Informed Speculation

One nice thing about Barack Obama’s early days is his propensity to at least say hopeful things.  Like this, for example:

President-elect Barack Obama warned that he will inherit a $1 trillion budget deficit upon taking office, and pledged to ban all earmarks as an attempt to address both the “deficit of dollars and the deficit of trust.”

“We’re going to have to stop talking about budget reform. We’re going to have to fully embrace it,” he said after a meeting with his economic team this morning. “It’s an absolute necessity.”

He said his stimulus plan will “set a new, higher standard of accountability, transparency and oversight,” and include an economic recovery oversight board, as well as an online platform so that citizens could monitor spending.

Well, I hope it’s true…but though I may have been born at night, it wasn’t last night.  I know (and you know) that politicians can talk a good talk – it’s how they got elected, after all.  Often, for any number of reasons, the reality of governing is far short of the rhetoric (did I say often?  How about almost always?).

We simply cannot sustain this level of spending, though.  It doesn’t take a genius for irony to realize that the government is bankrupting itself to save individuals and companies from bankruptcy.  Running deficits is one thing, but trillion dollar deficits are, even for the United States in the 21st century, beyond belief.  Yes, we are in a crisis…yes, it is far from over…and yes, government has a role in digging us out of this hole, including (forgive me, fellow free traders!) greater oversight of a financial industry that has proven itself incapable of trust (and it doesn’t help that Paulson has thrown hundreds of billions to financial companies to almost no benefit to the average American, who still can’t get credit, even though the money was ostensibly just so he could – at least GMAC immediately announced relaxed lending after its bailout).

Incidentally, if you’re wondering how a free trader could call for greater regulation, I suggest – if you don’t mind getting a little angry – reading how you and I have been getting hosed for decades in three articles by Michael Lewis, here, here, and here…but if you do bother reading them, you’ll realize I’m not talking about just new regulation, but a complete overhaul of our regulatory structure, because Lewis reveals the sad truth – very few people in the financial industry are competent enough to understand their business, and even less regulators have the slightest clue.

Read the articles, and see if you don’t agree…but on the very good chance that some of you won’t read them (do yourself a favor already and read them!), here are some suggestions from Lewis and co-author David Einhorn in the last of the three articles linked above detailing some urgent changes needed (it’s only a partial list – for the last time, read the articles!):

Stop making big regulatory decisions with long-term consequences based on their short-term effect on stock prices.

End the official status of the rating agencies.

Regulate credit-default swaps. 

Impose new capital requirements on banks.

Close the revolving door between the S.E.C. and Wall Street, but keep the door open the other way.

I could go into more detail on this subject, and I may yet…but for now, it’s safe to say that President-Elect Obama has his hands full – he’s saying the right things, but the problem is bigger than most people grasp, even at this late date.  We have to not only end the recession – we’ve got to end the practices that have driven not only ourselves individually, but our great nation, right up to the brink of economic ruin…