger, and, in so doing, allow the panic phase to subside so that corrective action could be taken in a more normal economic environment.

Wasn’t the plan wildly successful? Blogger Accrued Interest thinks so.

Now, before you give a knee-jerk response, please read the following from a post I wrote in April called “Channeling my inner Larry Summers,” which was my attempt to read the intentions of Obama and his economic team (in the voice of Larry Summers). I think it dovetails nicely with what Kid Dynamite says were the actual goals of Treasury.

the question is how do we deal with this crisis.  The first priority must be  to forestall a deflationary spiral because that induces a dead-weight loss and extracts a cost of incalculable consequences.  The best way for government to end the spiral is to temporarily increase spending or temporarily induce more private sector spending.  Is this re-flating the bubble?  No, because deflationary forces will continue to extract a price even with these measures in place.  The key is to avoid a negative feedback loop, a spiral downward, and the easiest way for government to do this is to increase spending.

But, spending alone won’t get it done.  Ultimately, we will need to increase credit availability.  Just because people are spending more, does not mean the economy will grow.  Growth depends critically on increasing credit in line with the growth of the economy.

I am not one for nationalization of banks or other coercive, non-market based mechanisms of getting lending flowing.  The concept that nationalizing banks and re-privatizing them should be a first port of call for a government imperiled by a weak banking system is contrary to the need for limited government.  What we need to do is put a number of government-assisted programs into play — cognizant of that healthy tension between limited government and necessary government — and get credit flowing this way.

Let me enumerate some mechanisms:

• First we should try bank re-capitalization.  Our first priority must be to have an adequately-capitalized banking system. Absent that, increases in lending are impossible and the system will continue to be doubted. So that’s number one. We can do this through preferred equity so that the government is senior to common equity and receives some compensation for taxpayer money.  What’s more is it limits government interference. Remember – most of these institutions are having temporary problems.  With enough capital, they can weather the storm.  There is no need for heavy-handed government interference.
• If re-capitalization proves inadequate because of depreciated legacy assets, we will need to remove those assets from banks’ balance sheets in a way that promotes price discovery, increases asset liquidity and respects the tension between government involvement and government’s limitations. The PPIP and TALF can help achieve this.
• Moreover, by allowing financial institutions to borrow with a government guarantee, we can ease the funding liquidity constraints as well.

Ultimately, the jump start from stimulus and quantitative easing will start to kick in while all of this is ongoing. The result will be a growing economy and healthier banks. Nevertheless, we should implement some stress tests on institutions to gauge how much capital each institution would need in a worst-case scenario. Those banks faring poorest will need to take remedial action as soon as possible. However, under no circumstances should we ever imply that any individual institution is insolvent. This creates doubt and during times of stress it is not the wisdom of crowds, but the panic of crowds that is on display. Doubts about one institution are likely to have knock-on effects for others creating a systemic problem. This must be avoided at all costs.

So have Geithner and his team not avoided the pitfalls and accomplished their goals?

Related posts:

• The less optimistic view of Treasury’s handling of the crisis
• Will banks exiting TARP take back their toxic waste now?
• Bank by bank breakdown of stress test results
• Ackman and Stigliz talk Stress Tests with Charlie Rose
• GMAC has been nationalized

You judge for yourself: is Jon Stewart right to skewer Fox? Before you decide, listen to the last minute of the segment.

Related posts:

• Jon Stewart: His Gaffe-in is great comic relief
• Clusterf#@k to the Poor House – The Death of Hope
• Nighttime Video: Jon Stewart lets Jim Cramer have it
• John McCain as Dr. Frankenstein?
• Jon Stewart’s indictment of CNBC

Josh Rosner, a Managing Director at Graham Fisher & Company, an independent research for institutional investors in financial service assets, has some pretty strong words for the reform legislation proposed by the Obama Administration and now making its way to Congress. On Bloomberg, he said it favors large too big to fail institutions and hurts smaller community banks. In sum, he calls it “the single worst not-yet passed piece of legislation” he has ever seen in financial services. Pretty harsh words.

Tim Geithner defended the proposal to a skeptical Congress yesterday, saying that we need large institutions to compete internationally and that the companies should be regulated rather than broken up. When asked why Obama is not proposing that systemically dangerous firms be broken up, Rosner says it’s regulatory capture (something Arianna Huffington and Eliot Spitzer have argued for months).

Rosner also notes that the proposal increases the power of the executive branch giving them “unlimited authority,” which Congress pushed back on during Geithner’s testimony yesterday.

The most worrying charge that Rosner levels has to do with what he sees as an implicit government subsidy for TBTF institutions that puts them in a situation akin to Fannie and Freddie before the crisis. This gives them a large funding advantage over smaller firms, allowing them to generate excess profits and/or take higher risk.

See also “Guest Post: Conservatives and Liberals Agree: Proposed Bank Oversight Bill Will Make Things Worse” on Naked Capitalism.

Rosner’s video is below.

Related posts:

• Video: Geithner calls for single agency to oversee systemic risks
• Obama caves to pressure on consumer financial protection
• Why not protect the homeowner?
• Greenspan: “If they’re too big to fail, they’re too big”
• The U.S. financial system is effectively insolvent

I am listening to Treasury Secretary Tim Geithner answer questions before the House Financial Services Committee and he seems to be talking the talk, but his Administration is not walking the walk. 

The bill he is aggressively defending calls for putting a resolution process in place which ostensibly allows the cost of the failure of a too big to fail to not be passed on to taxpayers or the wider economy.  The sentiments he expresses are the right ones. But, he is rightly being questioned about whether this proposal gives the executive branch power which it could abuse.

Meanwhile, just in the last 24 hours we learned that GMAC was effectively nationalized and non-government equity was inexplicably not wiped out.  The testimony and the actions are in direct contradiction with one another.

Congress is fully aware of this dichotomy. They seem to have a bit of bailout fatigue. That makes them mistrustful of Geithner’s intentions. As a result, he is facing some tough questions from Democrats and Republicans alike.

Related posts:

• Rosner: Financial Stability Act “single worst not-yet passed piece of legislation”
• Chanos: I warned Brown and Geithner of financial calamity
• Weekend Video: A Conversation with Tim Geithner at CFR
• My initial reactions to President Obama’s financial regulation proposal
• Is Bernanke Toast? If he is, Summers is a shoo-in

Back in March when the US Government felt compelled to bail out out Citigroup, Tracy Alloway over at FT Alphaville noticed a curious thing – Citigroup had effectively been nationalized.

No, they were not seized by government, but Citi was controlled by government.  The Feds had 36% of shares outstanding, which in many cases is considered to be a controlling interest for a government (for instance, until the Open Skies Treaty pushed the level to 49%, foreign carriers could not take more than a 25% stake in any airline as this is considered a threat to national security).  That matters because of Banamex.

From Alphaville on 2 Mar:

Does the US government’s 36 per cent stake in Citi violate Mexican ownership laws? Have we got our countries confused? No.

Citi owns Banamex, a Mexican bank with circa 1,200 branches and 2.6m checking accounts. And Latin American finance blog Inca Kola sees a fight brewing over the Southern subsidiary:

The nub of the issue revolves around Mexican law, which states in crystalline manner that foreign governments cannot own more than 10% of any bank that operates inside Mexico. It’s as clear as a bell and on the statute. So as Banamex is a wholly owned subsidiary of Citigroup (C paid $12.1Bn or so back in 2001 for the bank) if the US Gov’t takes its 36% stake in Citigroup then it will be a larger-than-10% shareholder of Banamex, something against Mexican law. Won’t it?

