President Obama has 30 months to make his mark

The new US President has just six months to make an impact on the US economy and housing market, and just 30 months to turn things around.

That is the verdict of Morris Reid, a former aide to Bill Clinton who is now working for President Barack Obama.

Reid visited London just ahead of the inauguration of Obama on January 20 to offer a briefing on the state of play in the US economy, and the challenges facing the new President.

First, it seems former US Treasury secretary Henry Paulson’s $700bn Troubled Assets Relief Program is not doing the trick and the new administration will have its work cut out to turn the situation around.

Reid said: “When you come to Congress with a three-page document asking for that type of money, it must be flawed. Paulson was just not the right guy politically to do the bidding of the administration. And when he got the money to buy up toxic assets he did just the opposite.

“Frankly, Paulson didn’t do anything to help home owners – all he wanted to do was help business and banks. Obama has quite a mess to clean up.”

But Reid had not seen any proposals from Obama on how he will address the situation.

“Right now, he’s trying to get hold of the money so he’ll have it the moment he gets through the door, but it’s not clear what he going to do legislatively.

“The only thing that he has talked about thus far is giving home owners genuine relief and setting up some sort of home ownership trust.”

In the meantime US home owners are doomed to continue suffering.

“It’s a real pain. Most people use their homes to finance their kids’ education or to start a business. Right now, given the negative equity situation, they don’t have the ability to use their homes to get the type of credit they need to support their businesses and they certainly don’t have the equity they need to send their kids to school.

“The interesting thing is that 98% of home owners are still making their mortgage payments on time. It’s just a small number that are dragging the market down.”

In Reid’s view, Paulson’s big mistake was to let Lehman Brothers go under.

“That was a flaw. I think that philosophically Paulson had a bias against Lehmans and the company should never have been permitted to fail. If it had not been, we wouldn’t be in this mess now because that was really the start of the run on confidence in financial institutions.”

Reid believes Obama has got only six months to start making an impact, the problem lurking on the left wing of his own party.

“There is an unstable leadership in the House of Representatives that can’t just can’t ram things through.

“There is a also very left-wing party leadership in place, and on top of all that there are the labour unions that feel that they have some leverage.

“This is going to be the real test for Obama. Taking a stand against the left of his party, led by the House of Representatives, could result in goodwill disappearing quickly.

“I think he’s in a honeymoon period right now and we will pretty quickly see left-leaning institutions and individuals testing his leadership.”

That’s also why Reid thinks that if the US economy is not turned around in the next 30 months it will hamper Obama’s ability to operate as a free agent and he will be forced to play politics. After the experience of the Bush regime, that would be step in the wrong direction.