Throwing $25 billion at the U.S. auto sector is akin to the $25 billion thrown at Citigroup; money flushed down the toilet. With over $100 billion of legacy pension and health care costs, a lack of globally competitive, fuel efficient cars and bloated cost structures, the U.S. auto industry as we know it has to die. Putting politics aside, it is simply foolish to pander to the UAW and their lobbyists by trying to save an industry that can’t be saved. Let’s take this opportunity through the bankruptcy process to purge unnecessary costs, sell valued assets to the private sector and re-purpose a skilled labor force towards infrastructure projects that can benefit the economy. Obama needs to make a stand that he is up for doing right, not simply thanking those who donated huge dollars and expect repayment – fast.
Obama’s biggest challenge will be Congress. If he has any hope of delivering on “Yes We Can” and being the President of a changed America, he will have to get tough with Pelosi, Reid and the other entrenched politicos. Both he and McCain are right; the old ways of doing things need to fall by the wayside. And long-time Congresspeople focused more on popularity with their constituents and getting re-elected than on doing what’s right for the country will be the bane of Obama’s existence. Real change has to come from real changed attitudes. Whether our new President will be successful using moral suasion, skillful negotiation or taking his position right to the American people when it comes to key issues in front of Congress remains to be seen. Regardless, getting Congress to do the right things in a non-partisan manner is Job #1 for Obama.
TARP sucks. While Treasury Secretary Paulson has faced tremendously difficult circumstances, he has lost the battle and is losing the war, on both economic and PR fronts. Tossing hundreds of billions into “functioning” institutions, some of which have lousy management and even worse balance sheets, reeks of moral hazard and a rip-off of the U.S. taxpayer. I remain convinced that there is only one answer to getting the financial sector going: cleaning it up and stimulating the economy. The cleaning up should be done by enforcing mark-to-market accounting rules, seeing which banks hit the wall, hiving off bad assets into a liquidating trust and recapitalizing and restaffing (at the top) the remaining Good Banks. You think mark-to-market rules are unfair? Too bad. If you can’t finance all those Level 3 assets, mark them to market and shut up. But the $164,000 question: will these good banks lend? They will have the capital, the clean balance sheets and the charter to do so. They will no longer fear a liquidity crunch and a possible run as they did prior to being restructured and recapitalized. But they will need good opportunities to cause them to lend. Making banks (or GSE for that matter) lend is stupid and dangerous. Economic stimulus is the next piece of the puzzle. For another bold perspective, my friend David Leinweber and a colleague, Salman Khan, have devised a prescriptive for the banking sector dubbed the New American Bank Initiative (NABI). While I think Dave and Sal have identified the right concepts and barriers to success inherent in the current bailout plan, I believe my approach is equally as effective and easier to implement. That said, I credit them with a very creative, throughtful, unorthodox approach to solving the problem.
For economic stimulus, Obama needs to prioritize a dramatically simplified tax code and no tax increases – period. Taxing corporations is the same as taxing individuals; those who don’t get this need to remember that corporations are nothing other than assemblages of individuals ultimately selling stuff to other assemblages of individuals. Once simplified, tax policy needs to be used for strategic objectives, such as substantial tax incentives for investing in alternative energy and other “green” technologies. We absolutely have to break our dependence on foreign oil, but at $60 a barrel (or perhaps lower if the global economy really hits the skids), heavy investment in alternative energy doesn’t make economic sense. Too bad. We can’t wait. We can also use tax policy to encourage capital investment in other industries, where lower costs can help justify projects and new hiring that otherwise would be delayed until better days. We are in crisis, and have a golden opportunity to fix our broken tax code once and for all. Tell the lobbyists to go to hell. The time has come for logic-based, common sense action.
Push technology and education like crazy. Even in the midst of crisis, we can’t lose sight that, yes, the future will come and we need to be prepared. I love the National CTO idea. But this will be nothing other than window-dressing unless Obama can get Congress to fall in line. I’d love to know how technologically-literate our Congresspeople happen to be. My guess is they’d score pretty low on a Tech IQ test. This has to change. While technology isn’t a panacea, it is an enabler that will be a critical element of both fixing our economy and our educational system – for the long term.
Support entrepreneurs of all stripes, particuarly through tax incentives (e.g., R&D tax credits that can be used to lower the effective purchase price of equipment). We are entering a period of years where the common homes for many really smart, lateral thinkers – consulting, investment banking, etc. – won’t be available. We should encourage these people to start companies or to work at start-ups. I am convinced that some of the greatest ideas of a generation will emerge over the next five years, precisely because the risks of starting a business have fallen so far (both in terms of cost and work alternatives). It should be the new Administration’s mission to make sure that this happens.
Citigroup is toast. Can we get our $25 billion back? That was one severely stupid investment. Thanks, Hank.
Don’t get depressed; get mad, get even. Use that energy to come up with new ideas, but perhaps related to stuff that you understand really well. Leverage technology. I can’t believe some of the ways people figure out to make money using the Internet. I wish I was so creative. You might be.
Help people. Even though we are in the early innings of the economic malaise I’ve already seen some pretty crazy stuff happen to really good people. Everybody needs help these days. Even if things feel really bad and scary, we’ve got to help each other. Continue to look outward. Friends, family, friends-of-friends. Emotional support. Commisseration. Networking assistance. Whatever. Be there for others. They’ll be there for you.