Stephen’s Posterous

Below is the full text of the statement by U.S. Treasury Secretary Tim Geithner at the G-20 meeting of finance ministers and central bank governors:

I want to start with the state of the global economic recovery.

Yesterday’s jobs numbers in the United States reinforced that this is still a very tough economic environment. The pace of job losses has slowed sharply, but unemployment is very high and still rising. Millions of Americans are out of work, or working less than they would like. The crisis caused enormous damage, and that damage has left consumers and businesses still cautious and tentative about the future.

We need a period of sustained economic growth to bring the unemployment rate down.

And that process of growth is now beginning. The U.S. economy and the global economy are growing again. Businesses are starting to invest. And consumers are spending. Business and consumer confidence has improved. Global trade is expanding at an encouraging pace.

As the crisis has receded, the value of savings around the world has risen. The cost of credit has fallen. Confidence in the stability of the financial system has been reestablished. These improvements have been more rapid and more broad-based than many anticipated.

At the start of this year, the world was confronting the very real risk of a great depression, global deflation, and financial collapse. Now, the forceful policy response of governments and central banks around the world has put out most of the financial fire and restarted growth in private activity.

Banks in the United States are repaying the government’s investments with interest. We have wound down the broad-based guarantees and large scale capital programs for banks that were essential to break the financial panic of last fall.

The consensus of private forecasts now anticipates global growth in the range of three percent next year.

With growth now underway and the financial fires winding down, the policy challenge is changing.

The first stage was the emergency rescue, providing tax cuts to boost personal and business income and public investments to help offset the fall in private demand.

The next stage is about catalyzing private demand and business investment. This will require continued policy support.

This is why the recovery programs put in place in the United States and around the world were designed to provide support for growth over a two year period, and this is why governments around the world are committed to continue to reinforce the recovery now underway, before we shift to restraint.

That is why President Obama signed legislation on Friday expanding and extending tax cuts for businesses and supporting workers who are struggling to find jobs.

That is why we are continuing to provide targeted support for small businesses and small banks to make sure we repair and open up the financial pipes that provide credit.

That is why we will continue to support the stabilization of the housing market.

That is why we are working to build consensus with our major trading partners on ways to open global markets.

That is why we are providing very substantial incentives for basic science, research and development, for job training and education, for new energy technologies.

And that is why we are trying to reduce the costs and burdens our existing health care system imposes on American families and businesses.

Government policy has to provide a bridge to growth led by the private sector. We’re now in the middle span of that bridge.

As growth strengthens and financial headwinds diminish, we will be able to begin the essential process of restoring balance to public finances and fully removing the broad backstop still in place for credit markets.

This will require a delicate balance.

If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater.

Our citizens and businesses and investors around the world must be confident that we will find the political will to restore fiscal responsibility and balance when recovery is in place. If that confidence ebbs, the recovery will be weaker, and we will have less flexibility to provide the reinforcement that the economy and the financial system may still require in the near term.

We need to reinforce growth to create jobs and get businesses investing again to underpin the recovery in the housing market and to repair the credit markets. It is too early to start to lean against recovery. The classic mistake in past crises was to put on the brakes too quickly. But we all recognize that confidence in our ability to reduce future deficits and to exit from the extraordinary monetary policy and financial emergency measures is very important to confidence in the sustainability of recovery.

Today’s G-20 statement reflects a very broad consensus that growth remains the dominant policy imperative across our economies. And we are bringing the same commitment to cooperation and coordination we demonstrated in the crisis to the agenda of reforms we outlined in London and Pittsburgh.

These reforms are directed at the critical priorities of laying the foundation for stronger, more balanced and more sustainable growth, at financial reforms that will create a more stable system with stronger rules to constrain risk-taking and at building stronger international financial institutions.

These are all global challenges. They are important to our national economic interest, but they cannot be addressed by the United States alone.

We made important progress on all these fronts today and look forward to advancing these reforms in the months ahead.

Let me conclude by thanking Prime Minister Brown, Chancellor Darling and his colleagues for bringing us to this beautiful country and for their leadership of the G-20 this year. That role now moves to Canada and Korea.

Thank you.

Source.

