Obama's Downer

by John M. Curtis
(310) 204-8700

Copyright January 21, 2009
All Rights Reserved.                    

           Delivering a sobering inaugural speech, President Barack Obama shied away from the soaring rhetoric, offering a lyrical, almost symbolic appraisal of the counrtry’s economic and foreign policy mess.  Instead of mapping out broad themes and delivering a new message, the 47-year-old commander-in-chief sought to dampen expectation, something his advisors believe got out of hand.  But as much as Barack tried to tone it down, he’s still left with high expectations for both his domestic and foreign policy agenda.  Whether admitted to or not, the country expects real improvement in the U.S. economy, plagued by a meltdown in financial markets and institutions not seen since the Great Depression.    “Tonight we celebrate.  Tomorrow, the work begins,” said Obama declared at the black-tie Commander-in-Chief Ball, mirroring his impatience to get back to work.

            It’s hard to hit the ground running when his pick for Secretary of State, Sen. Hillary Rodham Clinton (D-N.Y.), hasn’t been approved by the U.S. Senate.  Nor has his pick for Treasury Secretary, Timothy Geithner, whose nomination hit a snag when it became known he owed back taxes.  Obama didn’t need any surprises, now waiting to see what happens. Of all the issues confronting the young president, none is more pressing than the failing economy, shedding jobs in record numbers.  Obama’s economic team has been talking about a new $1 trillion stimulus, something sending chills up economists’ spines during a time of record deficits.  Most economists know that artificial stimulus can last so long before the economy must heal itself with real goods and services.  No business, industry or overall economy can thrive only on government largess.

            Obama’s economic team needs all the help they can get from the National Prayer Service, a tradition dating back to George Washington.  Faced with 11-million unemployed, Obama has made the economy his number one priority.  “Fortunately, we’ve seen Congress immediately working on the economic recovery package, getting that passed and putting people back to work,” Barack told ABC News.  “That’s going to be the thing we’ll be most focused on,” not admitting the limits of government spending.  Without the stock and real estate markets coming back to life, any economic stimulus would be short-lived.  Ending the Iraq War, saving the country $10-15 billion a month, should help and economy unable to sustain the massive outlay of defense-related spending.  President George W. Bush, now back in Texas, never admitted the Iraq War’s harm to the economy. 

            Barack talked about the sacrifices needed of ordinary citizens to pave the way for economic change.  Yet he offered little guidance other than saying his stimulus plan would invest in alternative or “green” fuels needed for economic recovery.  Fashioning a massive public works programs won’t deal with the manufacturing and service sectors of the economy currently in bad disrepair.  Handing out more bailouts, whether to banks, businesses or individuals, won’t solve the problem of improving the output of goods-and-services.  Before the economy can recover, the stock and real estate markets must show real improvements, a problem for industry standards, ratcheting up qualifications for residential and commercial loans.  Tightening lending standards can only delay the recovery and backfire on the economy.  Addressing the mortgage default and foreclosure problem is unavoidable.

            No economy can recover without a robust improvement in the U.S. stock market.  American business needs the stock market to finance expansion and new jobs.  Assuring that the market moves forwards requires a fundamental change in the way hedge funds operate.  Securities and Exchange Commission Chairman nominee Mary Shapiro, currently the head of the Financial Industry Regulatory Authority, knows that the White House must deal with the hedge fund issue.  As long as hedge funds short the market, profit from stocks going down, it’s going to be difficult to gain traction moving forward.  Hedge funds hurt long-term investors, the backbone of the market, by continuously shorting stocks.  During last year's crash, the SEC barred hedge funds from shorting financial stocks.  Shapiro must show the courage to confront the currently unregulated hedge fund industry.

            Obama’s inauguration speech attempted to tamp-down expectations amidst growing pessimism about the economy.  Instead of accepting the doom-and-gloom, the White House must take on the special interests attached to the hedge fund industry, unwilling to stop shorting an otherwise fragile stock market.  Markets can’t recover as long as hedge funds continue to sell short, hoping to play both sides.  Obama’s economic team must stop pointing fingers and resist the current attempt to over-regulate the stock and real estate markets.  Regulating hedge funds is different than raising lending standards so high that few hard-working Americans can qualify for homeownership, a key factor in growing the economy.  Government help in subsidizing (a) private mortgage insurance and (b) mutual fund insurance would help reduce banks’ exposure and encourage more stock market investing.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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