Obama armed and ready for the job

Even before he settles down in the White House, president-elect Barack Obama is focusing on his economic vision and looking for ways to salvage the US economy and its financial system. His aides are working night and day to make sure that once he takes the oath of office on January 20, Obama will be ready to run the country without any delay.

He has already picked Timothy Geithner, president of the Federal Reserve Bank of New York, as treasury secretary, and Lawrence Summers, former deputy treasury secretary during the Clinton administration and ex-president of Harvard University, as chairman of the National Economic Council. Both are capable people and good choices for the respective posts. Bill Richardson, the governor of New Mexico, will be taking over as commerce secretary.

The financial markets started looking positive after Geithner's nomination because - since he knows all aspects of the economic and financial problems - it is hoped that he knows how to fix them.

With an economic team as strong as this, Obama will hopefully gain public confidence in his leadership. During the presidential campaign, he pledged to inject US$175 billion (Bt6.1 trillion) to stimulate the economy and create jobs, thereby helping the American people cope with the worst crisis since the Great Depression in the 1930s.

Now that he's been elected, Obama wants an even bigger package so that about 2.5 million jobs can be created over the next two years. So far, no exact figures have emerged, though some economists have endorsed spending up to $600 billion to revive the economy. Democratic Senator Charles Schumer and former labour secretary Robert Reich, a member of Obama's economic advisory board, have both suggested an injection of between $500 billion and $700 billion.

The US fiscal spending would go to infrastructure projects, new environmental technology and tax cuts for low- and middle-income citizens. The president-elect is also pushing for investment in technology to help improve the environment.

All of these economic measures would need Congressional support, and considering that the Democrats are in control of both the House and the Senate, Obama will most likely get the backing necessary to push through the stimulus packages. Congress is scheduled to resume its legislative work on January 6 after the Christmas break.

Besides, the stimulus packages need to be approved because Washington would not want China or Japan to outdo its fiscal spending. Both North Asian countries have introduced huge packages to prop up their economies in view of global recession and troubles in the US and Europe. The United States, which is the originator of the financial and economic crisis, should be responsible for putting its house in order and restoring the economy back to its normal growth path as soon as possible.

The first and most pressing problems facing Obama would be to help the auto industry and the banking system. The Detroit "Big Three" are now asking for $25 billion in federal loans to help them pull through the current crisis. They warn that if Federal assistance is not forthcoming, they will be forced into bankruptcy and millions of American jobs would be at stake.

The blue-collar workers in the auto industry are the traditional political supporters of the Democrats, so there is no way that Obama would close his eyes to the plea from the Big Three. However, the auto-makers have been warned that they would need to reinvent themselves and stay competitive in exchange for the loans. Otherwise, the rescue package would not go through Congress, with the Republicans opposing a bail-out for the auto industry.

The US banking system is already in shambles, and the $700-billion bail-out package for financial institutions might not be enough. Already, the US Treasury, the Federal Reserve Board and the Federal Deposit Insurance Corp (FDIC) have jointly stepped in to save Citibank. Under the terms announced yesterday, the Treasury will invest $20 billion in Citi's preferred stocks under the Troubled Asset Relief Programme.

Citi will issue an incremental $7 billion in preferred stocks to the Treasury and the FDIC as payment for a government guarantee on $306 billion of securities, loans and commitments backed by residential and commercial real estate and other assets.

As a result of the asset guarantee, the $306-billion portfolio will have a new risk weighting of 20 per cent, thus freeing up an additional $16 billion of capital for the company. Citi will issue warrants to the US Treasury and the FDIC for approximately 254 million shares of the company's common stock at a strike price of $10.61.

These are only few examples of what Obama would be facing the minute he steps into White House.

So, he needs to act fast, get ready a large down payment and rally for public support - tasks he has already proved he is capable of accomplishing.