Mexico’s National Banking and Securities Commission is therefore investigating, while Banamex is saying that the North American Free Trade Agreement will (somehow) protect it.

The next day Bloomberg reported that Mexican law makers had decided to pursue a bill to force Citi to disgorge itself of Banamex because of it was a government –controlled entity.  Then this story disappeared from the mainstream press. 

Now, as background, after the recession of 1991, Citicorp was bailed out by Prince Waleed of Saudi Arabia because it was in danger of failing. Low interest rates and the money from Prince Waleed did the trick and Citi experienced a remarkable recovery – and eventually the broader economy did as well. In fact, recovery was enough that Alan Greenspan attempted to raise rates fairly rapidly (this was before policy asymmetry at the Fed because the norm). The result was the Tequila Crisis and the near bankruptcy of Mexico (see my post “1995” for more.)

Banamex , the 2nd largest Mexican bank, was made insolvent due to the Tequila crisis. And what do you know, Citi swooped in to buy it lock, stock and barrel. Spain’s BBVA later took over the re-privatized Bancomer that had been nationalized after the Latin American Debt crisis in 1982 (also induced by rising rates in the US).

These incursions into Mexico have caused outrage. Why should foreigners own the two largest banks in the country? So, the topic of Nationalized Citibank has been percolating for a while in Mexico. And it has just resurfaced.

From Breakingview.com:

Mexico’s high court is set to decide this week whether to hear a case brought by a contingent of Mexican senators that Citi must offload Banamex because a foreign government owns more than 10 percent of its stock. They want the court to decide whether the finance ministry had the constitutional right to decree in March that the United States government’s 34 percent slice of Citi was acceptable because it was intended to be short term.

So Citi is hardly up against a wall just yet — and it reckons any decision to force a sale would breach the North American Free Trade Agreement anyway. But if push comes to shove, the bank should be prepared to put up more of a fight than it did for Phibro.

Quite frankly, America is used to treating Mexico – all of Latin America, really – like its poor cousin. This displays a lack of respect that many there find galling.  If Citi is forced to disgorge itself of Banamex, it will be interesting to see not how Citi reacts, but how the Obama Administration reacts since he wants to present a new American image on the world stage.

By the way, below is a hilarious video of ‘Nationalized Citibank’ that captured the mood in America back in March when the bailout happened.

Related posts:

• Does Obama have the legal authority to take over Citi?
• Citi: looking for as much as a 40% stake from the government
• Will Mexico suffer contagion?
• Citigroup and Redecard: shedding international assets
• Is Mexico imploding?

Related posts:

• SNL skewers Barack Obama
• The Barack Obama Variety Half-Hour
• Video: Barack Obama finally gets angry
• Why we need Obama as President
• Obama gets 75,000 at a rally

Via the Telegraph:

From the moment that President Barack Obama – who has won the Nobel peace prize – entered the Oval Office, he made clear that resolving the conflict in the Middle East would be a key priority of his foreign policy.

His very first phone call was to Mahmoud Abbas, the Palestinian leader, and his speech in Cairo sought to cast America as an even-handed peacemaker in the Holy Land. Soon afterwards, Mr Obama also pledged to negotiate a new treaty on nuclear disarmament with Russia.

So far, however, Mr Obama has no concrete achievement to his credit. The Israelis and Palestinians are no closer to a settlement today than when he took office nine months ago. On the contrary, recent violence in Jerusalem raises the possibility of a new Palestinian uprising: an event that would force the "peace process" into reverse.

Although America and Russia have begun talks on a new disarmament agreement, no treaty has been concluded.

The only possible explanation for the judges’ decision to reward Mr Obama is that they are betting on his future achievements. They think he might secure an epoch-making settlement between the Israelis and the Palestinians as well as a sweeping disarmament treaty with Russia. Having previously given the Nobel Peace Prize to leaders who have made real agreements to resolve real conflicts, the judges now appear to be rewarding effort and possible future accomplishment.

This is quite unexpected.

Other sources

‘Extraordinary’ Obama wins Nobel Peace Prize – AFP

Praise and skepticism greet Obama Nobel award – Reuters

Obama’s Kenyan family ‘honoured’ by Nobel Prize – AFP

Common misconceptions about the Nobel Peace Prize – AP

Comment: absurd decision on Obama makes a mockery of the Nobel peace prize – Times Online

Barack Obama Wins Nobel Peace Prize – NY Times

Related posts:

• Barack does have problems connecting
• The Obama Doctrine
• What would an Obama foreign policy look like?
• Barack Obama: candidate profile
• Obama wins debate

You probably have heard about the Saturday Night Live skit poking fun at President Obama for allegedly not leaving a very robust list of accomplishments behind after 9 months in office.  So, without further ado, here it is.

NPR says:

"If Saturday Night Live is a barometer of what the left is thinking, then liberal President Barack Obama has some problems."

By the way, it has been fact checked too. Link below.

http://www.politifact.com/truth-o-meter/article/2009/oct/05/saturday-night-live-obama-campaign-promises/

Related posts:

• Saturday Night Live Grades the Stress Tests
• The Barack Obama Variety Half-Hour
• Video: Barack Obama finally gets angry
• Sarah Palin on “Saturday Night Live”
• The SNL version of the Palin-Biden debate

The most newsworthy item in this clip is Emanuel saying that the healthcare bill cannot pass the Senate with a public option. Along those lines reports are now coming out that the Obama Administration is negotiating with Senator Olympia Snowe (R-ME) to use a watered-down ‘public-option trigger’ which she has said she will support. The White House has denied these reports.

Likely we will see either a trigger mechanism or an insurance co-op.

Here’s the Emanuel clip from Charlie Rose.

(Video embedded below. If you experience a problem, use this link instead.)

Related posts:

• A conversation with Brent Scowcroft on Charlie Rose
• A conversation about AIG on Charlie Rose
• A conversation with Peter Orszag on Charlie Rose
• A conversation with Robert Caro on Charlie Rose
• Tim Geithner on Charlie Rose

At issue here is the news that the Obama Administration dropped plans to force financial institutions to offer “plain vanilla” financial products that are simple enough for consumers to understand. My headline is editorial enough on this issue.  So, rather than editorialize this latest announcement, I’ll quote from the press.

• The beginning of the end of meaningful regulatory reform – Felix Salmon

There’s no good reason for this capitulation, except for the financial lobby has so effectively captured Congress that no reform would be able to get through with such a common-sense provision in place… I fear that by the time Congress is done, the Consumer Financial Protection Agency won’t be able to protect consumers at all — and that’s assuming it’ll even exist.

• White House Pares Its Financial Reform Plan – Deal Book

At a hearing before the House Financial Services Committee, Treasury Secretary Timothy F. Geithner announced that the administration had dropped a provision in its plan for a consumer financial protection agency that would have required banks and other financial services companies to offer so-called “plain vanilla” products, such as 30-year fixed mortgages and low-interest, low-fee credit cards

• White House retreats on key part of proposed financial overhaul – LA Times

A requirement that firms providing financial products offer ‘plain vanilla’ loans and cards is dropped, indicating the Obama administration is willing to accept major revisions to get its plan passed…

On Wednesday, Treasury Secretary Timothy F. Geithner backed down on a key component that has stirred opposition — a requirement that companies providing financial products offer a "plain vanilla" option, such as fixed-rate mortgages or no-frills credit cards.

