So far, I think Obama has done a tremendous job as president. He has now gotten two hugely important bills through Congress, the stimulus package and the budget, and has made signal efforts to open up stem-cell research and to overturn various ill-advised Bush orders and policies. He is already on track to be the most successful Democratic president in domestic policy since Lyndon Johnson.
But I have to tell you that I do not think he has the banking and credit thing down yet. I am surprised, to tell you the truth, that this very smart guy with his extraordinary staff and deep political base, has lost hold of an issue that could have such a profound impact on his presidency.
Ever since Obama chose Tim Geithner and Larry Summers as economic gurus, and followed their advice instead of his political advisors Rahm Emanuel and David Axelrod, and his other finance guru, Paul Volcker, he has been at sea. Beginning with Geithner’s evasive and opaque testimony to Congress, it is clear that their priorities are all messed up. Day after day, the Geithner-Summers team has served Obama badly, and it’s up to Obama to either get rid of them or make them do the job.
Fundamentally, they are treating the banking community with kid gloves instead of treating the banking crisis as something that affects us. This has to be flipped around. The government has tons of clout but the inside crew that has Obama’s ear is terrified of insulting the bankers by using it. Instead, they allowed this to become an irrelevant debate about “nationalization.” This is an appalling lapse of both policy and politics.
And we need to get this right, because the next big battle is to take on the credit card crisis. Are we going to let these companies gouge us into a Depression because otherwise they might be unhappy? What chance is there that this team with these marching orders (or lack of orders) is going to keep credit card companies from jacking up interest rates and reducing credit during a recession? Are we going to hear that if we push them too hard, we might (gasp!) lose more of the “best and the brightest” minds in the credit card business, as we have heard about the banks and insurance companies? Whatever Obama does to straighten out his banking team will pay big dividends when the credit card issue reemerges.
Throughout all of American history, the source of populism has often been the banking and credit system. You don’t have to be a demagogue to understand that this is real stuff to average Americans. You just have to think of Harry S Truman, and his feisty attitude that while the special interests have most of Washington, the people only have the president. In every other area of domestic policy, Obama has shown that he understands that we need a bottom-up approach to recovery. The banking issue has been his blind spot.
The AIG scandal on bonuses, with the bipartisan outrage it has generated, gives Obama a precious chance to start again, but to do so will take more than a press conference. He has to either fire his economic team or completely change their marching orders. Obama has indicated his admiration for the FDR approach of experimentation. This is not the time to dig in his heels on a policy that is not working. Now is the time to once again prove his strategic effectiveness by changing course.