Like most, I watched yesterday’s Inaugural festivities with interest, less in the pomp and pageantry and more in the messaging from our new President. While I don’t think it will go down as among the most memorable and quotable of addresses, it was blunt, honest and grounded. But let’s be clear; notwithstanding the positive sentiment around Obama’s taking the reins, and the hope associated with his plans, his achievements will be based on policy decisions and not on hope. And while sentiment will play a role in our recovery, it will not be the driver of a rebound. Changes in sentiment that impact people’s financial behaviors will come from real changes in our Federal Government, the economy, and the health of our financial institutions and local governments. And these changes will only happen if Obama is willing and able to make the hard decisions necessary, such as:
- Aggressively taking over failing banks, recapitalizing the healthy parts with public and private capital and working out the rest over time;
- Providing a mix of tax incentives and public funds for upgrading our technology infrastructure;
- Using tax policy and access to our National labs and Universities to unlock trapped intellectual property that can be used for innovation;
- Developing a durable solution to the morass that is Social Security;
- Constructing a plan for re-invigorating public education, using market-based methods and vouchers to create a culture of high achievement that is accessible to all; and
- Investing in re-training displaced workers from dying industries to make them productive, fulfilled and able to secure a healthy future for themselves and their families.
None of these things are easy and require broad-based, bipartisan support for passage. But for the Obama Administration to be truly successful, he will have to take on these massive, mutli-generational problems. While it is easy to say that the hand he’s been dealt is not fair, and that bar for what constitutes success has been set too high, he has been handed an historic opportunity to restructure key elements of a badly broken system.
As is my wont to use derivative metaphors, the Obama Administration is not unlike a very valuable at-the-money option. The question is, will he reward the call buyers or the put buyers? Because my hunch is that option sellers will be the losers here; something explosive will happen. The question is in which direction.