His retreat came after Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, floated details of his own version of regulatory legislation that eliminated the requirement.

Geithner’s move showed that, just as with healthcare legislation, the administration is willing to accept significant revisions to get its plan passed.

I said my piece in June. Serious reform is not going to be forthcoming – not on healthcare or in financial services. Am I wrong here?  After all, Paul Volcker is singing another tune. Please tell me how you see this.

Update: I found this related item at the FT:

• Merkel urges G20 focus on regulation – FT

Angela Merkel warned fellow world leaders on Thursday not to make the fight against global imbalances the central issue of a meeting of the world’s 20 largest economies, which kicks off in Pittsburgh on Thursday night.

Speaking in Berlin before boarding her flight, Ms Merkel came close to accusing the US and Britain of backtracking on the issues of financial market regulation and global limits on bonuses for bankers by shining the spotlight on the export-oriented economic policies of Germany and China.

“We should not start looking for ersatz issues and forget the topic of financial market regulation,” she said in her clearest comments to date. “We cannot afford to neglect this issue now.”

Related posts:

• Nationwide brings back 125% LTV mortgages
• The failure to address the looming too-big-to-fail issue
• Geithner testifies before Congress on financial reform
• Ratigan, Spitzer and Huffington think Obama is captured
• A brief note on the fake reform agenda

After the arrest of suspects based in Colorado and New York in an alleged ‘varsity level’ terrorist plot, the spectre of terrorism in the United States has re-emerged as an issue, one that also has economic overtones because of the fragility of recovery. President Obama is following his predecessor George W. Bush in restricting civil liberties in order to meet this threat. As a result, Obama is looking to extend three specific provisions of the USA Patriot Act that are due to expire.

1. Roving wiretaps (part of Title II, section 206). The first of the three provisions is the one on roving wiretaps which allows the government to target an individual under the same wiretap authorization when the individual switches telephone numbers. This order has been used 140 times from 2004 to 2009.
2. Property seizure (part of Title II, section 215). The second provision allows the government to seize “any tangible things” relevant to an ongoing terrorist investigation. This provision is controversial because it grants access to business records, library records, and medical records, which are constitutionally-protected.This order has been used 250 times between 2004 and 2009.
3. Lone wolf provision (part of Title II, Section 207). This allows the government to gain a wiretap on any individual believed to be a terrorist threat irrespective of whether they are connected to known foreign terrorist groups or foreign governments. This provision has never been used to date.

While I understand the rationale for these provisions – protecting Americans from potential terrorists, I question them. They are an abridgement of constitutionally-protected civil liberties and they are in direct contradiction to Obama’s pledges to roll back the Patriot Act.  More importantly for Obama politically, they tie him more directly to the policies of his predecessor as the bank bailouts did, reducing his ability to be perceived as a change agent. Neo-conservatives support the provisions while small-government Libertarians like Ron Paul oppose the Patriot Act. Many democrats also voice concerns.

Below is a video explaining a number of these issues and a few links highlighting why this issue is important in terms of politics and civil liberties.

Battle Looms Over the Patriot Act – NY Times
USA PATRIOT Act – Wikipedia
Did Obama Break His Campaign Promise to Scrap the Patriot Act? – Huffington Post
The Unpatriot Act, 25 Jul 2003 – Ron Paul
Obama Strays from Dems on Wiretapping – The D.C. Writeup
Editorial: Reining in the Patriot Act – Philadelphia Enquirer

Related posts:

• Obama confounds civil libertarians
• Barack Obama: Great story about his mother
• Geraldine Ferraro: what is she really saying?
• Democratic Race: Supreme Court implications
• The Obama as terrorist theme gains traction among some

Tonight we saw a brilliant performance from Barack Obama. It was Obama at his best, using his command of the English language to inspire and connect on a grand stage as only few politicians can. For sceptics like myself, he surprised. For his base, he reaffirmed. For his adversaries he reached out with an open hand but with the credible threat of a clenched fist.  Obama delivered the goods.

And judging from the initial reactions of the American public, I am not alone in this assessment.

• Polls saw a monster jump of 14% in support for his plan.
• The progressives gave him a B.
• Andrew Sullivan called the speech masterful.
• FiveThirtyEight gave it a stand-up triple rating.
• James Fallows called it a first-rate speech.

More reactions here via Andrew Sullivan.

Look, I have said I see this in stark terms. No other advanced society would permit tens of millions of its citizens to live without insurance against a basic 21st century need, which healthcare clearly is.  No other advanced society sees thousands of its workers bankrupted due to health issues. Forget about the politics and posturing. This issue goes to the very core of who we are as a nation and our values as a society.

That was also the message Obama delivered.

Here are some of the basic points the President covered:

1. Obama wants an evolutionary change, not a revolutionary one. The present basic healthcare system will remain. For the majority of Americans, this means there will be no change of doctor or insurance provider.
2. He is strongly in favour of a public option to promote competition and reduce cost.
3. Obama is advocating coverage mandates for everyone like for car insurance.
4. He wants to ban pre-existing condition dropped coverage.
5. The President wants to ban yearly and lifetime spend caps.

A few other thoughts:

• From my perspective, the most important thing Obama did was stay true to his conciliatory self while still somehow projecting the willingness to show the iron fist. He said “I will not waste time” with those playing political games. Misrepresent and we will call you out. My favourite line was when he called Sarah Palin out, saying “it is a lie plain and simple.” Apparently, Obama has learned when to talk tough.
• Obama did an excellent job of throwing enough red meat to progressives while covering all the bases on fiscal responsibility to make it difficult to criticize the outline he gave. He gave lip service to his change agent status by quipping “I will not accept the status quo.”  I suspect the only potentially effective points of attack will be on the lack of specifics or on the feasibility of cost cuts.
• Obama’s line about illegal immigrants caused a bit of an uproar. I don’t have a view here, but it was one of the more negatively received lines – there were boos to the reaction.  See the CNN coverage here.
• Obama threw a bone regarding malpractice insurance into the fray. Smart move.  This was more of a political ploy than a plan to actually do anything, in my opinion. But, it did cover that flank, if just.
• The Republicans overreached.  Sensing a populist backlash against Obama, they really miscalculated in the school lunch speech brouhaha. These missteps were furthered during the speech.  The lack of civility by members of Congress was cringe-worthy. They often refused to stand and clap and one even heckled. This will cost the Republicans politically.  See the picture on Andrew Sullivan’s site.
• The choice of venue was important.  It certainly worked well for Obama, lending him a statesman-like aura and putting him in a large speaking venue where he excels.  It was like a state of the union address with Congress rising to its feet and clapping in orchestrated approval. The contrast to the Republican rebuttal, done from some non-descript room, was enormous.
• The Republican rebuttal was flat. Charles Boustany spoke mostly about costs and the evils of government-run healthcare. It rang hollow because the President’s speech covered those bases fairly well. Boustany was at his best when he gave his four specific proposals on what to do to reform healthcare. He was at his worst in trying to label the President’s plan as government-run healthcare, a claim that seemed at odds with the facts. Yes, he was at a huge disadvantage because of venue. But I’m sorry, he was just not a good public speaker.
• There was some ‘class warfare’ rhetoric which I found distasteful and it also sounds like the plan will be paid for in part through taxes on the wealthy. Moreover, I am no liberal and the big defense of liberalism and big government at the end was a turn-off for me personally. Others will like him for taking a stand. It will certainly help brand him as far left of center.
• The Ted Kennedy story he told was a clear political prop that I felt was somewhat risky. But, it was generally well done.  I liked the ” character of our country” phrase.
• The speech did go on for maybe 5 or 10 minutes too long.

