Reflections On The Speech

Obama gave a speech yesterday to try to sell his continued spending binge. National Review has an editorial that addresses the speech:

In a speech at Georgetown University yesterday, Pres. Barack Obama tried to explain how his economic policies “fit together in a single, overarching strategy.” The only constant we could discern, however, was the president’s desire to use the financial crisis to justify enormous expansions of government power.

Because the crisis is so dire, Obama explained, “we’ve had no choice but to attack all fronts.” His stimulus package, for instance, attacked the financial crisis — a crisis afflicting the banking sector — on the federal-building-construction front, the state-highway-slush-fund front, the green-energy-boondoggle front, etc. The president repeated his line that the stimulus package will be responsible for “saving or creating 3.5 million jobs over the next two years.” Even pro-stimulus economists have admitted that that number is off by about a million. The truth is that we will never know how many jobs the stimulus has “created or saved” — economist Greg Mankiw has pointed out that the ambiguity of the phrasing is an “is an act of political genius” that allows the administration to define “saved” however it wants. But we doubt the stimulus will create or save any jobs, since the government cannot spend money without borrowing or taxing it out of the private sector.

Obama acknowledged concerns about the deficit, but he implored the public not to blame the gargantuan stimulus package. The real problem, he said, is “out-of-control health-care costs” that drive up the cost of our entitlement programs. That’s why he asked for a $600 billion down-payment on a national health-care system as part of his $3.6 trillion budget blueprint.

Rising health-care costs are a big part of America’s entitlement-spending crisis, but, as NR senior editor Ramesh Ponnuru recently pointed out, there are practical ways to bring down the cost of health insurance for middle-class families without raising the tax burden. Nor is it clear that creating a federal health-care bureaucracy could actually curb costs without resorting to the kind of rationing that characterizes the British system.

More important, what does the cost of health care have to do with our potentially insolvent financial sector? By conjuring one side issue after another — health-care costs, fossil fuels, CEO pay, etc. — Obama is using misdirection to distract people from the fact that his administration has yet to provide a framework for resolving troubled financial institutions that cannot save themselves. He said that “the stress tests . . . will soon tell us how much additional capital will be needed to support lending at our largest banks.” But the stress tests have become a punchline. They were designed to allow every bank tested to pass. Federal regulators have instructed the 19 banks undergoing the tests to keep the results a secret, because their goal is to conceal from the public which banks are weak and which are strong; even though the tests are a sham, the feds don’t want some banks telegraphing their relative strength by releasing the results of their stress tests early.

But what if some banks really are beyond rescue? In his speech, Obama rejected both “nationalization” and the free-market approach, though either would be preferable to the status quo of keeping zombie banks on life support indefinitely. The nationalizers want the government to oversee the orderly liquidation of insolvent banks; the free-marketeers think broken financial institutions should work out their problems in bankruptcy court. Either approach would carry risks, but both have the upside of transferring the majority of the losses to bondholders, not taxpayers. As it stands, we’re stuck with the worst-case scenario: Taxpayers have implicitly guaranteed these institutions, yet they remain in private hands. Instead of resolving the zombie banks, we are propping them up. This is exactly the recipe that gave Japan its “lost decade.”

Obama seems to lack either the political will or the ability to make the truly tough calls when it comes to dealing with the financial crisis. The path of least resistance is the path that President Bush and his Treasury secretary, Hank Paulson, blazed with the Troubled Asset Relief Program (TARP) — a program that has outlived its economic usefulness but doubled its political usefulness by becoming a blank check that the administration can use for everything from rescuing Detroit to bailing out the life-insurance industry. Congress’s most urgent priority when it returns from its Easter recess should be to curtail the administration’s TARP power. As evidenced by his speech, Obama has domestic-policy ADD. He won’t confront the financial crisis directly until resource constraints force his hand.

Obama is playing politics with the nation's financial institutions, abusing the 'crisis' -- that he in part created -- to scare people into giving him more and more control over private industries. On top of it all, he is voting present on actually implementing solutions. This is not a good combination, and that's why the market continues downward every time he makes a big speech or announcement on the economy. It happened again yesterday - after this speech, the market closed down almost 140 points.

There's my two cents.