By Henry J. Stern
November 13, 2008
It has been nine days since Barack Obama was elected President of the United States, and he appears to be off to a good start. His acceptance speech on Election Night hit the right grace notes, as Senator John McCain did in his statement of concession. It seemed that, relieved of the burden of campaigning, the two men could now revert to being normal, decent people.
In small matters the President-elect has shown tact and charm; immediately apologizing by telephoning the 87-year-old Nancy Reagan for an offhand remark he made about séances in the White House; and relating the complexities of the search for a puppy for his daughters, while referring to himself as a “mutt”.
His principal appointment so far, Rahm Emanuel as Chief of Staff, inspires public confidence, especially to those who feared a less nuanced or more ideological person would get that important position. A commentary by James Bone, a man whose name follows by just one letter a more famous Brit, appeared in the London Times under the headline, BEST IN SHOW, WITH A PEDIGREE ALL HIS OWN. You will enjoy it. Another story, by Jason Fink, written about Obama’s Manhattan experience in 1985 when he worked for NYPIRG, appeared in the Nov. 11 amNewYork. It is headed PATH TO WHITE HOUSE BEGAN IN NY.
It will be hard to get used to the fact that all the disasters which we have blamed for years on George Bush and his administration will now become problems for Obama to solve. He is not the starting pitcher; he is taking over in relief and our side is not doing all that well. How long will it be before people start blaming the new President for the problems he inherited? He ran for the office, he knew the score, and he promised change with the mantra “yes, we can”.
At this point, President-elect Obama enjoys a great deal of goodwill. We hope he takes advantage of that situation to make necessary changes. The problem is that nobody is certain to anyone what these changes should be. With the stock market plunging at the rate of several hundred points a day, confidence in the economy will continue to decline. Sixty-seven days remain until the inauguration, and if conditions continue to deteriorate, the President-elect may have to propose drastic remedies as soon as he takes office. Could January 20, 2009 be a reprise of March 4, 1933?
It is always possible that economic conditions will stabilize over the next ten weeks. But the problems of the automakers will not be solved. Nor is there any certainty that lending General Motors and Ford billions of taxpayer dollars will enable them to compete with foreign manufacturer's lower costs. We note that Toyota, Nissan, Honda, Hyundai, Kia and other automobile manufacturers are not asking for government loans.
President Bush and Secretary Paulson’s policy of making huge loans to and purchasing non-voting equities in financial corporations has come under attack from Mayor Koch, who wrote to Paulson and Federal Reserve Chairman Ben Bernanke on October 9. So far, though he has yet to hear from Secretary Paulson, the former mayor says he has received hundreds of responses from his readers, generally in agreement with his thesis. Bernanke’s response is included in Koch’s column, which he writes weekly. To get on his list, send your e-mail address to eikoch@bryancave.com
We can conclude, relatively easily, that deregulation and the failure to enforce existing regulations were major causes of today’s economic crisis. The development of new, and totally unregulated financial instruments escape the attention of the nominal regulators who were unprepared to deal with new problems as they arose. Some Republican senators tried to tighten up the system but received no support from Democrats, a number of whom receive substantial support from Wall Street. This is less of a partisan issue than it may appear to those who are deeply committed to one party or the other. We cite Rule 14-F: “Follow the money.”
The New York Times reported on the crisis in an October 23 article by Edmund L. Andrews. Alan Greenspan chaired the Federal Reserve System for 18 years, from 1987 to 2006, under four Presidents (Reagan, Bush, Clinton and Bush). He admitted the Board’s and his own misjudgment when he said, “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
During an October 23 hearing at the capitol, Greenspan was asked by Rep. Henry A. Waxman of California: “Do you feel that your ideology pushed you to make decisions that you wish you had not made?” Greenspan responded: “Yes, I found a flaw. I don’t know how significant or permanent it is, but I have been very distressed by that fact.” Later, Greenspan admitted, “this crisis has turned out to be much broader than anything I could have imagined.”
It is enormously sad that greed and inattention by powerful people have caused so much suffering around the world by people who are innocent of wrongdoing. The financial collapse played a significant role in deciding our new president. We can safely assume that in other economic circumstances we would not have seen the election of the young senator from Illinois.
It was too bad for the Republicans that the alleged masters of manipulation (if there were any) couldn’t have kept the bubble going for another month or two. Bankrupting Lehman Brothers, whether done for personal or business reasons (and it certainly was a rational decision if not a correct one) had the effect of causing the house of cards to tumble. It fell all over the Republican candidate for president, even though he had little to do with the collapse and had, in fact, introduced legislation to limit irresponsible lending. We have not really begun to work our way out of the debris, but worse yet, are not sure even how to do it.
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