The Shortest PresidentThe Washington party was overshadowed by the by now complete collapse of the British banking system. After losing 66% yesterday, Royal Bank of Scotland loses another 70% of what value remained. Lloyd’s is down by some 60%. Mind you, this is in the face of the most unlimited government support we have yet seen anywhere in the world. The British government has now gone to such lengths and depths to prop up its banks that the reaction has become the inverse of what was intended. Investors are waking up to the idea that if as a government you need to go to such extremes, you must be hiding something. Lots of somethings.
And there, right there, lies the one and only option for President Obama to make things right. That is where he can gain and regain confidence. But the windows of time are short and narrow. The financial world today says that is has no more trust in the banking system. Despite the trillions injected so far on both sides of the Atlantic, there is no more confidence, or trust, or belief, or hope. It’s over, we ran out.
What Obama can do, and it's his sole option, with time running out in a matter of days now, make no mistake about it, is to force the banking system, and the financial system at large, to open their vaults and expose all the paper hidden in there to the light of day. This will be hard, if not impossible - the latter depends on Barack's resolve. But if it's not done, the US somewhere around February 1 will start going through the same motions that London is forced to dance to today. There are no solvent banks left in England, without government, read taxpayers, money they would have to close shop tomorrow morning. The same would happen in the US without the immeasurable and intractable hundreds of billions that have been handed out to date. The reason why this hasn't worked to restore confidence, trust, belief and hope is that there is far too much fear of what is still left in additional losses.
In the present situation, it makes no difference how many billions of your money are given away for free to the banks. The markets have recognized that throwing money doesn not solve structural issues. That needs to be a stern warning to Obama, as well as to all of you. The markets know that there is a high probability of future losses for the banks that will be much higher than what has been handed to them. It is that simple. That is why the British banks are on the edge of a very steep cliff. The English government has refused to recognize this all along, and has instead elected to to open all the taps it could get its smelly little bloated fingers on. It has failed in the UK, and it will fail in the US. I heard a comment during the inauguration that claimed Obama will have a two-year period of grace. He doesn't even have two weeks.
The answer today is not throwing more money into the same holes. The answer instead is openness and honesty with regards to the losses incurred in the past. I give Obama two weeks, till around February 1, to achieve that openness. If by then he hasn't forced open the vaults, I will have to start wondering how long he will serve as president. The problems in our economies are much more grave, and deeper, and potentially more damaging, than anyone seems to be willing to see.
Wall Street as I write this is down 4%. That is a major crash. On a day that was supposed to bring hope. Let me repeat: there is only one way out: force all losses in the financial world out on the table where we can see it. If that is not done, Obama's presidency may be the shortest in US history.
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