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The Bases Obama Didn't Cover

It's hard to think of many bases that President Obama didn't cover in his big speech today on the economy -- there were just a couple, actually, and I'll get to those in a minute. He spoke like a professor lecturing in a survey course on modern finance, except for his pile-of-sand, build-upon-a-rock, five-pillars Biblical imagery. The big-picture message -- we see glimmers of hope, we're not out of the woods -- was appropriately vague, given the uncertainty about whether we've hit bottom.

Politically, it sounded as if one of Obama's major aims was to reassure Americans about a couple of decisions that clearly make a lot of people nervous: moving forward on his health care, education and energy initiatives at a time when he's still trying to dig the economy out of a deep hole; and budgeting for trillion-dollar deficits this year and next. Recent polling suggests that Obama has widespread approval for his handling of the economic crisis and that people are willing to be patient in expecting results. But the numbers hint at potential vulnerability to the charge that Obama is trying to do too much at once, and that he's spending too much money in the process.

Obama tried to head off these concerns by confronting them directly, and he probably won himself another chunk of forbearance and good will. He essentially repackaged all the measures he has taken on the economic front since Inauguration Day, relating them to one another as complementary components of a grand strategy. He gets credit for understanding the crisis, for being able to explain it, and, above all, for taking action. He put his critics, once again, in the position of saying "no" rather than charting a credible alternative path to recovery. At a point like this, doing something is bound to trump doing nothing.

I did have a couple of questions, though.

First, Obama mentioned almost in passing that any "additional funds" the banks need will be doled out in such a way to ensure that the public gets both results, in terms of more lending, and a good return on its investment. What additional funds is he talking about? Was that a confirmation that, when all the stress tests are completed, the government is going to have to pour even more money into the gaping maw of the banking sector? If so, how much?

And, second, one of the pillars of Obama's economic restructuring plan is a new regime of rules and regulations for Wall Street. Toward the beginning of the speech, he elegantly explained how swaps and derivates work and how their misuse was instrumental in giving rise to the crisis. So will the new rules restrict the banks' ability to "securitize" loans? Will swaps and derivatives just be monitored more effectively, or will certain especially risky instruments and transactions be outlawed? Obama said he wanted to make sure that a crisis like this one could never happen again. I'd like to hear how he plans to make good on that pledge.

By Eugene Robinson  | April 14, 2009; 3:18 PM ET
Categories:  Robinson  | Tags:  Eugene Robinson  
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Comments

Frankly, Eugene, I thought Obama was quite clear.

1. The 20th Century Rules of FDR that protected us are passe'. "We need 21st Century Rules". The New Rules will have to pertain to new investment freedoms that were outlawed until Summers/ Gramm/ Republicans/Democrats/Clinton/Bush Et Al killed the New Deal protections just in time for the year 2000, the 21st Century.

Eugene, you and I both know that multi-national institutions always win. What we don't know is whether they will choose to share their winnings. I will look for Congressional rules demanding they share, but I won't hold my breath.

2. Under the promise of 'fiscal discipline' we can look forward to fewer social safety nets and increased privatization of government services.

3. The economy will be a primary driver to increase voluntary enrollment into the armed services.

4. Health Care? I foresee large hospitals being the property of the large insurance companies. Many already are. They charge themselves in a very creative shell game infused by unbridled payments from Medicare/Medicaid. It's all so transparent, but no one seems to complain all that much. Hopefully, at the very least, Congress will control the stream of their profits to create clinics for those who will never be able to afford privatized health care delivery and fund 'passing away clinics' for the elderly to die peacefully in rather than spend a small fortune on wasteful, marathon end of life medical treatment. Hospice is already a 100% covered Medicare service, as it should be.

In short, the end will look like all countries subjected to neo-liberal, disaster capitalism. The architects for the same ARE Obama's economic advisors. Why would we expect any other outcome?

If history is prologue, the outcomes are VERY clear. And it isn't a pretty picture for those who are not fortunate enough to be either born privileged, driven, and/or extremely intelligent.

Princelings will do well always. And Wall Street and Washington are pumping out Princelings by the hundreds!