Fallows sums it best:

There will come a time when Barack Obama cannot pull himself out of pinch with a big speech. And obviously we don’t know how this debate will turn out yet. But he hasn’t fallen short on the big-speech front yet. More tomorrow.

Let’s see what kind of legislation comes of this.  If I get video, I will post.  Feel free to comment.

Full text of speech here.

Here is the video:

Related posts:

• What real comprehensive healthcare reform looks like
• The purpose of health care reform
• Insurance companies’ secret files on your house
• Palin: Asia speech re-casts her as Libertarian and slams Obama on China
• Obama and health care: Wasting political capital

I have been arguing for some time that Barack Obama made a crucial tactical error in bailing out the big banks early in his presidency. His actions have left him vulnerable to populist resentment.  In my view, this weakens his credibility and ability to push through other pieces of his legislative agenda and will harm Democrats in the 2010 elections.

Slipping poll numbers

Indeed, Obama has slipped somewhat in opinion polls. Now, some will tell you that it is because Obama is running a socialist left-wing big government agenda in a center-right country. And as a result, he is losing independent voters. But, is that really true? 

While conservatives are opposed to the Democrats’ health care initiatives as an expansion of the state, progressives are identifiably more opposed to a greater number of Obama legislative issues (willingness to abandon the public option, escalation of war in Afghanistan, and continuation of rendition to name a few).

Bailouts poisoned the well

I would argue that it is the apparent ineffectiveness and unfairness of Obama’s policy initiatives on banks and the economy which has angered middle class Americans – conservatives and liberals alike. The economy is still in the tank despite incipient signs of a technical recovery. And Americans understand that banks and bank staff are making lots of money while thousands lose job and home.

Why then would you trust government? More likely, you would see government as the problem? Most people are not ideological and have no opinion about the role of government except when things are not going well. In my view, this is a major reason why so many are sceptical about changing healthcare. Barry Ritholtz gave voice to this sentiment in a post earlier today.

A problem of substance and style

However, I want to take this one step further because the problem is as much style as substance.  Today, we are to hear Obama’s much-anticipated speech on healthcare reform.  Some feel this is a make-or-break speech for the President. I look forward to hearing his ideas.  But, I don’t expect to hear anything new and I suspect many others feel the same way. Has Obama’s charm worn off?  In some ways, yes.

I have tried to put my finger on it in previous posts, and I think Barry did a fine job in describing the connection between the disgust over bailouts and  Obama’s difficulty with healthcare.  But, there was something missing for me until I saw Yves Smith’s last post on debtor’s revolt. The woman in the video calling for a debtor’s strike made a passing reference to the bailouts which made clear to me her anger that a bank could charge her 30% interest when that same bank wouldn’t exist except through taxpayer largesse.

And that’s when it hit me: it’s the Obama as Bush Three meme. Look at these two videos below. I have some words afterwards.

George W. Bush video

Barack Obama video

As I see it, the man in video number one shows extreme callousness when switching abruptly from a serious discourse about war to a game of golf, generally considered the sport of the wealthy. If one wants a defining moment for the failure of George W. Bush’s presidency, there it is.

Fast forward to August 2009 and we see an eerily similar circumstance.  The economy is still in tatters and Americans are at verbal war over health care. Yet, the President of the United States is off playing golf. Why anyone in the White House thinks this is a good idea is beyond me. It certainly appears to be more of the same – and that is in striking contrast to the pre-inauguration image Obama enjoyed.

I was struck by the fact that Obama was golfing during his vacation two weeks ago as his legislative agenda was falling apart.  So this is the image that I will have in my head as I listen to the President tell us why his legislative agenda is the right one for America.

Related posts:

• Obama and health care: Wasting political capital
• The purpose of health care reform
• 2010 elections: “Completely out of control” for Democrats
• The less optimistic view of Treasury’s handling of the crisis
• What real comprehensive healthcare reform looks like

While I have come down hard on some aspects of Barack Obama’s legislative agenda, I have not been painting him with a Hitler moustache or accusing him of socialism, that great evil practised only in cheese-loving France.  So I was disappointed to learn how vociferously some were shouting down the President’s back-to-school speech.

The shouts of Fascism in the direction of the President are laughable. Can we please have a reasoned political debate without throwing in meaningless historical references?

So, here it is below in all it’s glory – Barack Hussein Obama’s back-to-school speech.

Related articles

School Daze and And while we’re on the subject … – Cartoons in Scranton Times-Tribune

Related posts:

• Barack does have problems connecting
• Pennsylvania Newspaper endorsements
• Delivering a brilliant healthcare speech
• The Obama Doctrine
• Chris Whalen critiques Obama stimulus speech

Hat tip Accelerating Future.

Related posts:

• Did Tim Geithner blow it?
• TurboTax: targetting ads to Obama’s team problems
• Obama sacks Geithner and Summers, calls for change
• Geithner is open to suggestions
• Is Obama really “Change we can believe in?”

There is an effort underway to install the Federal Reserve as super-regulator for all banks and financial institutions, concentrating power in one institution. I find these efforts one of the most disturbing outgrowths of the financial crisis we have been witnessing. Such a system is sure to increase the power of too big to fail financial institutions and weaken small community banks. Moreover, the Federal Reserve is the one institution which should not take on a greater role in the U.S. economy.  It has failed in its present role by pushing interest rates too low for too long and has shown a complete lack of regulatory courage in preventing excesses that resulted from this policy.

The Obama Administration as defenders of the status quo

The Obama Administration is at the front of the queue advocating for this line of regulatory reform.  In my view, this has weakened the Administration, as the American people have grown to distrust the Federal Reserve as witnessed by the broad support for the Federal Reserve Transparency Act of 2009 proposed by Ron Paul to audit the Fed (H.R. 1207).

It is clear to most everyone now that actions taken by the Federal Reserve led to excessive risk taking in the financial services industry, particularly by large institutions. The risk posed by these institutions is what brought the global financial system to the verge of collapse.

Why then has the Obama Administration been supporting large institutions through large bailouts without requiring any changes in leadership or compensation?  Why is the Administration proposing to put the one regulatory institution most Americans feel failed in the period leading up to crisis in charge of all regulation? Do they not realize that this is an outrage to which the American people are wise? Do they not realize that this lessens any sense that Obama is ‘change we can believe in,’ hurting his chance at enacting legislation elsewhere?

Barack Obama was elected despite widespread concern about inexperience because he was perceived as a change agent who could demonstrate the power of government to do good in a time of crisis. Yet, the narrative now being crafted through these policy missteps is one of big government that enables the well-connected and powerful at the expense of the common man. This theme was evident with the financial bailouts. It was evident again in regards to how differently the automakers were treated. And it is evident again in how much sway lobbyists have held in the healthcare debate.

So, Obama’s poll numbers have slipped. They are not down because he is running left and outsourcing his policy decisions to Congress as some might have you believe.  Disaffection with the administration’s policies are as great in his base of supporters as they are from independents. Obama’s numbers are down because he campaigned as a man of change, but has governed as a defender of the status quo.