The Optmist by Jesse Eisinger, Portfolio.com

Bill Ackman’s friends describe him in two ways. They offer the euphemism that the prominent hedge fund manager “does not suffer from low self-esteem.” Then they observe that he is optimistic, almost clinically so. A pop psychologist might diagnose Ackman with hypomania, a condition notable for persistently elevated moods but without the self-destructiveness of true mania.

“He doesn’t register reversals and defeats and hard feelings the way other people do,” says David Klafter, a former colleague. I ask Ackman about the condition while he is driving in a car with his family. He hasn’t heard of it, but says he is an “extremely resilient person.” His 11-year-old daughter playfully chides from the backseat, “And you’re modest.”

FT: Thank you for doing the interview Mr President.

Obama: My pleasure, I read the Financial Times before other people read the Financial Times. Now it’s trendy and everybody carries around a Financial Times.

FT: Let’s talk about the G-20. What will be your benchmarks for success?

Obama: The most important task for all of us is to deliver a strong message of unity in the face of crisis. There’s some constituent parts to that. Number one, all the participating countries recognise that in the face a severe global contraction we have to each take steps to promote economic growth and trade; that means a robust approach to stimulus, fighting off protectionism.

Next, we have to make sure that we are all taking serious steps to deal with the problems in the banking sector and the financial markets and that means having a series of steps to deal with toxic assets and to ensure adequate capital in the banking sector.

Third, a regulatory reform agenda that prevents these kinds of systemic risks from occurring again and that requires each country to take initiative but it also requires coordination across borders because we have a global, we have global capital markets, and that will include a wide range of steps, additional monitoring authority coordination of supervisors and various countries dealing with offshore tax havens. Making sure that…

FT: Is that a problem? Offshore tax havens.

Obama: Well, its something that is going to be discussed. I know that in my discussion I think there is a concern that we don’t want people to be able to game the system or circumvent regulated capital markets and making sure our regulations are targeting not just banks but any institution that could pose a potential systemic risk to the system.

A final area of concerted action involves international financial institutions and their capacity to assist emerging markets in developing countries at a time when those markets could be under even more severe strain then some of the more wealthy nations and I think making sure that institutions like the IMF have the resources to provide such assistance that world food supplies are not imperilled as a consequence of the break down in global trade, those are all issues that I think have to be addressed.

Now, I’m confident based on conversations that I have this week with Angela Merkel, Sarkozy, as well as with Kevin Rudd as well as conversations that I have had previously with Gordon Brown and others, that there is already a rough consensus there that by the time we arrive in London we will have taken, we will have made significant progress in moving in the right direction.

FT: Let’s just talk about the stimulus for a moment. At the moment there has been a 1.8 per cent GDP boost in 2009 by the G20 nations. There are concerns among economists that you need a sustainable stimulus and therefore 2010 is key. Will you get secure commitments from say, the Europeans, for action if necessary in 2010?

Obama: Two points I want to make on this, Number one: The press has tended to frame this as an “either or approach”. There are some G20 participants that are arguing fiercely for stimulus, others for regulation. What I have consistently argued is that what is needed is a “both and approach”.

We need stimulus and we need regulation. We need to deal with the problems right in front of us and we also need to make sure we’re taking steps to prevent these types of breakdowns from happening again.

With respect to the stimulus, there is going to be an accord that G20 countries will do what is necessary to promote growth and trade. I think there is a legitimate concern that, would most countries already having initiated significant stimulus packages that we need to see how they work.

Obviously I admire economists. I have a bunch of them on my staff. But to start making a whole host of plans about next year, without having better information on how the current stimulus efforts are working, is something that I think is of concern.

So what we are going to see is what the United States has led on this. We have been very aggressive in terms of our recovery package. The way our recovery package is structured, money is going out both in 2009 and 2010.

But each country has its own constraints, its own political rhythms and what we want to just make sure is that everybody is doing something, everybody recognises the need to make progress on this front and that we are prepared to step into the breech should current efforts prove to be inadequate.

FT: I mean that is really the great challenge, in managing this crisis - bridging the gap between what is economically absolutely necessary and what is politically possible. How do you bridge that?

Obama: That’s one gap. Then there’s a gap in ideas about how to approach a crisis like this, especially among economists - although on the issue of the stimulus there seems to be much broader consensus among both conservative and liberal economists that stimulus is appropriate.

