I WISH PRESIDENT OBAMA WELL

I wish President Obama well, I really do. And I think he won the presidency with good intentions to change Washington for the benefit of most average Americans. But it seems he has already begun to come under the influence of special interests, which would protect their own turf at the expense of the general populace.
On May 15, 2008, when gasoline was heading toward $4 plus per gallon, I wrote that we had enough oil shale reserve in the Rocky Mountain States to provide our domestic gasoline needs for 110 years, over 2.5 trillion potential gallons. The problem is designing an efficient way to separate the oil from the rock. Royal Dutch Shell Oil led the way, and has made tremendous strides toward solving this problem. But with the national gas price now averaging under $2 per gallon, new Energy Secretary Ken Salazar has just reversed plans to lease oil shale land in Colorado, Utah and Wyoming. The nation loses, and the environmental groups, who oppose any oil shale development, win. I see this as a major mistake.
On another vein, we face a frozen banking system, which I acknowledge was allowed to develop by the Bush administration. Interest rates, which were kept too low for too long, brought into being complex mortgage backed securities to satisfy the demand of greedy investors for higher returns. When greedy investment bankers figured how to package bad mortgages into securities rated AAA investment grade; greedy mortgage brokers figured ways to approve unconscionable loans, and the die was cast for a disaster. And it does not help our national reputation that these products were sold to investors all over the world. This is one reason the remaining world is in worse financial shape than we are. But, our banking system is still frozen, and the federal government has already invested over $200 billion of taxpayer money into the largest banks in America, with no appreciable results. Furthermore, all the dying investment banks suddenly became commercial bank holding companies, so they could line up at the same trough.
Now, the Obama administration has announced a new “stress test” for the 19 largest bank holding companies, which hold assets of $100 billion or more each. There are two criteria used for the test. One assumes the economy will continue at its lackluster pace through 2010, and the second presumes things will worsen, with housing values falling another 29%, while unemployment rises to over 10%. This second scenario is probably a good idea. After the stress tests, Treasury Secretary Timothy Geithner will advise these banks how much new capital is required, and give them six months to raise it privately. If they can’t raise it, more of our tax money will go into buying 9% interest bearing preferred stock, which can be converted into common stock. The funds would come from the second half of the original $700 billion TARP plan. Every effort is being made to call this something other than nationalization.
I stated in a September column that our TARP money should be invested only in saving our commercial banks, which hold our hard earned money, rather than investment banks and insurance companies. The government has tried to do both.
It is imperative we learn from the mistakes of Japan in the 1990’s. They allowed their banks to carry bad real estate paper on the books as good assets for over ten years, before they finally wrote off about 96 trillion yen, or the equivalent of nearly 20% of their gross annual domestic output. During that delay, their stock index fell about 75%, and real estate prices declined for 15 straight years. We don’t want such results.
When the tests are completed, and the nation’s capital is invested, these bad investments must be written off the books. Only then, can we start building toward recovery.