Obama’s mon­u­men­tal gam­ble

The Washington Times Weekly - - Commentary - Tony Blank­ley

Much of the me­dia are fol­low­ing the con­ven­tion of as­sess­ing Pres­i­dent Obama’s first 100 days in of­fice. The term was first ap­plied to new Amer­i­can pres­i­dents dur­ing Franklin Roo­sevelt’s spring of 1933.

But Mr. Obama may wish to note the term 100 days de­rives from Napoleon’s es­cape from Elba in March 1815, his bril­liant re­form­ing of an army, his march through France, and his fi­nal de­feat by the Bri­tish and the Prus­sians at Water­loo. It’s up in the air which prece­dent will ap­ply to Mr. Obama.

Af­ter 50 days on the job, the av­er­age of his job ap­proval polls ac­cord­ing to RealClearPoltics.com is 60.3 per­cent — al­most pre­cisely av­er­age for such data for pres­i­dents since Richard Nixon. So the polls don’t tell us much.

Ron­ald Rea­gan’s and Bill Clin­ton’s num­bers gen­er­ally went up from this point in their pres­i­den­cies; Mr. Nixon’s and Mr. Carter’s went down.

But th­ese polls do not yet re­flect the ef­fect on pub­lic opin­ion of his bud­get an­nounce­ments. There are two likely ef­fects: one ob­vi­ous and pre­dictable, the other more de­layed and more sub­tle.

The first is that those who are to be more highly taxed be­gin to know who they are. By propos­ing lim­it­ing char­i­ta­ble do­na­tions and mort­gage in­ter­est de­duc­tions — along with higher mar­ginal and cap­i­tal gains rates — for the up­per mid­dle class (and in ef­fect most of small busi­ness), he not only threat­ens al­ready hard­pressed char­i­ties and churches but pulls an­other sup­port out from un­der real es­tate val­u­a­tions.

By go­ing straight at the na­tion’s in­vestors with tax in­creases, he risks un­der­min­ing al­ready flag- ging in­vestor con­fi­dence. All this Mr. Obama pre­sum­ably al­ready knew was the po­lit­i­cal and eco­nomic price for get­ting his hands on more tax­payer dol­lars to spend.

But vastly more danger­ous to the Obama pres­i­dency (and the na­tion) was his de­ci­sion to go full steam ahead to im­me­di­ately start to trans­form health care, fight car­bon diox­ide en­ergy sources with new tax­a­tions that will in­crease the cost of all en­ergy, goods and ser­vices, and in­crease new ex­pen­sive ed­u­ca­tion en­ti­tle­ments as part of fed­er­al­iz­ing Amer­i­can ed­u­ca­tion.

It is this de­ci­sion to not post­pone those mul­ti­year, mul­ti­tril­lion-dol­lar pro­grams un­til the econ­omy and the fi­nan­cial sys­tem is re­vived that ex­poses Mr. Obama’s pres­i­dency to a pos­si­ble cat­a­strophic melt­down in its first term.

Not only is Mr. Obama fail­ing to fo­cus more or less ex­clu­sively on pro­tect­ing the fi­nan­cial sys­tem and the econ­omy that de­pends on it. He is let­ting his ide­o­log­i­cal ar­dor drive him to ex­pend both his own and his ad­min­is­tra­tion’s at­ten­tion, along with the vast new tax dol­lars, on those pro­grams, rather than on the fi­nan­cial and eco­nomic crises.

Thus, and here is his po­lit­i­cal dan­ger: If the fi­nan­cial sys­tem fails (and much of the econ­omy along with it), it will be a fair, true and po­lit­i­cally lethal charge against Mr. Obama that he didn’t do all he could as soon as he could to pro­tect us from the catas­tro­phe. It was this de­ci­sion that shocked even some of his moderate sup­port­ers such as David Ger­gen, David Brooks and oth­ers who are mut­ter­ing in pri­vate.

And this mis­judg­ment is only com­pounded by the slow and in­ept start of Trea­sury Sec­re­tary Ti­mothy Gei­th­ner, the man with the line re­spon­si­bil­ity to fix it, and who only this last week­end got around to nom­i­nat­ing some his vi­tal sub-Cab­i­net of­fi­cials. The fail­ure of both Mr. Obama and Mr. Gei­th­ner, in the five months since the elec­tion, to come up with a plan to deal with the toxic as­sets and in­sol­vency of ma­jor fi­nan­cial in­sti­tu­tions may well look even more ir­re­spon­si­ble if the de­riv­a­tives crises in fact hit the world.

The great whis­pered-about pos­si­ble cri­sis that causes shud­ders among fi­nanciers and gov­ern­ments around the world is what to do about the more than quadrillion (1 thou­sand tril­lion) dol­lar no­tional value of the world’s de­riv­a­tives (what War­ren Buf­fet called the fi­nan­cial WMD, weapon of mass de­struc­tion) — if that no­tional num­ber be­comes crys­tal­lized, and thus real.

By com­par­i­son, the U.S. gross do­mes­tic prod­uct (GDP) is $14 tril­lion; U.S. money sup­ply is $15 tril­lion. The GDP of the en­tire world is $50 tril­lion, the real es­tate of the en­tire world is $75 tril­lion, the world stock and bond mar­kets are worth about $100 tril­lion.

The no­tional $1.14 thou­sand tril­lion (as re­ported by the Bank of In­ter­na­tional Set­tle­ments in Switzer­land) only be­comes real (and fright­fully danger­ous) if ei­ther coun­ter­party to the de­riv­a­tive goes bank­rupt — and if the de­faulter is a ma­jor in­sti­tu­tion. Then it would start a cas­cade of cross-de­faults that might well in­fect and bring down the world fi­nan­cial sys­tem.

It may well be that the U.S. gov­ern­ment has put up $180 bil- lion to sus­tain the sol­vency of AIG be­cause of its de­riv­a­tives hold­ings. Our gov­ern­ment may well need to spend tril­lions more be­fore this is over on other tainted in­sti­tu­tions and hope that is enough to hold off the de­riv­a­tives catas­tro­phe.

By try­ing to fix the fi­nan­cial sys­tem and the econ­omy inat­ten­tively and with one hand tied be­hind his back (as he frit­ters away both at­ten­tion and tril­lions on new health care and ed­u­ca­tion en­ti­tle­ments and car­bon use), Mr. Obama is bet­ting so much more than his pres­i­dency. His will­ing­ness to take that risk is the chill­ing les­son of the first 50 days. Tak­ing that risk it­self is the po­lit­i­cal equiv­a­lent of a dan­ger­ously lever­aged de­riv­a­tive.

Tony Blank­ley is the au­thor of “Amer­i­can Grit: What It Will Take To Sur­vive and Win in the 21st Cen­tury” and vice pres­i­dent of the Edel­man pub­lic-re­la­tions firm in Wash­ing­ton.

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