You know, the financial crisis hit the United States first; it is now being experienced around the world. Not surprisingly we took some very aggressive action earlier than some other countries because its impact had been felt most immediately on Wall Street.

As other countries start experiencing these drastic declines in GDP and in their exports I think that the sense of urgency has grown and you are going to start seeing a convergence.

In all countries there is an understandable tension between the steps that are needed to kick start the economy and the fact that many of these steps are very expensive and tax payers have a healthy scepticism about spending too much of their money, particularly when it is perceived that some of the money is being spent not on them but on others who they perceive may have helped precipitate the crisis.

So that is always going to be a challenge and what’s also difficult is the fact that the policies we initiate all take time to take effect and by its very nature politics looks for more instantaneous gratification.

But I am confident that the American people, and I think people around the world, are looking to its leaders to lead and that some of the steps we have already taken are starting to bear fruit. We’re seeing glimmers of stabilisation in the economies and we haven’t yet seen…

FT: Glimmers of stabilisation?

Obama: Here in the United States for example, you’re starting to see pockets of stabilisation in the housing market. Our housing plan has led to the lowest interest rates, mortgage rates in a very long time and you are starting to see a huge number of refinancing in the banking sector.

In certain select markets, like the market for auto loans or the market for student loans, Secretary Tim Geithner’s efforts to provide a market for asset-backed securities has helped and so we still have a long way to go, but I am confident that if we are persistent and we don’t approach this with a thought that there is a silver bullet out there but instead are willing to try a range of methods to deliver on the economic growth in jobs that we will get out of this current crisis.

FT: You mentioned the risks and dangers of protectionism. 73 separate measures have been identified by the World Bank since the last G20 summit so what again in practical terms can your administration do at the G20 to stop this - and I’m thinking to whether there are real risks that people worry in Europe a lot about what is going on, on Capitol Hill, with “Buy American” provisions.

Obama: Well first of all I think it’s important to note that here in the United States, despite some protectionist rhetoric and very real economic frustration growing out of the collapse of the financial markets and the huge rise in unemployment that the “Buy American” provision that was in the stimulus package was specifically written that had to be consistent with WTO. That the Mexican trucking provision is now subject to negotiations to ensure that we don’t see an escalating trade war.

I have sent a very clear signal that now is not that time to offer hints of protectionism and I will continue to discourage efforts to close off the US market. I think that in a democracy, there are always going to be some loose ends out there.

That’s true here, that’s true around the world but overall I don’t think that we’ve seen a huge rush to protectionism that that isn’t the rhetoric that is emanating from the leaders that will be gathering in London.

And to the extent that the American people or Europeans or Asians, Africans, Latin Americans all feel confident that their leaders are doing everything that they can to encourage and promote economic [..] and that they have their populations interests at heart, I think we are going to be able to hold the line on any significant slippage.

FT: I wondered Mr President whether you’re concerned that, particularly following the AIG bonus controversy, there’s some danger that confidence that business has in the rule of law in the United States has been shaken and that could hinder some of these recovery measures?

Obama: I think it is a source of concern in some quarters. To the extent that the captains of industry recognise very legitimate frustrations that the American people feel when they read about huge bonuses going to members of firms that are receiving large tax payer bailouts.

I think they can take steps to lessen that danger and I met with some bankers today and it was a constructive conversation but one of the points that I made is that a time when everybody is needing to sacrifice there has to be a similar sense of sacrifice on the part of those various sectors of the economy that helped to precipitate this crisis and to the extent that they’re showing restraint that compensation packages are structured so that there is some deferral until money is returned to tax payers and the economy recovers that will be good for everybody. That will put [...] in a stronger position to help them.

But you know, keep in mind that although there are going to be, I think, emotional reactions to and legitimate grievances around some of these issues, the United States has been the world’s most successful economy precisely because of a long standing respect for legal contracts and orderly transparent and open market operations and that’s not going to change.

FT: Mr President, given the rising tendency to populism on Capitol Hill and elsewhere, do you feel confident that at a time like this you can go to Congress and ask for the kind of backing of capitalisation that most economists say will be required in the near future?

Obama: I think it is very important for us to show that the money that has already been authorised is being well spent. That it is helping to result in loans going to small business and large business that are in turn investing and creating jobs. If voters perceive that it’s a one way street that we are just pouring more and more money into institutions and seeing no return other than avoiding catastrophe then it’s harder to make an argument for further intervention.

