Monday, August 31, 2009

The Financial Mess: Obama's Big Mistake

On my morning perusal of thoughts and observations in blogland, I was struck by one emerging theme: Obama, approaching the one-year anniversary of Lehman's bankruptcy and fresh off reappointing Ben Bernanke for a second term as Fed chairman, now "owns" this financial crisis/mess. I can't imagine that's the kind of pleasant notion that sends him merrily into dreamland at night.

But he has only himself to blame. Back in February or March, he should have taken a page from the playbook of Wall Street, whose executives have consistently shown themselves to be much cannier than the deep-pocket government chumps they've been able to exploit for bailouts and cheap money.

Early in his presidency, Obama missed a great opportunity, one that no self-respecting Wall Street CEO would have passed up, that's for sure.

Clearly he had inherited a real mess from George Bush. Knowing that, coming into office he should have taken the presidential equivalent of the "big bath." That's when you basically write off everything in sight, take your big losses on the chin, blame everything on your predecessor, announce that everything is different now, then position yourself for future growth that you then take credit for.

Now the presidential version of the "big bath" might have a slightly different flavor and be a little classier. But what the "big bath" approach would have implied for Obama: (1) you make a clean break from the past that allows you room to be bold and chart a more daring path forward and (2) you get all the losses you can out in the open, early on, and acknowledge that's the crap you found on your doorstep when you arrived at the White House.

Instead Obama's Treasury Secretary pick, Tim Geithner, began acting like a mini-me version of Hank Paulson. The Obama crew muddled along with a very Bush-like approach to the crisis, kowtowing to the financial industry. Obama effectively sealed the deal with his reappointment of Bernanke (I'm not passing judgment on whether it was a good choice or not -- I'm actually conflicted on that point -- only noting that selecting Bernanke tied him even more closely to the Bush team).

So, President Obama, it's true. You lost a big opportunity, and now you own this financial mess.