Hirsh: Obama's Job Is Harder Than FDR's

As the financial markets pause at the edge of the abyss, deciding whether to back away, we should take a moment to mull over all the Blame Obama rhetoric that's been building in recent weeks. Even some who were the president's most fervent supporters on Inauguration Day are now saying plainly that, halfway through his first 100 days, Obama hasn't delivered on the biggest thing that he promised. He and Treasury Secretary Tim Geithner pledged an overwhelming and powerful response to the crisis—an economic Powell doctrine that would restore confidence in the markets. Instead, we've had a hesitant if steady dribbling-out of new programs. What Obama has done is impressive in many ways, but it's hardly a New Deal.

The mood is summed up by Robert Johnson, former chief economist of the Senate Banking Committee and a former managing director of George Soros's firm. Johnson, who is well connected both on Wall Street and in Democratic Party circles, says some top banking types who knew Geithner and Larry Summers beforehand were so confident of that dynamic duo's ability to get on top of the crisis that they actually bet on a market turnaround when Obama took office. Many of these more sophisticated financiers, Johnson says, are "sorely disappointed" today. Also much poorer, given that the Dow has plunged about 20 percent since Obama's inauguration.

The New Deal is shrouded in myth—and considerable controversy—but there is little doubt that FDR swiftly restored confidence after he took office on March 4, 1933. He immediately announced a "bank holiday" and began a series of fireside chats. As Liaquat Ahamed writes in his wonderful new history, "Lords of Finance," the nation's mood shifted almost overnight: People were still lined up outside the banks, but they'd gone from running to returning as depositors. When the banks opened a week later, the Dow Jones average rose 15 percent in the first day of trading. It soared 75 percent (granted, from rock bottom) in the first 100 days of FDR's presidency. The problem today, 50 days into the Obama administration, is that despite the fitful market jumps this week, no dramatic change of mood has occurred. The bottom-line issue across the landscape—on Wall Street, on Main Street, in boardrooms and households—remains a lack of confidence. The entire financial system has failed, and until people start believing in the system again, credit will only dribble out, not flow freely.

That may be changing, slowly. The heart of the confidence problem remains the banks, and on that score the various pieces of Obama's and Geithner's sprawling program could be starting to cohere. Among the most important of these pieces: the promise of a TALF-regenerated (that's Term Asset-Backed Securities Loan Facility) securitization market and the stabilization of the mortgage market could make toxic assets less of a dead weight dragging major banks to the bottom of the abyss we all fear. No less a personage than Warren Buffett says these assets—which have been radioactive since the market crash last year—are now the most salable assets the banks have. That may mean the nation's most revered investor is ready to be among the first to jump big time into that market himself, which would be a major stimulus for Geithner's sagging rep. (Buffett is a director of The Washington Post Company, which owns NEWSWEEK.)

The reduced toxicity level in turn may narrow the gap between what private funds want to pay for these assets and what the government is trying to induce them to pay—the main obstacle to selling them off right now. It's all a complicated series of causal effects. But as a senior administration official argues, "This is not like Roosevelt's day, where you can shut down the banks and declare a holiday. In the old days, assets were deposits. Now banks are doing zillions of things. You got five or six major problems all occurring at the same time."

And finance is global in a way it wasn't during FDR's day, which means the Obama administration and Congress can't simply impose new regulations or Glass-Steagall restrictions such as the "two tier" system Paul Volcker boldly proposed the other day, getting way ahead of the president he's advising. If this is done unilaterally, finance could simply decide to depart our shores. So Geithner has to fly off to the G20 and wait his turn to speak.

No, Obama does not resemble FDR at the midway point of his first 100 days. There are some legitimate beefs with what he's done and how he's done it. "Given that they had two and a half months to get it ready, the first thing should have been kind of a 10-point plan articulated two hours after the inauguration," says Johnson. "Summers with Geithner at his side. Ten principles, details to follow. Then shut down a couple of big banks—there was plenty of time to do an orderly restructuring. And the last thing is, don't let Capitol Hill do the stimulus program. Now the money's going out too slowly. It's designed like a time release for reelection campaigns in 2010." Johnson also says the mortgage-restructuring proposal should have included a reduction in principal rather than just interest rates.

Still, many of these criticisms will fade into irrelevance—along with the grim jokes about Geithner's imminent dismissal—if the banking problem starts to come around. We've got 50 more days to go—time enough for Obama to come out looking Rooseveltian yet.