If on the other hand people start saying that they can refinance their house, and their child can get a student loan and that small business is able to retain its credit line, so that there is a tangible and meaningful result from our measures, then I think we can win back the confidence of the American public.

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From George Soros, Chairman of Soros Fund Management and Founder of the Open Society Institute

The forthcoming Group of 20 meeting is a make-or-break event. Unless it comes up with practical measures to support the less developed countries, which are even more vulnerable than the developed ones, markets are going to suffer another sinking spell just as they did last month when Tim Geithner, Treasury secretary, failed to produce practical measures to recapitalise the US banking system.

This crisis is different from all the others since the end of the second world war. Previously, the authorities got their act together and prevented the financial system from collapsing. This time, after the failure of Lehman Brothers last September 2008, the system broke down and was put on artificial life support. Among other measures, both Europe and the US in effect guaranteed that no other important financial institution would be allowed to fail.

This necessary step had unintended adverse consequences: many other countries, from eastern Europe to Latin America, Africa and south-east Asia, could not offer similar guarantees. As a result, capital fled from the periphery to the centre. The flight was abetted by national financial authorities at the centre who encouraged banks to repatriate their capital.

In the periphery countries, currencies fell, interest rates rose and credit default swap rates soared. When history is written, it will be recorded that in contrast to the Great Depression protectionism first prevailed in finance rather than trade.

Institutions such as the International Monetary Fund face a novel task: to protect the periphery countries from a storm created in the developed world. Global institutions are used to dealing with governments; now they must deal with the collapse of the private sector.

If they fail to do so, the periphery economies will suffer even more than those at the centre, because they are poorer and more dependent on commodities than the developed world. They also face $1,440bn (€1,060bn, £994bn) of bank loans coming due in 2009. These loans cannot be rolled over without international aid.

Gordon Brown, the UK prime minister, recognised the problem and designated the G20 meeting to address it. Yet profound attitudinal differences have surfaced, particularly between the US and Germany. The US has recognised that the collapse of credit in the private sector can be reversed only by using the credit of the state to the full.

Germany, traumatised by the memory of hyperinflation in the 1920s, is reluctant to sow the seeds of future inflation by incurring too much debt. Both positions are firmly held. The controversy threatens to disrupt the meeting.

Yet it should be possible to find common ground. Instead of setting a universal target of 2 per cent of gross domestic product for stimulus packages, it is enough to agree that the periphery countries need aid to protect their financial systems. This is in the common interest. If the periphery economies are allowed to collapse, the developed countries will also be hurt.

As things stand, the G20 meeting will produce some concrete results: the resources of the IMF are likely to be doubled, mainly by using the mechanism of the “new arrangements to borrow”, which can be activated without resolving the vexed question of reapportioning voting rights.

This will be sufficient to enable the IMF to help specific countries at risk but it will not provide a systemic solution for the less developed countries. Such a solution is readily available in the form of special drawing rights. SDRs are complex but they boil down to the international creation of money. Countries that can create their own money do not need them but periphery countries do. The rich countries should therefore lend their allocations to the nations in need.

Recipient countries would pay the IMF interest at a very low rate, equivalent to the composite average treasury bill rate of all convertible currencies. They would have free use of their own allocations but would be supervised in how the borrowed allocations were used to ensure they were well spent.

In addition to the one-time increase in the IMF’s resources, there ought to be a big annual issue of SDRs, of say $250bn, as long as the recession lasts. It is too late to use the April 2 G20 meeting to agree this, but if it were raised by President Barack Obama and endorsed by others, this would be sufficient to give heart to the markets and turn the meeting into a resounding success.

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With just two weeks to go before the summit of the Group of Twenty countries in London, Tim Geithner, the US Treasury secretary, remains the only confirmed official in what is arguably the most important department in Washington nowadays. British officials believe it is having a bad impact on the summit.

“There is nobody there [to talk to]. You cannot believe how difficult it is,” Sir Gus O’Donnell, Britain’s most senior civil servant, said last week.

