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| Peter Morici is an economist and professor at the Robert H. Smith School of Business at the University of Maryland. He is a recognized expert on international economics, industrial policy and macroeconomics. Prior to joining the university, he served as director of the Office of Economics at the US International Trade Commission during the Clinton Administration.
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President-elect Obama cannot indulge in a measured transition. He is compelled by events to act decisively, through quick selection of a Treasury Secretary who can work with incumbent Henry Paulson on the banking crisis and by helping House Speaker Nancy Pelosi fashion a stimulus package that Congress should pass in a post-election session.
The Banks
The country is in the grips of the largest financial crisis since the Great Depression, and the Federal Reserve and Treasury are throwing more than one trillion dollars at the banks through loans and equity purchases. Yet, they have imposed few conditions on the management of the banks.
Lending rates remain high and funds scarce for mortgages and worthwhile business loans. Meanwhile, Paulson is scurrying around considering ad-hoc investments in the likes of General Motors to finance an ill-conceived merger with Chrysler. The unfolding mess at AIG should indicate that giving broken institutions cash without compelling meaningful changes in management strategy and compensation incentives for executives does not generate the results.
J.P. Morgan’s announcement that it will rework about $70 billion in mortgages by writing down balances owed and restructuring payments may be the exception that proves the rule.