Posted by: VoiceofReason | April 14, 2009 4:19 PM | Report abuse

Money does not disappear into thin air, it is transferred to different bank accounts. 14 trillion came out of global stock markets and 4 trillion in CDO/CDS payments. somebody made a lot of coin that should be taxed. Closing the tax havens is simple, freeze the nation's and people's asset in our banks, forbid our bank to trade with them and they will give up the names. We don't need the world to make anything for us with our natural resources yet we import 80% of what we consume. The economics of trade should have a min. wage labor hour adjustment to all goods. Countries that exploit their environment poisoning the earth should recevie a full embargo. Level the playing field is a start to making the most productive worker in the world receive his/her just reward.

Posted by: jameschirico | April 14, 2009 4:30 PM | Report abuse

There is one area in which Obama is making a huge mistake, and that is in his claim that he can spend money more efficiently than any previous Presidents.

First off the Government is inherently inefficient, this is mainly due to its size and also its mentality requiring all parts of it to function in the same ways. The reason why Obama won't get much push on this is because most of the governments inefficiancies are due to size, not graft, red tape, etc.... In fact graft and red tape are natural enemies. The Govt has so much red tape because no one is allowed to make decisions on their own, which reduces graft.

anyways,

Secondly, he is asking the government to do a job which is virtually impossible and which it is not staffed to be successfull at. I.e. spend an enormous amount of money in a very short time, all the while being more efficient. This is also a problem because speed will also make more waste because offices are handing out money willy nilly with no sense of real direction. This is going to waste alot of money.

Third, he has shown no inclination at all to stand up to his own party in congress and cut back on spending. The problem here is just that he made promises he cannot keep, the President has certain powers and the congress has certain powers, Thats just the way things work.

Fourth, When he starts pointing the finger, the finger will get pointed straight back at him. If he takes some Gov. or Congressperson, to task, they are going to be saying yeah well your budget had x amount of pork and your budget wasted all of this stimulus money because doling it out was poorly managed. And they are going to be right.

So yeah I wish him luck but I think he really set himself up for a big fall. Now of course Americans are natural sycophants and he might be able to convince them that apples are oranges etc... etc... after all they bought Bush's nonsense for 6 years.

Posted by: DCDave11 | April 14, 2009 4:32 PM | Report abuse

OBAMA COMPARES HIS ECONOMIC PROGRAM TO THE 5 PILLARS--A ISLAMIC REFERENCE TO THE 5 PILLARS OF ISLAM

In todays speech, Obama compared his program to the Sermon on the Mount (Matthew 7, The Bible) then made a direct reference to his programs 5 Pillars--a reference to his Islamic upbringing and the 5 Pillars of Islam.

Here is the quote:

"There is a parable at the end of the Sermon on the Mount that tells the story of two men."

"The first built his house on a pile of sand, and it was destroyed as soon as the storm hit. But the second is known as the wise man, for when "…the rain descended, and the floods came, and the winds blew, and beat upon that house…it fell not: for it was founded upon a rock."

"We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock. We must lay a new foundation for growth and prosperity – a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad."

"It's a foundation built upon five pillars......."

RESPONSE--This will escape the Media-- who are fashionably religiously illiterate.

Check the transcript--its on the NYT.

Posted by: JaxMax | April 14, 2009 4:44 PM | Report abuse

PRESIDENT IRRELEVANT

Due to the terminal Budget and Stimulus deficits already incurred by Obama, he is now, paradoxically, President Irrelevant geopolitically--and this is BEFORE he deanded National Healthcare in today's speech.

China will surpass the USA economically as they have embraced Capitalism while Obama and Pelosi stumble drunkenly towards complete socialism.

Even Europe will surpass us and the Euro will replace the Dollar as the world reserve currency–indeed Geithner and Obama have already publicly surrendered the currency.

Meanwhile, militarily, Obama has surrendered Missile defense and naively denounced nuclear weapons in his quest for complete sovereign emasculation of the USA.

China and Europe will decline to buy US bonds to fund Obama Entitlement Land, so Obama will just order Helicopter Bernanke to print and deliver worthless Obama Dolllars.

First the USA will and has lost its economic sovereignty, then Obama will cede political sovereignty one treaty and International Organization at a time.

President Obama inherited the greatest country on earth, the finest military, the largest economy and SQUANDERED it all to become President Irrelevant.