In the past 10 days, the White House has announced nominees for some unfilled Treasury positions, including Alan Krueger, the Princeton academic, who will head up its economic policy division, and David Cohen, who will be assistant secretary dealing with terrorist financing. But the increasingly acute personnel bottlenecks afflicting the Obama administration are likely to continue for weeks if not months.

“Every day I walk into the Brookings Institution canteen I meet one colleague or another who is going through vetting hell,” says Bill Galston, a former Clinton official, whose think-tank is one of the largest sources of Obama administration nominees.

These include Lael Brainard, another former Clinton official, who is tipped to be nominated as the senior international official at the Treasury and Daniel Benjamin, who will head up the counter-terrorist job at the state department under Hillary Clinton.

“This is turning into a crisis of governance,” Mr Galston added. The problem, which was made far more acute by the withdrawal in January of Tom Daschle, the nominee for health secretary, after it was discovered he had only recently paid more than $140,000 in tax arrears, applies to nominees across all federal departments.

But the increasingly toxic politics of the financial sector bail-out, which is leading to louder public anger with each passing day, makes it particularly difficult to attract recruits to the Treasury. The appointment of anyone with any previous connection to a bank that has received bail-out funds or an institution that had exposure to the subprime mortgage market is considered problematic.

Those who make it through that net are being subjected to the most intense scrutiny ever applied, involving agencies such as the Federal Bureau of Investigation and the White House personnel department. And that is before their names are sent up to Capitol Hill, which is usually the most humiliating gauntlet of all.

“I have never been subjected to such personal, insulting and expensive scrutiny in my life,” says one second-tier nominee, who was asked for purchase receipts for furniture he donated to charity more than a decade ago. Another nominee was asked about his wife’s sexual activity when she was at a university.

Several nominees, including Lee Sachs and Caroline Atkinson, both former Clinton officials who have been through earlier nomination processes, have withdrawn their names. Annette Nazareth, a former senior official at the Securities and Exchange Commission, who was tipped to be deputy to Mr Geithner, withdrew once it became clear that the Senate would make her former SEC role an issue. Many more have withdrawn before their names were made public.

Tellingly, Mr Sachs, who was proposed for an undersecretary position at the Treasury, chose to remain on as a counsellor to Mr Geithner, a position that does not require Senate confirmation. Others, including Steve Rattner, the private equity investor; Gene Sperling, the former head of the National Economic Council under Mr Clinton; and Edwin Truman, a senior Clinton Treasury official, have also chosen to be advisers.

Yesterday, Lewis Alexander, a senior economist at Citi, also came on to the Treasury’s books as an adviser. “When people are choosing to forgo official positions in favour of informal counsellor positions that ought to tell you something about how excruciating this process has become,” says Paul Light, a professor at New York University, and a leading authority on administration appointments.

“My guess is that it will take until the end of 2009 before all the Obama administration’s cabinet and sub-cabinet positions are filled.” White House officials point out Mr Obama is ahead of his predecessors in the number of appointments and nominations he has made, 610, compared with 408 at the same stage for George W. Bush and just 385 for Mr Clinton.

They say Mr Obama has done this while imposing a higher ethical bar on nominees: lobbyists, for example, are debarred. While true, none of Mr Obama’s predecessors faced the multiple crises he inherited, including a summit within his first 100 days to tackle a global economic meltdown. “All we’re saying here is that Mr Obama is a slightly faster turtle than Bush or Clinton,” said Mr Light. “But he’s still a turtle.”

Source.

Barack Obama’s populist streak risks undermining his authority. The US president said Tim Geithner, his Treasury secretary, should pursue every legal avenue to block $165m in bonuses to American International Group executives, but it seems like Geithner already has. The bonuses stink. But implying doubt over contract commitments and contradicting his own officials is unwise. Obama needs to be smarter.

True, Obama’s message might be more of a bullying tactic than a true-to-word statement. A threatened legal investigation mandated by the president might be enough for some of AIG’s employees to tear up their bonus contracts. This type of rhetoric has worked before. UBS chairman Peter Kurer used a similar tactic on his top executives, persuading some to hand back their bonuses.

The outrage is understandable with AIG on the receiving end of $180bn-odd of taxpayer cash. But Obama’s message comes a little late. Larry Summers, the president's chief economic adviser, noted on a talk show over the weekend that the US “cannot just abrogate contracts”. An administration official told the New York Times that Treasury had done its own legal analysis and concluded that the AIG contracts could not be broken.

