Today, the Wall Street Journal editorial board decided that President Barack Obama has already had ample time to fix the economy, and can now be blamed for all of our economic woes:
But after five weeks in office, it’s become clear that Mr. Obama’s policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence — and thus a longer period of recession or subpar growth.
So we had eight years to get into this mess and five weeks to get out? The Journal’s sole factor for determining Obama’s success was the fact that the Dow sunk below 7,000 yesterday. However, the Journal neglected to mention the administration’s housing plan — aimed at stemming the foreclosure crisis at the heart of the economic downturn — and also left out the new details of the administration’s public-private investment fund for the banks that were reported in the Journal’s own news pages.
The goal for TALF is to boost lending to consumers and small businesses in a couple of ways. First, it will allow companies like GE Finance — which are already holding highly-rated asset-backed loans (like student or auto loans) — to use those loans as collateral for obtaining new federal funding, which it will turn around and lend right back out. Second, it will encourage hedge funds and private equity firms to go out and buy some of these loans, which they can then give to the Fed in return for funding to purchase more loans. This will create a market for loan securities, and as more are bought lending should get rolling again.
While there is a risk to the taxpayer, the loans eligible for the program included are relatively safe, as they have to be originated after October 2007 and AAA rated (which is the highest rating of credit worthiness). A push by the mortgage industry to include less stable mortgage backed securities has thus far been rebuffed.
The plan definitely isn’t perfect, and the federal government is going to be in the business of subsidizing hedge fund activities for a while (the program ends in December 2009). The Fed will have to carefully watch to ensure that firms receiving this money use it to buy more securities, and don’t run off to do something else. But at the end of the day, reviving credit is one more in a necessary series of steps toward economic recovery. And this recovery is going to take some time, a concept that the Journal evidently has a hard time grasping.