And when a country is beset by crisis and economic calamity, the status quo is not acceptable.

The attack of Sheila Bair

Enter Sheila Bair. She has not been toeing the party line on regulatory reform.  She rightly sees a problem with having a super-regulator to fix the problems at the heart of the financial crisis.  This has not sat well with the Administration.  But, she has continued to be a dissonant voice, most recently in an Op-Ed which appeared this past Monday in the New York Times. Title? The Case Against a Super-Regulator.

The Obama administration has proposed sweeping changes to our financial regulatory system. I am an active supporter of the key pillars of reform, including the creation of a consumer financial protection agency and the administration’s plan to consolidate the supervision of federally chartered financial institutions in a new national bank supervisor. This consolidation would improve the efficiency of federally chartered institutions while not undercutting our dual system of state and federally chartered banks.

But some are advocating even more drastic changes, like the creation of a single regulator for all banks (and bank holding companies). We clearly need to streamline the system, but a single regulator is not the solution. Calls for consolidation beyond the administration’s plan fail to identify the real roots of last year’s financial meltdown. The truth is, no regulatory structure — be it a single regulator as in Britain or the multiregulator system we have in the United States — performed well in the crisis.

The principal enablers of our current difficulties were institutions that took on enormous risk by exploiting regulatory gaps between banks and the nonbank shadow financial system, and by using unregulated over-the-counter derivative contracts to develop volatile and potentially dangerous products. Consumers continue to face huge gaps in personal financial protections. We also lack a credible method for closing large financial institutions without inflicting severe collateral damage on the economy.

My translation of what Bair is saying

I would like to paraphrase here, if I could, because Bair is using the diplomacy of a high-ranking government official in order to get along.  Reading between the lines presents another picture.

Translation:

Obama and his economic team have put together a decent first effort on regulatory reform. Let me list some stuff I agree with to be diplomatic. Below I get to what this Op-Ed is really about.

These people want to insert the Fed as the all-powerful financial regulator. Sure, we need change but not this kind of change.  That’s why my title is “The Case against a Super-Regulator.” Makes sense? Other countries have a similar system to what Geithner and Summers are proposing. If you look around – at England or Germany, for example – these guys are not exactly covering themselves in glory.

The problem is not the regulatory structure, it’s unregulated financial institutions operating outside the regulatory umbrella and too big to fail institutions inside the umbrella taking on too much risk.

A better approach

So clearly, changing the placement of regulatory captains is irrelevant here.  What is highly relevant is controlling excessive risk taking, especially by systemically important institutions as we saw with Citigroup in 1990, Goldman in 1994, Long-Term Capital Management in 1998, and Lehman and Bear Stearns in 2008.

In the past, the Federal Reserve has not been willing to rein in excessive risk taking. I would argue that its very function is to subvert market forces and encourage risk-taking by manipulating interest rates to achieve its dual goals of full employment and economic growth. Why should we expect an institution which lowered interest rates to 1% in order to encourage risk-taking and then refused to crack down on excesses this policy engendered to be the systemic risk regulator? It makes no sense.

This is the same institution which now has interest rates at 0% and has used all manner of credit easing mechanisms to foster credit growth and risk-taking as policy remedy to the present crisis.  Should we expect that it will magically change tack, pivot 180 degrees and start cracking down on excessive risk-taking and systemic risk? This too does not seem logical. And I would be remiss if I didn’t point out the lack of transparency at the Federal Reserve as demonstrated by the lawsuit by Bloomberg LP under the Freedom of Information Act (I do think Bernanke has been more forthcoming about monetary policy decisions and is welcome change on that score).

Forget about instituting a whole new labyrinth of rules, regulations and regulators. This is what we did after 9/11 when the Department of Homeland Security was created – and that has not been successful. But, a Department of Financial Security (DFS) may be coming. Back in May 2008, well before Lehman collapsed, I predicted this would happen.

This means that the de-regulation era has effectively ended. Big mergers will be eyed suspiciously. The cost of doing business will increase as red tape and regulation increases. All of this is bad for anyone looking to make a boatload of money based on capital gains in a new bull market. I happen to think that the pendulum does need to shift substantially away from de-regulation, but this will certainly mean an end to inflated asset prices in the capital markets.

As far as regulation goes, I predict a ’super-regulator’ is in the offing a la the Department of Homeland Security (DHS). This bout of big government is going to produce a federal agency akin to DHS because people are going to want to see an all-powerful federal agency formed that can effectively keep the capitalist wolves at bay when they overreach. This is a transformation that I view with some dread because I believe that, while de-regulation had swung way too far, big government is a problem, not a solution.

My hope is that the Obama Administration will see a DFS as big government that people do not want.  The writing is on the wall about ‘big government.’ We see it in the healthcare debate.  This should serve as a warning to the Administration that any legislation it proposes cannot be seen as big government or it will fail. It is better to enforce the rules and regulations that are currently on the books than to build in a whole new super-structure.

I propose the following:

1. Shelve any talk of a super-regulator.  It is a dangerous idea that will prove both politically unpopular and ineffective.
2. Enforce the regulations that currently exist. For example, anti-trust law should prohibit any institution from holding more than 10% of banking assets. Another example is the Home Owner Equity Protection Act of 1994, which gave the Federal Reserve the authority to stop abusive mortgage lending practices.
3. Promote smaller community banks. The Bush and Obama Administration’s policies during this crisis have favoured big banks. Meanwhile, community banks are being held to a disadvantage in access to cheap capital. Why doesn’t the FDIC spin off seized assets as small community banks with new leadership instead of gifting them to private equity or other banks?
4. Regulate OTC derivatives. Full-stop.  No clearinghouses. No loopholes.  We need an exchange-traded OTC derivatives market. (listen to the audio at the bottom of this post to hear how lobbyists gutted the OTC derivatives regulation in Obama’s reform package).
5. Keep the Consumer Finance Protection Agency. If we want any new regulators, this is where we need them.  The Fed failed to protect consumers from abusive mortgage lending practices and there is now a balkanized regulatory structure to oversee consumer protections. The CFPA would change this.
6. Bring the shadow banking system into the regulatory orbit. This means regulating hedge funds and money market funds in addition to banks, thrifts, credit unions and brokerage houses.

Audio podcast with Bair

Sheila Bair is on the right track and I respect her taking her views public in a manner respectful of the Administration.  Yesterday, she spoke to NPR about this issue in an hour-long radio Diane Rehm Show broadcast with Susan Page of USA Today. There were other guest panellists taking views in support of and against a super-regulator. Below is the audio from that show. I think the debate on this audio makes for good listening and will help inform your knowledge about this issue.

Audio embedded here

Related posts:

• The failure to address the looming too-big-to-fail issue
• The FSA signals a need for regulation-heavy
• U.S. has begun to drain liquidity
• A more comprehensive look at Obama’s proposed financial reforms
• FDIC Chairman Sheila C. Bair Statement on the Legacy Loans Program

While most economists have come out in favor of Barack Obama’s decision to re-appoint Ben Bernanke as Chairman of the Federal Reserve Board, Stephen Roach has penned an Op-Ed in today’s Financial Times which highlights the case against Bernanke. It is must reading.

Roach has three main points.

