President Obama

Written by Colin Breed and published in Lowdown Article on Fri 5th Feb 2010

The Democrats unexpected loss of the Senate seat in Massachusetts probably encouraged President Obama to announce more far reaching proposals in dealing with the aftermath of the financial crisis. Whilst it was international received wisdom that no one country could go it alone in introducing new regulatory and supervisory systems because of the risk of a "race to the bottom", with banks relocating to the least demanding location of regulation, he was prepared to apparently act unilaterally.

This has provoked a completely new debate both inside international financial sectors and also inside the various Central Banks and regulators. In the USA, his proposals were more warmly received by the general public than perhaps the more considered economic commentators and the professional regulators. The overall scene is very complex and it is unlikely that one set of measures will address all the problems - a range of interconnected, coherent and coordinated rules will provide the banking system with greater resilience, but cannot entirely eliminate all risk. There can be no guarantee of external financial stability, but only the possibility of mitigating future fortunes and their effects.

The challenge for President Obama will be in maintaining his plans in the face of resistance from both academics and bankers who will of course engage with his political opponents to undermine his proposals. If they succeed there could be very considerable consequences. Not only will the big banks and the financial sector in the US demonstrate their power but they may fatally wound the Obama presidency.

Already he has had to water down his proposals on healthcare, a major plank in his election platform. They were clearly too ambitious and were quickly undermined by the vital interests of the pharmaceutical industry, the private healthcare sector and even a large number of citizens who were already paying exorbitant health insurance premiums.

His main foreign policy aim, addressing the Israel-Palestine conflict, has also foundered on the rocks and his brave speech in Cairo which gave such hope to the Palestinians and the Arab communities has virtually been abandoned. He has now returned to the more traditional policy of supporting Israel come what may.

He cannot afford a third failure which will demonstrate his vulnerability in the face of determined opposition. With mid-term elections due at the end of this year and a Supreme Court decision to remove caps on political donations from companies, his once unassailable position is under threat. Once he was considered a definite "two-term" President but that is now by no means certain. He needs his banking proposals to succeed not only for his survival but also as a lead to other international regulators who would like to follow his courageous more.