Obama's first 100 days
29-4-2009 | Economic news
President Obama has been in office for 100+ days and has shown considerable ambition in tackling the credit crisis and recession. US economist Philip Marey from Rabobank’s Financial Markets Research department, discusses the effectiveness of Obama’s policies.
Team Obama to the rescue
With the fall of Lehman in September 2008, the credit crisis intensified and the US recession deepened. In its final months, the Bush administration lacked the mandate and drive to get things done. After the elections, a political vacuum persisted until Obama took office. However, in the first 100 days of his presidency we have seen a number of promising initiatives. A US$787 billion economic stimulus package was negotiated with Congress to support the economy.
Moreover, a Financial Stability Plan (FSP) was revealed that rests on four pillars:
- A Public-Private Investment Program (PPIP) should remove ‘toxic assets’ from the balance sheets of banks.
- An extension of the Fed’s Term Asset-backed securities Loan Facility (TALF) should help investors purchase toxic assets, in addition to asset-backed securities based on loans to consumers and small business.
- A stabilisation of the housing market through the reduction of monthly mortgage payments.
- A recapitalisation of banks that fail their stress test.
Weak spots
Unfortunately, there are some flaws in the rescue plans. Due to political concessions, the economic stimulus package lacks cohesion. And, its effect will be smoothed out over 2009 and 2010, instead of delivering the intended ‘Big Bang’ to jump-start the economy.
Secondly, the stress tests have been based on economic scenarios that seem a bit too optimistic, which may reduce the credibility of the test results. Finally, the anti-Wall Street rhetoric from politicians and policy-makers has led to the introduction of ‘political risk’ into the equations of investors. As a result, potential participants in PPIP and TALF are hesitant because of current and future government intervention.
We have seen a lot more drive and vision from the Obama administration than from the previous administration in dealing with the credit crisis and recession. However, we still have a long way to go before the financial system is healthy again and the US economy returns to a sustainable growth path.
Financial Markets Research (FMR) is the research department of Rabobank International’s Global Financial Markets division and Philip Marey is the author of this article.
