Sunday, January 10, 2010

Unraveling of Obama Presidency?

From latest PPP polling reports it seems Republican candidate is ahead of Democratic to fill Ted Kennedy's Senate seat in Massachusetts. The GOP candidate is actively campaigning as the 41st vote to block Obama's Health Care Reform (HCR). Indeed if GOP candidate wins that election, it will be one of the biggest upsets because you cannot get more thorough bred Dem State than MA. Such a result will be a death blow to Obama Presidency. Years of political investment, very rare Dem majority needed to pass legislation in the broken American system, the paid opportunity cost of relegating Economy on back burner for passing HCR; all that will become a 'sunk cost' and it is doubtful whether President and Democrats can politically recover from that morass.

Chances of this upset win are still less than 50%, but it shows the scary times this Presidency finds itself. The primary fault for bringing situation to this precarious stage is with Senate Leader Harry Reid who knowing that there are no votes for Public Option (PO) continued to play the politics of PO and wasted enormous amount of precious legislation time. Practically he should have simply taken the Senate Finance Committee passed bill as is. That could have brought him one or two GOP votes as well (Snowe and possibly Collins); would have given him the comfort of solidity of votes; it would have forwarded the best cost controlling bill among all proposals and it would saved time. Agreed that he got his leadership call right when he decided to jettison GOP votes and concentrate on Dem block only. But then again that focus exactly exposed shameful shenanigans of Lieberman and Nelson and time was lost. All that has contributed to bring this situation on the precipice of a dramatic political failure.

Through out these legal proceedings in Congress, White House and President Obama demonstrated a classic weakness - tendency to leave crucial details to Congress and in the process to loose precious time while Congress makes circles. If Obama White House was more pro-active early on in HCR; lot of things could have been done right way in the first place itself and the bill would have passed in 2009. Same with the Stimulus Act - they left it to Congress and they passed a substandard bill (though better than their early disaster versions crafted by House Committee Head Obey). It is clear that Obama White House is 'over learning' lessons of past Clinton Administration where attempts to dictate things to Congress brought down the whole house.

As if one HCR looming disaster is not enough, there are other more serious problems cropping up and that is exposing fatal weaknesses of the political strategy followed by this White House. First and for most, it is clear that Americans have paid more serious immediate and long term price than potential advantages of HCR when this administration and Congress relegated 'fixing Economy' project to the second place. The failure is in a wrong political call in setting policy priorities. But there is more to that - when critics and well wishers pointed President Obama dangers of taking too many things simultaneously; they were derided and scoffed and President Obama claimed that he will and is capable of handling things simultaneously. Now we know that he has failed to 'walk the talk'. No matter which way one cuts, fact is he and his Administration have deprived Economy policy making from the top priority (barring war and national security) it deserves.

In political balancing act, after tremendous attacks from Conservatives and Libertarians, last year President Obama tried to contain people's expectation by saying that "we all know what Governments can do and can not do" in reference to more policy measures in addressing unemployment. This is contrary to the overall 'interventionist' philosophy he has adopted nor it sits well with Neo-Keynesian Economic approach (generally vociferously advocated by Paul Krugman) which he seems to follow. Even if one grants the freedom of not getting dogmatic about all this, then is President Obama going to the front and telling people that 'his administration would not do more and doing anything more is more damaging in longer term'? Why some half-hearted measures to pacify some Lefty Congress members? Why play politics there when Americans are loosing left and right economically? This will become very clear when Senate would propose another 'small bill' to invigorate jobs which will be smaller than a measure passed by House and President Obama will meekly sign that knowing it will not solve the problem. If deficit funding is the problem of such stimulus measures, why President Obama is hesitant in introducing taxes on rich? If 'now' is not the time to introduce taxes on rich then when? Are we expecting to wait for 2 more years for Tax Reforms and then be with an egg on face as like HCR?

Say what you of Nancy Pelosi's House, at least House never wasted time in passing bills including crucial 'cap and trade' bill which will fundamentally reorient American Economy (which is what required at this time). Granted that House bills are of lesser quality, but at least such a swift and forceful political response on time not only brings confidence to Americans that their political system can solve their burning problems; it does not have the stigma of 'opportunity cost sunk' by way of time lost. On the other hand poor Senate Leadership by Reid and wrong political strategy by Obama White House have compounded already weaker Political system and rendered it dysfunctional. We Americans are paying the price. Since Meridith Whitney said in last summer that credit is not flowing to Small Business, around six months have passed and what has been done? That is what happens when we say that this Administration and this Dem Congress, Senate in particular, are not 'focused' on economy and focusing on HCR at the cost of people's livelihood.

Finally, to pour oil on fire; not only this Administration is ignoring employment issue; it is literally 'sleeping' with those who caused this mess - Wall Street Bankers. Treasury Secretary Tim Geithner's needs to go now. Henry Blodget has an excellent post about this and Geithner replacement should not be another Wall Street Banker like JPM boss Jamie Damon. Even Ben Bernanke's time is up too. The way Bernanke attempts to absolve himself and Fed from the Great Recession, as he tried to explain in his speech in Atlanta last week; that is wrong and disgusting. Failure of regulation regime is all right and a correct diagnose, but Fed was complicit too in ignoring dangers of CDO or lax mortgage writing terms. Nobody bothered about corruption of Rating Agencies. We know that when Alan Greenspan was vehemently rejecting Fed criticism of fueling housing bubble, we Americans paid the price. Similarly we know that despite all that Bernanke has done to pull this Economy out of the mess, he is wrong when he does not accept any criticism of Fed and is simply engaged in preserving Fed Turf while at least few in Congress are realizing that we need to redraw the Fed charter.

If President Obama wants to address the political challenges thrown by Tea Party, he needs to take initiative and withdraw Ben Bernanke candidacy from Fed Chairmanship. Bernanke's service to this country is done and though more is left to do on economy repair; any continuation of his at Fed is damaging. It does not sit well when President Obama wants to give big lectures about 'accountability' whereas Bernanke is busy in freeing Fed from any accountability in creating the mess.

Team of rivals - the time is now. President Obama can rectify some of these damages if he brings in Fed critics like Ron Paul on board and by taking help of GOP Congressional members (John McCain or Eric Cantor); forms a Congressional committee to redraw the Fed mandate and to find a person to replace Bernanke who will implement this new blue print. As much as Democrats have political need to blunt political challenges of Teat Party, GOP is equally interested in facing down Tea Party. That is the unique political opportunity this President has. To exploit this opportunity, Preside Obama will need to:
- replace Tim Geithner by a non-banker;
- start on war footing efforts in Congress to redraw Fed and find replace for Bernanke and
- completely focus on 'fixing economy' as well as initiating efforts for strategic transformation of American Economy (like cap and trade bill to put a price on Carbon and kick start Green Economy).

If these things do not happen, Obama Presidency and Dems in Congress will be at the mercy of 'unemployment reduction' at slow place as Economy mends on it's own. But people will know then that while Americans were suffering this Presidency and Congress remained on side line without doing things which otherwise were possible for them. What we will get is President Obama's Katrina Moment.

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