Edit: Please Don't comment unless you actually read the diary...
Obama today himself said to the audience in Ft. Meyers that they're doing their best, and based on whether they succeed or fail in the Stimulus/Bail Out, they'll ultimately be judged by the public and voters with reelection or retirement. I, like many here, don't really know what to make of the Treasury Secretaries sketchy unveiling today, but in the Financial Times, they pull no punches... Martin Wolf pulls no punches but he does ask the tough questions and challenges the current mode of thinking... I'll highlight what matters and encourage you to read the rest.
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.
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.
More below
Martin zeroes in on a major problem hampering the new Administration
The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this “progeny of the troubled asset relief programme” fails, Mr Obama’s credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.
Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.
I'm equally troubled by this as these are some really good tough questions.
Why No Nationalization?
Why No Losses?
Why No More Program Expansion?
If you're going to try and fix something, you must fix it, otherwise you will own it. Aiming low and playing small ball isn't the way out of this mess. Unfortunately, is appears that on this situation, Obama sided with the small solutions crowd versus the radical measures crowd in his advisory group.
What then would be the right course of action today:
The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new “good banks”, leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new “bad banks”, leaving cleansed old banks to survive. I also am inclined to the former, because the culture of the old banks seems so toxic.
I'm disappointed in the plan as thus far presented. I'm hoping its a Trojan cover for eventual aggressive action... but I'm left wondering, why not get aggressive and decisive today?
When fighting a house fire, one does not take a garden hose & bucket, one takes a fire truck.... so why work within the same constrained framework of the failed Bush prescriptions?
Give us Change Barack... you know the stakes. Please don't fail... Go Big, Fix the Problem... there is less downside to overreaction than insufficient action.
The answer is clear: rational policymakers must assume the worst. If this proved pessimistic, they would end up with an over-capitalised financial system. If the optimistic choice turned out to be wrong, they would have zombie banks and a discredited government. This choice is surely a “no brainer”.