Obama The Empiricist
Barack Obama has talked himself into a comfortable position on the issue of nationalization - that Japan did too little and Sweden did too much, and we're going to settle in a nice middle ground, and anyway Sweden has five banks and seven customers and we have a bank in every Starbucks so it would just be too messy. This is a decent soundbite but isn't necessarily going to help credit get flowing anytime soon, and so I'm happy that this interview quote shows Obama more willing to step out of the ideological box and toward an empirical reality.
When pressed on whether he was ruling out the Swedish approach, he declined to do so:
"My absolute goal is to make sure that our financial system is set and that we get credit flowing again, that homeowners, small businesses and large businesses will get -- invest and create jobs and get this economy going again. I’m going to be very practical in terms of how to approach it. What we want to do is to make sure that we get this right on the front end. What Tim Geithner did was to provide a framework. He is presenting then a timeline of how this is going to roll out over the next several months: When do we start applying these stress tests to the banks; opening up their books; making sure that everybody knows for sure exactly what’s going on in there; structuring plans to attract private capital to help deal with some of these weaker institutions. Some of the smaller institutions that don’t pose systemic risks, if it turns out that they’re in really, really bad shape, then we may have to reevaluate how we approach some of those institutions.
"He’s also working the Federal Reserve Bank and the FDIC to open up lines of credit that immediately provide some relief to small businesses and consumers. There are a whole bunch of credit markets, like student loans or credit cards, that are locked up right now, but actually the underlying assets in these securitized markets are not that bad, so we may just have to use a variety of different tools to give private investors some confidence on that front.
"But here’s the bottom line: We will do what works. It is going to take time to lay out every aspect of this plan and there are going to be certain aspects of any plan that was designed which will require reevaluation and then have some experimentation -- if that doesn’t work then you do something else. What I’m confident about is that the basic framework that we have put forward is the right one, and that it balances a whole host of issues, including, by the way, the issue of making sure the taxpayers aren’t just carrying the whole freight on this thing, and that we’re sharing -- that institutions on Wall Street are sharing the burden of cleaning up this mess.
"We want to help because -- not because I’m particularly happy about how Wall Street has been running its businesses, but because if we don’t fix the banking system and the credit markets, then businesses can’t make payroll and we continue to see pain among ordinary Americans. On the other hand, I think that folks on Wall Street have to understand that these burdens have to be shared, and so restrictions on executive compensation, transparency, making sure that shareholders are more effectively involved, all those things we’re taking into account. And by the way, the market is not always going to like some of those decisions, because ideally what they’d like to do, they’d like to continue business as usual and not pay a price for a whole bunch of really big mistakes that were made."
We pressed him again on his meaning, and he said:
"I will not allow our financial system to collapse. And we are going to do whatever is required to get credit flowing again so that companies and consumers can do their business and we can get this economy back on track."
That is a flexible enough approach, and I appreciate the candor. As long as there's the recognition that we need a functioning banking system rather than one that hoards capital because it can't admit defeat and wants to spare a few bondholders, we can live with it. And this does reflect Obama's general approach. The details are subservient to the main goal - creating or saving 3-4 million jobs, getting credit moving again. If he is truly willing to do what it takes to reach those goals, then we may finally see the inventiveness we've needed from government over the past several decades. Josh Marshall has more.