1. Before the Lehman bankruptcy, Bernanke was an adherent of the Greenspan-professed doctrine to “clean up after bubbles.”  This is what others have called “The Greenspan Put,” otherwise known as an asymmetric monetary policy response – what I would term “lax during the bubble, and loose after it.” Clearly, this doctrine was responsible for much of the carnage.
2. Bernanke was also a proponent of the “Asian Savings Glut” theory which puts much of the blame for global imbalances at Asia’s doorstep and exonerates over-consumption by American citizens for a credit crisis which began in America.  I have called this the Blame Asia meme. While there may be excess savings, it is disingenuous to blame Asia for problems created in the United States.
3. Bernanke, like Greenspan, is an ultra-free market Libertarian who believes markets always are better informed than regulators.  This takes libertarian views to an extreme which I have dubbed “Deregulation as Crony Capitalism.” I see a more nuanced belief in free markets as more appropriate.

But Roach goes on to opine that Obama, with his early decision to re-appoint Bernanke, is signalling he believes the credit crisis has ended, a calculation that Roach believes may be hasty.

Notwithstanding these mistakes, Mr Obama may be premature in giving Mr Bernanke credit for the great cure. No one knows for certain as to whether the Fed’s strategy will ultimately be successful. The worst of the US recession appears to have been arrested for now – a fairly typical, but temporary, outgrowth of the time-honored inventory cycle. But the sustainability of any post-bubble recovery is always dubious. Just ask Japan 20 years after the bursting of its bubbles.

While financial markets are giddy with hopes of economic revival – in part inspired by Mr Bernanke’s cheerleading at the Fed’s annual Jackson Hole gathering – there is still good reason to believe that the US recovery will be anaemic and fragile. US consumers are in the early stages of a multi-year retrenchment as they cut debt and rebuild retirement saving. The unusual breadth and synchronicity of the global recession will restrain US export demand from becoming a new growth engine.

It would be the height of folly to reward Mr Bernanke for the recovery that never stuck. Yet Mr Bernanke’s apparent reward is, unfortunately, typical of the snap judgments that guide Washington decision-making. In this same vein, it is hard to forget Mr Greenspan’s mission-accomplished speech in 2004 that claimed “our strategy of addressing the bubble’s consequences rather than the bubble itself has been successful”. Eager to declare the crisis over, the Obama verdict may be equally premature.

Roach makes a lot of points I have done over the past few months. Here’s my translation of what he is saying with links to previous articles covering this ground.

• Recovery of some sort seems to be at hand.
• However, we may be seeing an inventory correction and nothing more.
• America could be headed toward a Japanese-like decade or more long period of stagnant growth aka the modern Depression.
• After all, consumers are not coming back to the party.

Much of the blame for this rests with Bernanke. As a result, Roach believes Bernanke should not be re-appointed:

Yes, he reacted strongly after the fact in taking actions to avoid the pitfalls highlighted by his own research. But he lacked the foresight and courage to resist the most reckless tendencies of the era of excess. The world needs central bankers who avoid problems, not those who specialise in post-crisis damage control. For that reason, alone, he should not be reappointed. Let the debate begin.

Please read his entire article here.  See other sample reactions here, here, and here.

Obviously, I agree with Roach’s points as they echo many posts I have written on this site.  Nevertheless, one has to ask, “what are the alternatives?” I am sure you know the other names up for consideration. And don’t tell me Volcker, Galbraith or Stiglitz.  That was never going to happen.

Update: I wouldn’t characterize Ben Bernanke as “cut from the same market libertarian cloth,” as Roach does. I would suggest he has Libertarian leanings, but was probably the least inclined between himself, Paulson and Geithner to let Lehman fail.

Related posts:

• Quote of the day: Michael Douglas as Gordon Gekko
• Obama to re-appoint Bernanke
• Stephen Roach has a bone to pick with Congress
• Roach: The west went on a “drunken binge of excess consumption”
• Ken Lewis points the finger at Bernanke and Paulson

This from the Wall Street Journal’s David Wessel:

President Barack Obama will announce Tuesday that he is nominating Ben Bernanke for a second four-year term as chairman of the Federal Reserve, White House Chief of Staff Rahm Emanuel said.

No Larry Summers, no Janet Yellen.  Bernanke gets another four years.

Related posts:

• Is Bernanke Toast? If he is, Summers is a shoo-in
• Ken Lewis points the finger at Bernanke and Paulson
• Bernanke outlines Fed’s easy money exit strategy
• Obama White House: Add Larry Summers and Robert Gibbs
• Is Obama really “Change we can believe in?”

The bailouts, deficit spending, and debate over health care are having a very nasty negative effect on the electoral fortunes of the Democratic party. Charlie Cook, a well-known and respected election pundit, writes (emphasis added):

…President Obama’s job approval rating in both their August 16-18 and August 17-19 averages was just 51 percent, the lowest level of his presidency. The latter sampling showed his disapproval up to 42 percent, matching his all-time low hit in the August 15-17 tracking poll…

These data confirm anecdotal evidence, and our own view, that the situation this summer has slipped completely out of control for President Obama and Congressional Democrats. Today, The Cook Political Report’s Congressional election model, based on individual races, is pointing toward a net Democratic loss of between six and 12 seats, but our sense, factoring in macro-political dynamics is that this is far too low.

Many veteran Congressional election watchers, including Democratic ones, report an eerie sense of déjà vu, with a consensus forming that the chances of Democratic losses going higher than 20 seats is just as good as the chances of Democratic losses going lower than 20 seats. A new Gallup poll that shows Congress’ job disapproval at 70 percent among independents should provide little solace to Democrats. In the same poll, Congressional approval among independents is at 22 percent, with 31 percent approving overall, and 62 percent disapproving.

That all of this is happening against a backdrop of an economy that appears to be rebounding and a resurgent stock market underscores how much the President’s and his party’s legislative agenda have contributed to these poor poll numbers.

We believe it would be a mistake to underestimate the impact that this mood will have on Members of Congress of both parties when they return to Washington in September, if it persists through the end of the Congressional recess.

If you are losing support even while the economic situation and stock market are improving, you are obviously doing something wrong.

Related posts:

• Obama leads McCain by 2 points
• Polls: George W. Bush at new low
• US: Democrats looking at a filibuster proof Senate majority
• Patrick Buchanan throws in the towel
• Don’t worry, be happy. It’s in the bag

Yesterday I wrote a healthcare polemic which was mostly designed to discuss the politics of healthcare for the President. The essence of my argument was that Barack Obama has not shown enough willingness to fight for specific policies he espoused on the campaign trail. In a poor economic environment, this weakens him politically, as is being made clear on the issue of health insurance reform.  I hope my language was sufficiently over-the-top to get my point across.

Today, I want to talk more about the substance of the debate. I have to say upfront that when it comes to the actual policies of healthcare, I am probably more conservative than Democrats are but I do believe serious reform is necessary today.

Let me offer some upfront tactical points. Then I will couch the debate in terms of the social-psychological backdrop and how the Obama strategy fails to address it before offering a strategy of my own. At the end, I have a number of links to good posts on the issue from both conservatives and liberals.

The wrong tactics

If you recall, Hillary Clinton outlined her early 1990s health care initiative in excruciating wonkish detail only to have her political enemies use this detail to pick her plan apart. Hillarycare was torpedoed because opponents of her initiative had a lot of ammunition with which to work. Team Obama seems to be fighting this same battle. They are employing a strategy in which cost reduction was the initial selling point of his reform platform. Moreover, Obama and his administration offer little in upfront detail about actual healthcare goals in order to prevent a recurrence of 1994.