Posted by: JaxMax | April 14, 2009 4:47 PM | Report abuse

As to further funding of Banks, Tim Geithner has already stated that these stress tests are not geared to determine the failure or success of banks but, which banks require more funding in the event of a greater recession. I take that as a "Yes" to more funding. Does that then mean we are proping up insolvent banks? Highly doubtful. As long as banks have the ability to generate income through credit card rates, fees, and loan income from low fed rates(currently at .50%), I don't see how they can't succeed. Forget the "toxic assets" scare. Any negative equity from these assets will be sold at auction and any remaining assets on the banks balance sheets will be covered by the enormous amounts of revenue these banks are receiving. As to the amount? Who knows and can we afford to say, NO? Does anyone dispute that the financial market is the catalyst for economic growth? If that is true, isn't it our goal then for these Banks to succeed? I hate to be a populist hater but, let's keep in mind that TARP and TALF are "loans", not charity donations. Any impact to our deficit would be IF these banks actually failed. So again, isn't it our goal that they succeed? At the expense of the consumers? Can a bank go "too far" in trying to correct their terrible balance sheets? Who holds the leverage, the consumer or the bank? Hmmm...now that's a debate worth having.

Posted by: OK4obama | April 14, 2009 5:08 PM | Report abuse

OK4

You provide only two choices, banks infused with our money or our failure because there are no TBTF banks to loan us money.

Surely, there are many more than two alternatives.

One alternative could be returning our hundreds of billions of tax dollars to us. It is or was ours.

Oh, never mind. Treasury ran out of our tax dollars years ago.

So that leaves just one alternative according to your argument: Infuse banks TBTF so the US Treasury can dig deeper into debt to fuel failing banks so banks can loan to indebted consumers so they can dig deeper into debt. And that is somehow a win/win?

If I were loaning America trillions, I might want more than one alternative to insure my investments. Personally, I would want my investments deposited into banks that didn't risk more than allowed by law. Good, local banks can loan to consumers/small businesses just as well, especially when the FED/Treasury is giving them the money for practically nothing. And the good, local banks don't have all those bothersome, bloated, bonus contracts, multi-million dollar salaries, and pesky stock holders to please.

Just saying. Certainly our whimsical, brilliant economists can come up with many more alternatives if they were pressed to do so, you think?

Posted by: VoiceofReason | April 14, 2009 5:33 PM | Report abuse

All things considered, President Obama's speech was designed to educate the Americn public about the current status of the economy, the President's program to get us to a sustainable economy, and the President's use of civility and intellect when dealing with the opposition. No one can fairly listen to this speech and say that President Obama was curt and hostile to the Republicans who seem to love to cast stones and not ideas.

Posted by: EarlC | April 14, 2009 7:16 PM | Report abuse

Firstly I am a progressive and voted for Obama. Second I work in the financial industry. It is my considered opinion that the President is profoundly mistaken in his approach to the banks. He is being too generous to the point of allowing the people at Tresaury and the Federal Reserve to steal money to give to the banks. Let me explain. Obama wants to give money to the banks no questions asked. A straight subsidy. He can not get the funds from Congress to do so becasue both the Congress and the American people are against the idea. So what he did was have the Federal Reserve go through AIG's derivative contracts, choose the ones that were the largest in the banks favor and then have the treasury settle those for cash ahead of the settlement date. Did anyone notice the profits posted by Goldman and BofA? Those "profits" were becasue of these transactions. When Enron did almost the exact same thing between itself and its Special Purpose Entities that was fraud. Just becasue Obama does it through the auspice of the Federal Reserve does not lessen the severity of the offense. So irrespective of the rest of his plan I will not support anything he does on the economic front until and unless he changes this bank policy. That's the ugly truth here. Obama has no support from democrats, republicans, economists or anyone else other than the banks themselves for his bank plan. The man is a renegade and I feel betrayed on my vote and will not support him in this policy going forward. Rewarding these bankers with tax dollars irrespective of what the congress or the American people say and then trying to smooth talk your way out of it is just plian wrong. I will not support that merely becasue he is the president or a Democrat. It's wrong.

Posted by: jhadv | April 14, 2009 7:42 PM | Report abuse

Perfectly relevant arguments from the President. The plan may be a little overreaching, but I think I would settle for a 60% success rate given the situation. Eugene, I'd say your questions were answered, if only in part. I do think that Obama can sometimes be more of a realist than most Americans expect their President to be. His assessments, plans and answers seem thought out, but mindful that congress and not he, gets to largely craft our legislation. Veto is a powerful tool, but this President is a guy who wants to make a deal and realizes that a good compromise is one that leaves everyone a little miffed. Results are key. If he doesn't produce...well, It seems he is willing to take the blame for it.

