Obama's Speech

Phew, what a speech! Some 6,000 words in total -- that's a monster. And I think that Obama struck just the right tone: while I didn't like his promise to cut the budget deficit in half -- I think it's the kind of goal which is doomed to failure -- I do like some of the specifics in this speech, especially as regards cap-and-trade and agricultural subsidies.

I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America...
We have already identified two trillion dollars in savings over the next decade.
In this budget, we will end education programs that don't work and end direct payments to large agribusinesses that don't need them.

Towards the end of the election campaign, Obama hinted that a cap-and-trade program might be one of the priorities pushed back by the exigencies of the economic crisis: I'm happy to see that's not the case. And the idea that the US might unilaterally end a lot of agricultural subsidies is just something I never thought I'd ever see -- and frankly this is no more than a very positive sign: I'll believe it when I see it.

The message on banks, however, remains confused:

We will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible, force the necessary adjustments, provide the support to clean up their balance sheets, and assure the continuity of a strong, viable institution that can serve our people and our economy.

What does this actually mean? Well, first of all we can cut out some of the excess verbiage:

We will ensure that the major banks have enough money to lend even in more difficult times. When we learn that a major bank has serious problems, we will clean up their balance sheets.

The "even in more difficult times" is a reference to the famous stress test, which remains something of a chimera. As for the cleaning-up of the balance sheets, your guess is as good as mine. Does buying mandatory convertible preferred shares constitute cleaning up a balance sheet? I don't think it does, given that those shares are going to live on the liability side of the balance sheet, and their existence there will do nothing to to either reduce banks' liabilities or to place a floor underneath the value of their assets.

So the plan for America's banks is as vague as ever, unfortunately, and nationalization, despite its seeming inevitability, remains the Word That No Politician Dare Utter. The only hint of it comes in the bit about "holding accountable those responsible" -- something which implies that the government is in control of the banks. But what that means in practice, I reckon, has yet to be decided.