But, this is not 1994.  And reducing system-wide costs that trickle down to individuals is not  a selling point that engenders any visceral or emotional response from  voters. Furthermore, I have been dismayed, as have many in America, that Congress and the President seem to have concocted plans for reform before taking the debate over healthcare to the public to inform themselves as to what we want. The draft legislation came first and then the town hall debates.  In fact, these debates never would have occurred had the President had his way with a vote before Congress’ summer recess. This seems very high-handed. Why didn’t we have town hall meetings followed by drafted legislation?

The social psychology of economic depression

We are in a deep economic contraction and people are afraid. What Americans want is economic security, not cost reduction.  Obama must offer a healthcare plan that provides increased economic security to the majority of Americans if he wants greater public support.

Most people in America are satisfied with their health insurance and their health care.  As they see it, no change is necessary there. Telling people the healthcare system in France, Britain or Canada is just as good as ours and we should switch to their model is a losing proposition.

On the other hand, Americans do feel a general sense of economic insecurity. The unemployment rate and foreclosure rates have risen astronomically. Meanwhile, houses, the main asset for most Americans, have declined in value tremendously, as have stocks. Americans are poorer both in terms of income coming in the door and wealth on their balance sheet. No wonder, the word depression is used to describe a major economic downturn.

And there is an increasing sense of anxiety about paying large out-of-pocket expenses despite having insurance. Here, I am talking about money for specific visits and procedures that one has to reach into one’s pocket and pay out here and now. That’s the kind of ‘cost’ that gets people’s attention – abstract system-wide costs, not so much.

Getting people onboard for reform

Given this array of forces bearing down on average Americans, healthcare reform must have increasing economic security for the insured as as the principal rallying call. We need to allay people’s sense of fear and anxiety by demonstrating that change will make them more secure economically. This is what insurance is all about: reducing economic risk. And right now, given other money problems, most people feel the risk reduction they are receiving is not adequate.

So, reduction of out-of-pocket expenses for those already insured must be the principal selling point of any reform. Mind you, I believe universal coverage is the most pressing need.  But, quite frankly, telling people we need to give something to other people in a time of economic distress is not the sort of thing that makes one want to jump up and shout.

Beyond just reducing the risk associated with out-of-pocket expenses, there are other issues of insecurity – the risk of losing coverage or paying more money when losing or changing a job, the risk of dropped coverage due to pre-existing health conditions, and the risk of exceeding yearly or lifetime caps.  If the healthcare plan that the President and Congress present to the American people can credibly claim to reduce these risks to those already insured, we would be more likely to accept reform on other issues which I am about to address.

To recap, most Americans like their health care, but feel there are significant gaps in their health insurance.  Obama has made a savvy move in switching the debate of late from care to insurance. In reforming American health insurance, four issues will gain widespread support:

1. Capping per visit and yearly co-payments fees.
2. Allowing every worker to remain with the same health insurance provider and paying largely the same premium had they remained with the same employer regardless of employment situation.
3. Preventing health insurance companies from dropping coverage for pre-existing conditions.
4. Providing all employees with a health insurance policy option without annual or lifetime caps and making the caps explicit for other options.

Two other reform issues to be addressed

With the issues established that will get most Americans onboard, reform can turn to other agenda items.  The first issue is clearly the lack of insurance for tens of millions.  This is an issue which is easy to demagogue due to stereotypes about just who has no insurance in the United States (illegals, Blacks, Latinos, the extraordinarily sick, or the young and healthy).  But the true purpose of health care reform has to be insuring all those working in America and their families against large and unexpected healthcare expenses and to promote universal basic preventive care.  If we pass a health care bill without substantially all Americans being covered against catastrophic healthcare loss, you can deem the legislation a failure.

However, there is one other issue of importance as well. James Pethokoukis had a good blog post yesterday “A healthcare plan to save Obama’s presidency” which encapsulated this idea. First he agrees that universal coverage is necessary.  But, he also adds an important bit regarding our employer-based system.

Make health insurance mandatory and subsidize those who can’t afford it. (That’s the blue part.) But at the same time dismantle employer-based health plans, which prevent consumers from understanding the true costs of their healthcare decisions. In any case, employer plans are just an accident of history. (That’s the red part.)

The simplest way of dismantling them, according to an analysis by McKinsey, would be to make the money spent on health insurance by employers available as cash, tax free, to employees. “Insurers would then compete for customers with policies that offer better value for the money,” according to McKinsey. “The combination of invigorated supply and demand is the only healthcare reform plan that will avert the economic disaster that otherwise awaits us.”

A Purple Plan for the centrist – or purple — president many Americans thought they were voting for. It would bolster the president’s popularity, lift American spirits and help restore the economy.

If I run a business in the United States in competition globally, why should I be forced to provide healthcare to my employees unlike businesses in no other country.  This clearly puts American businesses at a disadvantage and is a legacy of a system that needs to end.

What’s more is dismantling the employer-based health insurance system would have a huge stimulative effect on the economy and financial assets.  Every listed company in the United States would instantly be worth more and have more money available to provide for investment.  But, of course, the devil is in the details because this measure would effective be a tax cut for business.  Where is the revenue to support this cut?  If the President and Congress could find a legitimate way to recoup this revenue that makes the health care initiative relatively deficit neutral, there would be bipartisan support for such a provision.

Recap

The healthcare debate has been a fiasco.  It was begun without any input from the American people. Obama and many in Congress even attempted to pass legislation before the summer recess when serious debate could happen.  We saw this tactic under Bush when Hank Paulson tried to fast track the TARP legislation.

As a result, the debates have often not been very substantive and have degenerated into an emotional demagoguing of this key issue. Better messaging would be nice as well.  What’s in it for me?  And what are your goals in passing this legislation?  These are two questions neither Obama or many in Congress can answer.

Below are twenty articles I found informative. They run the gamut from very conservative to very liberal (Patrick Buchanan to Robert Reich, if that gives you a better flavour). I am adding them here for your attention as well.  Comments are appreciated.

1. Why We Need Health Care Reform – Barack Obama, NYTimes.com
2. Obama Goes Postal, Lands in Dead-Letter Office: Caroline Baum – Bloomberg.com
3. Economist’s View: Swiftboating Health Care Reform
4. Robert Reich’s Blog: How Tough is Our President?
5. Populist Right Rising – Patrick Buchanan
6. The inevitable socialisation of health care financing – Willem Buiter
7. Economist’s View: “Public Option versus Co-ops: The Market Test”
8. Clive Crook – Obama took wrong turn on health
9. The Swiss Menace – Paul Krugman
10. Ara Darzi and Tom Kibasi – In Defense of Britain’s Health System – washingtonpost.com
11. Fareed Zakaria – When Only a Crisis Brings Reforms – washingtonpost.com
12. Obama’s teflon melting as outrage over healthcare heats up – Marshall Auerback
13. Economist’s View: “A Public Option Isn’t a Curse or a Cure”
14. On why I can’t get in to see my doctor – James Fallows
15. You Do Not Have Health Insurance – James Kwak
16. A Canadian doctor diagnoses U.S. healthcare – Los Angeles Times
17. Unconscionable Math – Taunter Media
18. Hospital Savings – Salaries for Doctors, Not Fees – Series – NYTimes.com
19. Charles Krauthammer – Why Obamacare Is Sinking – washingtonpost.com
20. My whopping $32 emergency room visit in the land of socialized medicine

Related posts:

• The purpose of health care reform
• Obama and health care: Wasting political capital
• Christina Romer: The Economic Case for Health Care Reform
• Delivering a brilliant healthcare speech
• A brief note on the fake reform agenda

Barack Obama’s health insurance reform initiative is clearly foundering. So, his administration has pulled out the big guns. Health and Human Services Secretary Sebelius on the Sunday morning talk shows. Obama himself had a prime time press conference on the issue. He has hosted a number of town hall meetings. The President has even written an opinion piece in the New York Times.

