The hole in Obama's grand ambitions

Since Obama unveiled his ambitious budget last week, Republicans have embraced the farcical meme that the president is a socialist. The charges are yet more evidence the GOP is taking an appallingly unserious approach to the current economic crisis. In fact, what worries me most about the president is not his expansion of government, but the surprisingly timid government intervention in one key area: the banking collapse.

Back in mid-February, Treasury Secretary Geithner unveiled the administration's much anticipated plan for rescuing banks. The markets promptly dropped nearly 400 points and the plan was panned far-and-wide as too vague. Fast-forward three weeks and even greater wreckage on Wall Street and it seems the Obama Administration is not much closer to a solution, as Paul Krugman points out in his column today:

The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away.

Krugman goes on to say the feds latest plan -- offering low-interest loans to private investors willing to snap up the bank's stinking assets -- is politically DOA. Congress would never release trillions to insure the investments of hedge fund managers and the like, who helped push us toward the economic abyss. It's hard to argue there. Meanwhile, Citigroup's stock closed at a paltry $1.02 yesterday. Temporary nationalization is beginning to look like a better strategy as The New Republic points out in its latest cover story:

Perhaps the boldest of the available options is temporary government ownership, loosely known as nationalization. Economists from Paul Krugman and Joe Stiglitz to Alan Greenspan have converged on this course, and the markets--or at least bank shareholders--are beginning to anticipate it. But Geithner has been even less keen on nationalization than the alternatives, telling Jim Lehrer it's "the wrong strategy for the country." Has the Treasury secretary suddenly lost his nerve?

That last question is the key. Of course, nationalization opens a whole new set of thorny policy issues surrounding the feds control of major banks, not to mention the political fallout (maybe the GOP can replace its "socialist" howls with "communist" ones). But it's become clear bold action is needed, as Obama himself called for a little while back. What's interesting is Obama's timidity on the bank bailout stands in striking contrast to his sweeping program to reform healthcare, energy, and education. And here, I think, lies the rub: fixing the banking crisis is key to the health of the economy because lending is the lifeblood of capitalism. The health of the economy is key to implementing his agenda. By not proposing a forward-looking solution to the banking crisis, Obama is risking all of his grand plans.

A New Era

When President Ronald Reagan swept into office in 1980, it signaled a new conservative era in American politics. That era officially ended on Thursday when Obama unveiled his first budget. The moment is as historically momentous, albeit in a different way, as Obama's election as the nation's first African-American president.

Obama's budget amounts to an ambitious plan to reimagine government and, to a large degree, American society. Where Reagan advocated for smaller government, less taxes and unfettered capitalism, Obama is betting the financial meltdown, the housing crisis, and 8 years of Bush have left Americans hungry for a newly energized, enlarged, and active government. Obama would tackle healthcare reform, green energy, and education. But his budget would also begin to close the income inequality that was one of the hallmarks of the conservative era. He will raise taxes on the richest Americans and give breaks to middle and low-income earners -- a total repudiation of Bush's tax policy.

I, like many people, had been saying for awhile that Obama's presidency would ride on the success or failure of the massive stimulus package. That remains true, but he's now doubled-down on that bet. Obama has lined up a formidable array of opponents with his budget proposals -- the gas and oil industry, big agriculture, and banking interests. Whether he can outstrip these interests and whether the American people will follow will determine the contours of this nascent era -- and Obama's place in history.

Is Obama healthcare reform strategy DOA?

A line from The Washington Post's story on Obama's healthcare reform proposal had me feeling deja vu:

"The health reform proposal, for example, "is the starting point of a conversation with Congress," the official said. "We're not going to go to Congress and say, 'Here's the plan.' We're starting a conversation and saying, 'This is what we want to get done.' "

This sounds a bit like the strategy that tripped Obama up in the debate over the stimulus package. Obama delegated the details of much of the bill to congressional Democrats, who inserted spending proposals that became easy targets for Republicans. Remember the $200 million for the National Mall refurbishment that the Republicans mercilessly whacked around? The line of argument was effective at sowing doubts about the package and was one of the reasons Obama headed back out on the road to sell the stimulus in campaign-style appearances. It seems Obama might have avoided some of these headaches by taking more control over drafting the bill.

I'm not an expert on healthcare reform, but is Obama setting himself up for more turbulence by deferring to Congress so much again on healthcare reform? Obviously, healthcare reform is an entirely different beast and Obama has showed a remarkable ability to learn from earlier mistakes. One of the criticisms of Clinton's failed reform was that the administration too tightly controlled the effort. I imagine Obama administration has that in mind. Healthcare reform also needs substantial bipartisan buy-in -- that can't come without significant input from folks across the political spectrum.

One thing to keep in mind also is that Obama is already facing major challenges to his efforts on healthcare. Daschle's withdrawal was a major blow. Daschle was widely seen as one of the few people that had the political skills and healthcare reform know-how to lead the charge on a bill. In addition, Ted Kennedy, who would shepherd the bill in Congress, is suffering from brain cancer.