A Refreshing Position.

But to address your two questions:

The additional funds to the banks was never a mystery. Exactly how much is. Obama doesn't seem the type to guess at a figure like that, and I imagine you will hear Obama-the-realist telling you he doesn't know until the day he does, or at least the day where he can make an educated guess using the TARP as hindsight. I was OK with that request as it shows his necessity for effectiveness evaluation before additional action. A smart business move.

Your question on new security regulations is a good one, but I believe Obama played his card when describing the problem earlier in the speech. I highly doubt that the administration would restrict the banks' ability to "securitize" loans, but rather change the rules so we can't call a big steaming pile of bad investment the best since sliced bread, and perhaps, just perhaps, not sell it as gold. Previously we lumped these "piles" in with good investments... and poof! They somehow could never fail!

Oops. we forgot to mention it was 30/1 odds on that investment. Hell, we never bothered to calculate it in the first place. All we ever said was "stable" and "don't worry about it", "its soundly invested" because it just kept making money! 30 dollars for every one dollar invested! The payoff is CRAZY big!

And so was the risk.

That, precisely, is what Obama is getting at. He's asking that we label bad investments as bad and good ones as good, and we need a new regulatory structure to do just that - since the existing one has obviously failed to perform this simple task.

Let the risk takers take risks. Me - and my 401k - would rather grow slow and steady, like they always promised it would be.

Posted by: trident420 | April 14, 2009 7:59 PM | Report abuse

Jax Max! Really? You are hilarious! The sky is falling! Leave the country now! But whither will you go? My poor little Henny Penny, maybe Jesus will rapture you!

Posted by: gwymer | April 14, 2009 8:21 PM | Report abuse

MATT: 7
15 ¶ Beware of false prophets, which come to you in sheep’s clothing, but inwardly they are ravening wolves.

Jobs must be created by the trillions spent or the house of cards falls. FDR did not end the Great Depression, it ended because of the jobs and the defense industry because of World War II in the year 1944.

Posted by: mharwick | April 14, 2009 8:22 PM | Report abuse

President Obama learned well from elders and his grandmother/grandfather. I think reading about the great leaders of our pass allowed him to do by example. President Obama never let's his right hand know what his left hand is doing. He will never allow everything to come out. He is educating America because our Branches of Govenment/Media/ Press/ even the pass Administration were not educated. Try listening to how stupid some Economic Adviser like the one's on CNBC speak. Fox News helps with the dumbing down of America. Just think Americans are listening to Fox News who hire ex bartender, rehab people and even convicted criminals to speak of serious matters which they no nothing about. The Obama/Biden Recovery Plan is working well and nothing will change that.

Posted by: qqbDEyZW | April 14, 2009 9:07 PM | Report abuse

The new rules for the banks are likely to include stronger standards on loans, restrictions on the amount of leverage the banks can use, and more transparency in the derivative positions that market particpants take on. There are also likely to be regulations that make it easier to allow financial institutions to fail if they become insolvent. The new financial rules are important and there certainly is good reason to be concerned about the cost of bailing out the banks and getting our financial system off of life support. But the success of Obama's longer term plans to put our economy on a stronger foundation is much more important than the exact cost of the banking bailout. In this regard, Obama did basically make the same points that he has made in the past. There is little doubt that his direction is basically right. But that does not mean that success will come easily.

Posted by: dnjake | April 14, 2009 9:35 PM | Report abuse

How?.... More accountants, auditors and jails. With the current 'regulations', certain entities can easily calculate the 'time' for the 'crime', cost it out and continue their 'rip offs'.

Posted by: deepthroat21 | April 14, 2009 10:05 PM | Report abuse

Well, JaxMax in his (her?) "pillars of Islam" and "President Irrelevant" comments managed to distill a great deal of nonsense into just a few paragraphs. Quite a feat!

As for the "pillars of Islam" comment: if it weren't so preposterous, we might ignore it. Rather, I'll paraphrase Colin Powell, who said that the question about Obama's religion shouldn't be whether he's a Muslim or not (he is a CHRISTIAN, JaxMax!), but so what if he is (a Muslim)?