Yet, most pundits are still acting as if his healthcare efforts are on life support. I have read any number of posts from pundits of all political stripes asking why Obama is not having success on healthcare.  The answer is simple: Barack Obama needs to learn when to be the conciliator-in-chief and when to be an asshole.

Wasting political capital on banks

Let’s rewind a bit to explain. Back in July, I wrote that Obama had wasted a lot of political capital by caving in to the financial services lobby. In my view, this goes to the core of the issue. The US and global economy were poised on the precipice.  Obama rightly put economic issues first as he entered office in January, dealing with economic stimulus and financial sector reform. However, his crisis solution has been a massive giveaway to big banks, effectively transferring money from taxpayers to the banks in order to shore up their bottom lines and keep them solvent.

Team Obama thinks this was a necessary evil to prevent economic collapse.  But the average guy on the street of any political stripe sees this as galling.  You have a trader at Citigroup, a ward of the state for all intents and purposes, poised to make $100 million. JPMorgan recorded record revenue and $2.7 billion in profit last quarter. And Goldman is poised to pay record bonuses this year.  For Wall Street, the crisis seems to be over and it is business as usual. The response for many is rage, anger, at the way banks have been gifted a new lease on life while ordinary Americans are displaced.  Much of this bile is directed at Wall Street, but the true anger should be reserved for Washington.

Populism is rising

And now we are getting that anger on health care. People are angry that the economy has suffered for so long and they are angry that the economic elite are prospering again but they are not. The realization that this did not have to be is sinking in.

Barack Obama campaigned for President as a change agent.  In effect, he was promising to change Washington, so that ordinary citizens benefitted as much as, if not more than, special interests. However, it seems that Washington has changed him. You have the banks getting bailed out, GM and Chrysler, a stimulus bill which many see as laden with pork-barrel spending, the secret deal with the drug lobby, and on and on.

These are not ordinary times, folks. This is a depression.  People are afraid – afraid of losing their jobs and their homes, afraid their standard of living will fall, afraid they will be the first American generation ever to be permanently, worse off than their parents. Most of all, Americans are afraid of America’s standing in the world. This economic period is shattering a world view that the American dream is attainable for everyone.

Enter the demagogues. In times of acute economic stress, demagogues, political bullies, fear merchants, and war mongers of all stripes come out of the woodwork.  These individuals are willing to point the finger and assign blame. They are willing to tell people what they want to hear. And their message is just fact-based enough to pass muster for anyone looking to channel their anger and disappointment about the sorry state of the economy.

Why do you think the birthers movement, challenging the American bona fides of Obama, is popular despite the evidence? Why do you think the idea of government ‘death panels’ is gaining currency in the healthcare debate?  It’s not because these ideas are accurate and I don’t think it’s because people are dumb. It’s because the people making these claims are pointing fingers and naming names.  They give us a target at which to vent our anger.

This is a major reason why the Austrian economics solution to depression is ill-conceived.

It is the same wrong-headed prescription given to the Asians in 1998 and to Argentina in 2001.  We squandered an opportunity for fiscal prudence when the economy was on more solid footing.  With depression on our doorstep, is now the right time to start cutting back?

This would mean liquidating General Motors, bankrupting Royal Bank of Scotland and Citigroup or allowing Iceland, Hungary and Pakistan to fend for themselves.  In theory, each of these measures seem prudent.  But, in practice, these measures would result in huge job loses, would induce further deleveraging and asset price declines, would deplete capital from an already fragile global baking system, and would lead to a probable depression of unimaginable severity.  It is in such a bleak environment that dangerous despots and dictators like Hitler and Mussolini rose to power, taking advantage of the natural human need for ’strong’ leader in a time of chaos and uncertainty.  Could we expect any different today?

The answer to that question is no. And we should remember this as we debate policy responses. The rise of extreme populist fervour on all sides is troubling and could lead to much worse if the economy does not show a robust recovery.

Obama needs to be an asshole

I have said before that Barack Obama is in a political and economic position more akin to Herbert Hoover than Franklin Roosevelt. Hoover dealt with a sick economy that was still falling.  Roosevelt entered the White House after a large percentage of the economic damage had been done. I believe the economic situation for Obama is certainly less severe than it was for Hoover, but still precarious.  I do not mean to say that Obama is the ‘black Herbert Hoover’ as my friend Yves keeps pointing out. I do mean to say that he needs to be thinking of himself as Hoover and not Roosevelt to have the right mental predisposition of what’s at stake.

So, from a purely Machiavellian perspective, Obama needs to jettison the professorial above-the-fray coolness and get down in the trenches and fight for what he believes in.  And that means he is going to have to run roughshod over his enemies.  Mark Thoma pointed me to a quote that gets the essence of this argument:

A lot of what our job is about is understanding the point of view of others, even when we disagree with them. A lot of our job is explaining to students a wide variety of viewpoints, and allowing them to choose from among them.

I don’t think FDR worried so much about the point of view of others–Doris Kearns Goodwin said he “gloried in his enemies.”

FDR also largely got what he wanted.

So, when pundits debate where Obama is losing hearts and minds, it has as much to do with style as substance.  For instance, Patrick Buchanan says Obama is losing the center because he’s running left. He would say that. Robert Kuttner says Obama is losing the left because he is running center. He would say that too.

But Nate Silver’s critique in his Grand Unified Obama Critique is more on the mark.

If liberals are convinced that the President is too conservative and conservatives are convinced that he’s too liberal then either the President must be doing everything right or everything wrong. Lately, granted, it has seemed more like the latter…

What I think people were hoping for is that Obama would, somehow or another, be able to overcome the institutional barriers to change, probably through a hands-on approach involving a lot of public persuasion.

Put bluntly, Obama needs to be an asshole. Right now it looks like he is willing to compromise on any and every issue. Yes, compromise is an integral part of leadership and governance. But, there is a time for compromise and a time to fight.

For which specific issues is Obama really willing to fight and lose? He is not saying, “Give me Liberty, or give me Death!” Americans still have no clue what his core beliefs are. And, they are losing respect. That gives demagogues an opening and is the main reason Obama’s grass roots support has evaporated when he needs it most.

Look, if the economy regains solid footing by mid-2010, these issues will go away and Obama’s political party will benefit in the mid-term elections. He might even get the Roosevelt treatment for bringing us out of a deep economic contraction. However, if the economy remains fragile, as I believe it will, this lack of fight will become a true liability for the President.

Unquoted related articles

Where’s Mr. Transformer? – Eugene Robinson

Palin’s Red Menace – Richard Cohen

Related posts:

• Barack Obama as Herbert Hoover
• Obama and health care: Wasting political capital
• Is Obama really “Change we can believe in?”
• Obama must disown Wright
• Public anger at Wall Street begins to boil over