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Fallout: The Financial Crisis

Looking at Obama’s team of pros

Marketplace Staff Nov 28, 2008
Fallout: The Financial Crisis

Looking at Obama’s team of pros

Marketplace Staff Nov 28, 2008


Bob Moon: As we noted up top, today’s big business story here is retail, retail, retail. It kind of led yesterday’s news, too, along with the ongoing terror siege India’s financial capital, Mumbai. But earlier in the week — if you can think back that far — there was a whole lot going on domestically. For the Weekly Wrap on finance news we turn to New York Times columnist David Leonhardt and Megan McArdle, who writes for the Atlantic. Welcome to you both.

Megan McArdle: Thanks for having us.

David Leonhardt: Thank you Bob.

Moon: OK, we’ve called on the two of you because you cover the intersection between politics and the economy, and this week was political. President-elect Obama officially named his top economic advisors. Let’s start with you David. You wrote your column this week on Larry Summers. He was appointed the head of the National Economic Council. I take it you think Mr. Summers is going to be a formidable force?

Leonhardt: I do. He’s sort of been the indispensable Democratic economist over the last couple years. After he was forced out as the president of Harvard, he really carved a role for himself as something of a shadow Democratic Treasury Secretary talking about how the Bush administration was too slow in responding to the financial crisis. And he also has some pretty strong opinions about how much inequality has risen and how the tax code needs to be changed essentially to raise taxes on the affluent and lower taxes on everyone else — views that are consistent with Obama’s. And as Obama’s top West Wing aid, I think clearly he’s going to have a big presence in this administration.

Moon: We also have the chair of the Council Economic Advisors, economist and UC Berkeley professor Christina Romer — how are they going to work together?

Leonhardt: Well, I think that’s the big question about this whole team; it’s filled with people — Christina Romer, Larry Summers, Tim Geithner and many more — and the big question clearly is can you get them working together? Not necessarily all going in the same direction. I think Obama likes the idea of people having arguments and him getting to mediate, but it also could be too many cooks.

Moon: Let’s trap another name in here; the Economic Recovery Advisory Board is going to be chaired by former Fed chair Paul Volcker What will the role of that group be and how might Volcker work alongside Summers and Romer do you think? Megan?

Megan McArdle: Well, I think that this is still very much an open question. Certainly again, Paul Volcker is a name to send soothing thoughts to people in the markets because, of course, he’s the guy who brought America out of the crippling inflation spiral of the late 1970s.

Moon: He brought a lot of Americans to their knees as well economically.

McArdle: Well, indeed. And that is one open question. I mean, you kind of have to match the man to the moment and the skills — not to take anything away from Volcker, but sort of the rock hard determination that made him an amazing Treasury Secretary at that moment — it’s not always clear that’s what’s needed in every crisis. The other problem is nobody knows what the roll of this group is going to be yet, and you’ve just thrown yet another giant into the mix. All of these people are going to have their own opinions and differing opinions on some crucial issues about how we should go forward. And, is Obama going to be able to hear this tribe of cats in a productive direction?

Moon: David Leonhardt, the stock market rallied this week after a really awful performance last week. Based on that, can we make any assumptions about how investors are feeling about these teams? Or does the Federal Reserve get some of the credit here?

Leonhardt: Well, I sort of have a rule that I never try to put too much stock in connected cause and effect in the markets. I got a lovely e-mail from a reader shortly after the bailout package passed and in the days after that the stock market tanked, and the reader pointed out, just imagine if the bailout package had failed and then the markets had done the same thing. We all would have been saying the markets tanked because the bailout failed. And instead we weren’t drawing cause and effect. I do think probably there’s some amount of confidence in the markets in the Obama team, but by and large I think it’s important not to draw too much of a conclusion on the short term movements.

Moon: Megan McArdle, the Feds actions this week give you any reassurance?

McArdle: I think that in a way it’s scary because the longer this goes on, the more you realize that there is no sheriff in town. But, as a friend IM’d to me this week, people love to praise FDR for a bold and persistent experimentation, and that’s what this looks like. We’re in a crisis that is somewhat unprecedented — you know, we’ve never had one that looked exactly like this. And certainly these big financial crises come along once every 60 years or so, and so it’s hard to draw any very firm conclusions about how to deal with them. And so what you’re going to get is an incredibly messy response. I think that what the Fed is doing is showing people — and what the Treasury is doing — that they’re going to keep trying things and ultimately some of it will stick. We can’t sort of test and see what the world would have looked like if we hadn’t done any of this.

Moon: David Leonhardt of the New York Times and Megan McArdle of Atlantic.com. Thanks to you both.

McArdle: Thank you.

Leonhardt: Thank you.

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