Fiddling with the economy while Rome burns

As Obama campaigns for his various economic recovery plans, he doesn't seem to realize that people have smelled leadership failure already and voted with their money; they're selling off everything related to the financial systems he's trying to preserve in the hard-to-dispute belief that he's going to bankrupt them in spite of anything else he might say or believe. It's as if all the man knows how to do is campaign and he and his team are unable to shift into real "here's the plan let's make it work" leadership. For all the leadership failures of the Bush team, the new order formed from the "anyone but Bush" camp seems unable to actually look forward and lead. By focusing on keeping people with unsustainable credit problems in their mortgages, he's effectively offering more painkillers to a patient that's in cardiac arrest from overdosing on them in the first place. Encouraging zombie home-ownership won't give us non-zombie banks.

Is it any wonder entrepreneurs and investors are worried about an Atlas Shrugged scenario and holding off on action and investment while the rules keep changing? I defy anyone to find one truly stimulative action in his plan, one action that communicates to someone ready to put time and money at risk that in some measurable way incentivizes the kind of entrepreneurial risk taking that powered us through the 80s and 90s after the last economic disaster brought on by government fiddling in the 70s.

True leaders look forward and enroll the country's collective imagination not on a vague concept of hope, but a concrete vision of the future. Kennedy had the space program. Reagan had the unabashed embrace of the virtues of capitalism that he shared with the world like a man on a mission (something we haven't truly seen since the Clinton years, despite the rhetoric). Yet Obama seems to want to define himself by what he's not going to be, not going to do. I'm not going to claim McCain would have done a better job at this point - his best days of leadership were clearly behind him and while I think he would have and should have been where W was, he blew his opportunities; his time has passed. But if we're never going to define what "Hope" really is, what's the point?

A true leader identifies the core problem and then looks for the fastest way to fix it. Once that's identified, the problems with that approach appear and mechanisms to address fairly the side-effects of the fast fix are considered. If reasonable mechanisms are available, then he rolls out the full plan. In this case, housing prices need to bottom to a level that attracts investment and the healthy kind of speculation--and the fastest way to get there will pile a lot of extra stress on the financial system in the short term. Those who can afford their payments can stay. Those who can't need to be able to go through a bankruptcy process (perhaps under another name) very quickly so they can buy again as soon as they're able. In the mean time, we need to allow banks and their equity and debt holders (who are generally citizens as well) to preserve their long-term interests while accelerating the short-term declines in housing values.

If we go straight to bankruptcy we risk unraveling the whole system, so the hardest part may be the conversion of equity and debt in failing institutions to equity in reconstituted institutions at a level proportional to the prior stakes they held. Forcing any one stakeholder to lose their share entirely for the greater good is a recipe for chasing private capital out of these institutions permanently so we must find an alternative at all costs lest we find the blood of the death of capitalism on our hands.

Is this a hard thing to do? Absolutely. But the alternatives are all much worse and until now it seems this belief among the political class that their actions are not jeopardizing capitalism (because their ends are well intentioned) won't be challenged until it's too late. So when folks like Rick Santelli on CNBC make an understandable rant about the mortgage plan that clearly hit a nerve, you get responses like this that paint a picture of a condescending and tone-deaf Obama administration claiming we are just don't understand their program because the ends justify their means. Bollocks. He's administering painkillers in a way that will arbitrarily create winners and losers, rewrite the rules midway through the game, and curtail any healthy economic speculation that creates jobs and entire industries to the sidelines while we figure out how to play the new game.

Like everyone else, I'll adjust my behavior to account for the new rules but in the mean time I'm going to be even more cautious about spending and new investment even while I consider extreme actions with my own obligations that might have been unthinkable when credit was so easy to get. The more likely the rules will change, the more comfortable the players get with pushing the envelope in ways that further stress the system. Instead of letting patience and time do their work, we add more perturbation until no stakeholder is left with hope. Eventually, desperation for stability in waters made more choppy by bad leadership enables the crowd to consider sacrifice the very essence of capitalism they used to hold sacred for the false hope of government mandated stability that has ended poorly in every society that has tried it.