Search:

Barack Obama and the Financial Crisis

So, the US election is finally out of the way and Barak Obama has confounded the sceptics. He passed the finishing line first and starts his new job in January. Congratulations Barack.

Unfortunately for the new leader, for all of the hope and weight of expectation draped around his shoulders there is, initially, little that he can do to alter the momentum of the slowdown.

There seems to be a new perception amongst US voters that would welcome greater Government intervention in their lives even if this means higher taxation. This is understandable given the huge sums paid, throughout the US, by top tier management to themselves.

In the UK, a FTSE 100 CEO controlling a company that employs tens of thousands of people ‘gets it in the neck’ from the press and public if they are paid much more than a couple of million. At the same time football supporters urge their team’s board members to pay upwards of £5m a year to a teenager to kick a ball around. In the US, these sums would not even get you onto a table at the back of the hall.

Unfortunately big government does not go hand in hand with high profit margins. Given that the average US citizen must arrange his own pension, a President who does not preside over a rising stock market is, long-term, in deep trouble.

It is a moot point as to how long the current banking crisis will take to build itself up to the level where financial institutions feel strong enough to begin large scale lending again. With major manufacturers in the US teetering on the brink of oblivion, a US administration (of whatever hue) might find scarce resources being sucked into propping up ailing behemoths.

Banks might be ‘too big to be allowed to fail’ for the sake of the overall economy. However the same might be said for some corporations who employ not just hundreds of thousands of people but millions in connected suppliers below the line and retailers above it.

In the UK, various governments in the seventies almost bankrupted the country pouring money into the various state owned industries. A new President in a tough situation might find the difficult decisions, so early in his administration, easier to dodge than to address.