Ok, I was admittedly excited when Obama was elected. Finally, there was someone who would help reverse the plight of the middle class in America. It has taken less than a month for me to decide that his presidency will be a failure. It is not that he lacks good intensions. It is that he is not a strong leader. He is another Jimmy Carter. He is too impressionable, too willing to keep the status quo, too willing to try to please everyone. What we need right now is someone willing to be confrontational and make hard decisions. He is not that person.
Foremost is his handling of the economic crisis. For a while there was some hope when he hired Paul Volcker. The hard nosed former Fed chairman is exactly the kind of person that should be leading the handling of banking crisis. Unfortunately Paul seems to be losing favor in the administration. Larry Summer seems to be in charge. Summers, the protege of Robert Rubin was one of the chief proponents of deregulation and free markets. In other words, he is one of the people that caused all the mess to begin with. The foxes are guarding the hen house. Goldman Sachs in firmly in control.
We are already seeing some of the bad policies that will come out of this administration. The right thing to do is to nationalize the insolvent banking systems like Sweden did in the 90s when they had a financial collapse. However, that is not the Obama plan. He said in an interview that this would not be possible due to the "different culture" in the US. Different culture? What does culture have to do with whether a bank is insolvent? I assume that he is saying that Swedes are pinkos and that we in America believe in capitalism. But taking over the banks is not socialism. It is capitalism. In a capitalistic system, when a company becomes insolvent, it's equity is wiped out and ownership is transferred to it creditors. Usually this is what happens in bankruptcy court. The banks are insolvent and they should be handed over to their creditors which are the depositors. Propping up banks with government money is socialism, not the other way around. For banks, this is done by putting them into receivership. This is what needs to be done.
Today in the Wall Street Journal there is an article saying that Obama's aid David Axelrod says Obama has a solid plan on housing. His plans will prevent foreclosures and "put a floor under house prices". Now preventing some foreclosures makes sense. It is in the interest of both the homeowner and the banks. However "putting a floor under house prices" is absurd. House prices like everything else are set by supply and demand. Houses are still over-valued which is why people are not buying them. They were in a bubble. The huge demand for houses was primarily due to two things 1) Speculators hoping to flip houses for a profit and 2) a huge group of people that got fooled into believing that they could afford a house when the really could not. Clearly neither of these two sources of excess demand are coming back and there is more supply than ever. Houses prices will continue to go down regardless of what Obama does. But the fact that he is trying to prop up housing prices shows that he is an imbecile. When house prices have fallen to the point where the price-to-income ratio is normal, people will buy them and they will have more money left over to spend in the economy. It does not do any good if we keep house prices unaffordable. High house prices is one of the reasons why people could only afford to live by running up lots of consumer and home equity debt. The sooner house prices fall to normal levels, the sooner we can come out of this recession. If the government tries to manipulate house prices upward, it will only prolong the pain.