After listing a considerable litany of dire predictions of catastrophe resulting directly (JaxMax claims) from Obama's follies, JaxMax finishes the "President Irrelevant" comment with this: "President Obama inherited the greatest country on earth, the finest military, the largest economy and SQUANDERED it all to become President Irrelevant." Well, we could easily dismantle each of Jax's points and reveal them to be illogical and hysterical, or at the very least grossly overstated (such as his trope on Chinese capitalism). Also, we may well ask what did exactly DID Obama inherit and who is/was responsible for the condition of that inheritance?

But such argument with JaxMax is likely WAY beside the point: his/her comments are not rational discourse, they are rants. So, Jaxxie, I hope your rants were emotionally satisfying red meat, because intellectually they are as nutritious as cotton candy. BTW, it may surprise you to learn that I am a centrist and no "kool-aid drinking Obamabot." Neither, obviously, am I a rabid wingnut.

Posted by: post_reader_in_wv | April 14, 2009 10:19 PM | Report abuse

As always you have hit it on the head. I will go forth and also say that i know that the Post has been monitoring my free speech rights and for this i am dropping my subscription which arrives long distance and today this will be my last post. You Mr Robinson are the best your paper is the worst..and what strikes me as being not only silly but a violation of my rights to have my say..shame on you.
Please know that i write also for other news papers which are read by post subscribers, so i know they also get my drift.

Goodluck Mr Robinson

Posted by: WithoutaCountry | April 14, 2009 10:34 PM | Report abuse

How can anyone trust Obama? He is an assassin, assassinating innocent people in Pakistan. Firing missles at peoples homes is not allowed by the Geneva convention. Next, he ordered the murder of poor teenagers on the open seas. He has no authority from the UN to do that!

He should be tried as a war criminal.

Posted by: columbus1947 | April 15, 2009 9:04 AM | Report abuse

Eugene, you raise extremely important and key questions that have been nagging at me for months.

We know that Credit Default Swaps (CDSs), the insurance instruments that AIG sold to cover the sliced and diced loans, brought AIG to its knees because it was unregulated and didn't have adequate reserves to cover the losses. Clearly, overseeing AIG and their CDS leverage would be an improvement. But it seems that would be applying a topical fix to a flawed foundation. Securitization - the chopping and distributing debt - has added significant complexity and proven to be extremely difficult to unravel. It seems to me that instead of supposedly helping to reduce risk, they spread it, and should no longer be allowed.

Posted by: resnyc | April 15, 2009 7:22 PM | Report abuse

Excellent coverage. I do, however, doubt "widespread approval." If you were to contact the run-of-the-mill American I doubt if they really know what is going on.

Posted by: gmatthewlauer | April 16, 2009 7:18 AM | Report abuse

"He spoke like a professor lecturing in a survey course on modern finance, except for his pile-of-sand, build-upon-a-rock, five-pillars Biblical imagery.

Actually Eugene, the "five pillars" imagery is from the five pillars of Islam.

http://en.wikipedia.org/wiki/Five_Pillars_of_Islam

Posted by: spamsux1 | April 16, 2009 12:19 PM | Report abuse

Mr. Robinson, Thanks for showing some amount of balance. It is a refreshing turn and welcomed. I read your column even though much of the time it is painful. The last two paragraphs give me hope.

What is this 5 pillars reference ??? Isn't that Islamic ??? Not sure this is an especially great time to be tossing things like that around with this weaks activities in Somalia as it related to US citizens.

Posted by: flyguy49kc | April 16, 2009 2:29 PM | Report abuse

First....we can't "dig our way out" of a bad economy...the only way out is for the government to keep buying (spending on bridges, highways and fighter-jets).

Second....to hell with the global economy...I much prefered the quality of the old-fashioned "Turkish Towels" made in the Carolina Mills to the harsh, thin scratchy WalMart towels that are "ohh Lordy ever so much cheaper!!"........yeah, well they charge what they are worth, don't they!?

And now I have to import - that means pay someone in another country to use his cotton to make a towel and ship it to me so I can put an American out of work and "on the dole" - which I also have to pay for...Great!!!!!!!!!!!

Hello....can anybody see the simple wisdom in making a few good quality items here at home - like the dreaded vampire-zombie French do...wine, bread, cheese, tailored clothing...and yes, Citroens!!

Wake-up America....before you get what you've been asking for.

Posted by: anderson2 | April 16, 2009 4:03 PM | Report abuse

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