Obama’s Economics Speech

The only problem with the wordpress interface is that I can’t post non-youtube video embeds. Please watch, if you haven’t seen it already, Obama’s Speech on the Economy at Georgetown University. He explain the crisis in a clear way and his policy in a way to address those who disagree with it (transcript). Here he addresses my concerns:

On the other hand, there have been some who don’t dispute that we need to shore up the banking system, but suggest that we have been too timid in how we go about it. They say that the federal government should have already preemptively stepped in and taken over major financial institutions the way that the FDIC currently intervenes in smaller banks, and that our failure to do so is yet another example of Washington coddling Wall Street. So let me be clear – the reason we have not taken this step has nothing to do with any ideological or political judgment we’ve made about government involvement in banks, and it’s certainly not because of any concern we have for the management and shareholders whose actions have helped cause this mess.

Rather, it is because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it is more likely to undermine than to create confidence. Governments should practice the same principle as doctors: first do no harm. So rest assured – we will do whatever is necessary to get credit flowing again, but we will do so in ways that minimize risks to taxpayers and to the broader economy. To that end, in addition to the program to provide capital to the banks, we have launched a plan that will pair government resources with private investment in order to clear away the old loans and securities – the so-called toxic assets – that are also preventing our banks from lending money. (18m15s)

Shut up, just shut up. You had me at ‘hello.’

Every time Obama steps to the plate and explains his Administration’s actions vis-a-vie the economy or international relations, it always addresses my concerns in such a perfect way. The man is good, and is clearly aware of all the concerns, both from the left and the right, of his actions. It is a new feeling to have detailed concerns about our government’s policy, and have them addressed forthright. I still disagree with a lot of it, but it’s comforting to know the President at least has the contours of the debate in mind. Given that we are facing the biggest economy downturn of my life, and my parents’ lives, it is good to see a guy in charge who understands all the disagreements that are being brought to the plate. This is a total must read – I hope the historians lock it down for future generations…

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4 Responses to Obama’s Economics Speech

  1. financeguy says:

    Hah! Love the use of the Jerry Maguire line. Yeah I got goosebumply reading the day-after International Herald Tribune on Obama’s win. At last a thinking president, someone who didn’t think “nuance” was the name of a new car by GM. I think Bush was the presidential equivalent of a 100-year-flood. We got it, we survived it, and we won’t see a bonehead like that in the White House for the rest of our lives (hopefully). But I’m not quite as optimistic as you about Obama. I think he’s very smart and knows this crisis is not going to be easy to solve. But there are measures sure of nationalizing the banks that will send the message there’s a new sheriff in town. I still don’t think the White House dares to get very tough with Wall Street. I’m not sure why that is exactly, unless the big banks are basically wearing dynamite vests and daisy-chained together and threatening to take down the country if we push them too hard …

  2. Mike says:

    This was too gushy, reading it back, but I wrote it right after hearing the speech. I’m not a robot!

    I know what you are saying – I’ve been very critical of the banking policy on this blog too, but it is reassuring to see the President thinking through the same issues.

  3. b says:

    While I thought it was a good speech (most of his are) AND I was as happy as you to hear him address this same specific issue: why not nationalize?

    A better explanation, though, can be found in reading The Financial Crisis: An Inside view by Phillip Swagel. The basics are that it is not politically possible.

    here’s the last paragraph:

    I would add a fourth play, which is to ensure continued public support for the difficult
    decisions involved in plays one to three. An honest appraisal is that the Treasury in 2007 and 2008 took important and difficult steps to stabilize the financial system but did not succeed in explaining them to a skeptical public. An alternative approach to this
    challenging necessity is to use populist rhetoric and symbolic actions TO CREATE THE POLITICAL SPACE UNDER WHICH THE IMPLICIT SUBSIDIES INVOLVED IN RESOLVING THE UNCERTAINTY OF LEGACY ASSETS CAN BE UNDERTAKEN. It remains to be seen whether this approach will be
    successful in 2009.

  4. Erik says:

    I truly love this blog, and you are one of the best commentators on the web, but you seem to misplace your mind when confronted with Obama’s rhetoric. They have undertaken several measures to savagely undercut investor confidence (even taking Geithner off the table) that makes his conclusions highly tenuous at best.

    The first point that probably needs to be made is: How is de-acto nationalization (the current status of some banks) different than dejure nationalization? The Obama Administration doesn’t feel that essentially controlling the banks through administrative fiat and the whims of Barney Frank “does no harm?” You could also add the government leaning on the banks to increase lending during a time period when banks should clearly be cutting back exposure on lending regardless of toxic assets. One could also look at the government discussing proposed personnel changes without stockholder approval as another destabilizing influence.

    Second, how does the stress tests move to increase investor confidence and further Obama’s purported goals? Weak scenarios conducted by a captured federal regulator that will be used by the FDIC to force banks to sell assets that taxpayers will subsidize. Not only that, we will then announce the results of this rigged tests so that investors can have more “confidence” in the banks and the captured regulatory system that partially caused the crisis in the first place.

    There seems to be a profound dissonance between Obama’s words and the actions taken by the administration that you say you disagree with, but then do not address.
    I don’t really care if Obama understands the contour of the debate; I care what his policy prescriptions actually are and the results. Judging from the initial results from TALF and the private capital sitting on the sidelines of the Public-Private Partnership means measures have undercut investor confidence and arguably made things worse, Obama’s purported goals.

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