Amid the storm of criticism, the FT’s Martin Wolf asks whether Barack Obama has already failed by leaving so much up to Congress in his crucial financial stabilisation and economic stimulus plans. Herewith a summary:
Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger.
Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it.
Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.
What is needed? The answer is: focus and ferocity. Hoping for the best is foolish. Obama should expect the worst and act accordingly. Yet hoping for the best is what one sees in the stimulus programme [last week’s Wolf comment - here] and – so far as can be judged from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the plans for fixing the banking system.
The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers.
The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new “good banks”, leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new “bad banks”, leaving cleansed old banks to survive. I also am inclined to the former, because the culture of the old banks seems so toxic.
It is extraordinary that a popular new president, confronting a once-in-80-years economic crisis, has let Congress shape the outcome. The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. Obama needs to rethink, if it is not already too late.
