Nobody says it quite like a Brit, and of all the Brits who write on finance, one can count on Martin Wolf of the Financial Times to tell it like it is.
His reaction to the dithering going on in the Obama Administration is bracing. Here is a key excerpt from his column Wednesday, entitled “Why Obama’s new Tarp will fail to rescue the banks”:
Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.
What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.
Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.
Where Wolf falters, however, is in his attempt to explain WHY the Obama people are dithering. He finds their “timidity” to be “depressing” yet is at a loss to explain it:
Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best.
It is here that his outsider status may fail him. Here is an excerpt from a letter I sent him in response that I think gets at the problem facing Obama:
You are certainly correct that the Obama administration is reticent to confront the depth of the crisis. However, in fairness, I am not certain that you have put your finger on what is causing the reticence.
Quite simply, it is fear of the political consequences of aggressive action.
It is as if they are knocking on the door in the back of the closet that leads to Narnia and god only knows the dangers that lie there. Simply replace Narnia with “Nationalization” and you begin to get at the nettle of the matter.
Do you recall the populist outrage that greeted the original Paulson plan? If you were not here in the States at the time it may not have been clear how deep and genuine this outrage was. If John McCain had been willing he could have ridden that wave into the White House.
That populism is a peculiarly American phenomenon where “rugged individualism” (which runs deep in our working class) meets up with profound concern with some semblance of “social justice” in the form that says: we, the working class, don’t mind if you get rich as long as the bottom 50% does not end up worse off.
Under those circumstances the idea that the government will rescue these banks and these bankers is anathema. The fear is that any nationalization measures will not allow a revolving door that simply allows these banks and bankers to go their merry way. The entire structure of financial capitalism may be up for grabs.