Wednesday, April 22, 2009

As Assessment of Obama's Efforts on the Financial Crisis

There is a good summary of the current situation (as of April 7th) and an excellent analysis of how well the Obama administration has been handling the crisis at The Baseline Scenario blog.

These blog authors have the credentials to do the assessment:
Peter Boone is chair of Effective Intervention, a UK-based charity, and an Associate at the Centre for Economic Performance, London School of Economics.

Simon Johnson, former chief economist of the International Monetary Fund, is a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. He is a co-founder of The Baseline Scenario.

James Kwak is a former McKinsey consultant, a co-founder of Guidewire Software, and currently a student at the Yale Law School. He is a co-founder of The Baseline Scenario.

Here is the key bit:
On balance, we believe that the Obama administration, and Fed Chairman Bernanke, are making every effort to combat the financial and economic crisis. However, some aspects of the response, most notably the fiscal stimulus, have been underpowered. And a combination of ideological and political constraints has hampered the administration’s efforts to rescue the banking system. For these reasons, we still do not see the mechanism that will cause the economy to turn around.

In this context, we interpret the recent stock market rally as indicating that the economic decline is slowing; it does not necessarily denote that rapid recovery is just around the corner. We would also emphasize that credit markets are pricing in a substantial risk of default for some leading brand names, both in financial services and manufacturing - as the system stabilizes and bailouts become harder to justify, the probability of default for large companies may continue to rise.

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