Obama’s somewhat contradictory statements sound like knee-jerk populism. They also make his administration appear uncoordinated. What’s more, using political power to disrupt business contracts is dangerous territory for an administration anxious to restore investor confidence.

And it is unnecessary. Obama could be cleverer. Just threatening to name and shame these executives might encourage them to turn down bonuses. Or he could tell the employees accepting the biggest bonuses that they will have to justify their pay in front of Congress. Quickfire populism may play well in the short term, but Obama's famous cool under fire is what he needs to persuade investors he can turn financial markets around.

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Politics, investment and entertainment inevitably impinge on each other from time to time. But anyone trying to mix them should take care. That is at least one of the lessons from the past two weeks, which have seen US stocks drop to their lowest since August 1996. 

First, President Barack Obama attracted ridicule, and anger, for a foray into investment advice.

“What you’re now seeing is profit and earning ratios starting to get to the point where buying stocks is a potentially good deal,” he said, “if you’ve got a long-term perspective on it.”

He presumably meant price/earnings ratios. The reaction showed that Americans disliked being given investment advice by their commander-in-chief. His obvious discomfort with basic market terminology attracted ridicule among professional investors.

He added that he did not look at the “day-to-day gyrations of the stock market” and that the stock market “is sort of like a tracking poll in politics”. “It bobs up and down day to day,” he said. “If you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”

Critics complained that he was trivialising the damage the stock market had done to people’s savings, and that the market was not “bobbing up and down” under his watch, but falling relentlessly. Can the fall in share prices since he took office be taken as a vote of no-confidence in him, and his activist agenda?

The chart shows the S&P 500 since election day, along with the FTSE All-world index, which is deeply influenced by events in the US. It has fallen. The pattern is complex. There was a mini-crash in November, triggered by the Treasury’s announcement that it would not, after all, be buying troubled assets from the banks. That ended with the rescue of Citigroup.

After that, there was a 17 per cent rally that lasted until February 10, when Tim Geithner, the new Treasury secretary, made his much-trailed speech on his plan for the banks. He was not ready to reveal details, dashing many hopes. Over the next four weeks, the S&P fell a numbing 24 per cent, before staging a rally of 14 per cent this week. It is just above its low from November’s panic.

The latest sell-off was marked by extreme fear. Individual investors, according to one survey, were more pessimistic than they had ever been. From such an extreme it was not difficult to stage a bounce on little substantial news.

Oddly, the tracking poll analogy may be a good one. It is unwise for investors or politicians to pay heed to extreme moves from day to day, but the overall trend should send a clear message. The market has twice panicked when the Treasury has raised its hopes on a policy for the banks and then lowered them.

That stocks are barely higher now than in the November panic implies that the new administration has not won the market’s confidence when it comes to the banks and that it needs to do so before stocks can recover.

Beyond that, this month’s sell-off was driven by very bad economic data, and by the divisive political debate. That debate has played out in the unlikely venue of a late-night comedy show. Rick Santelli, a CNBC reporter, made an on-air outburst against Obama, attacking homeowners facing foreclosure as losers.

Mr. Santelli turned down an invitation to appear in an interview with Jon Stewart, a highly popular late-night comedian. Stewart’s response was to attack CNBC for presenting investing as entertainment, and thereby egging on the bubble in share prices.

This led to a public feud with another CNBC commentator, Jim Cramer, that dominated talk on Wall Street all week. It ended with a confrontation between the two on Stewart’s show, which left Cramer looking chastened. The populist anger, earlier directed against the president, now appeared to be aimed at those who had egged on the market.

This episode shows that there is more than enough populist anger to go around. It behoves everyone to stay calm, including investors. Investment decisions, like all others, should not be made in anger.

And ironically, Obama’s mangled advice was not at all bad. Valuations are indeed getting to the point where, historically, stocks have been a good buy, for those who can wait a while. Cyclical price/earnings ratios are not as low as they have gone at the bottom of history’s great bear markets, but are at levels that typically lead to good returns over the ensuing decade.

Investors should also follow Obama’s advice and ignore day-to-day gyrations. Extreme volatility is common in bear markets, while day-to-day swings are driven by raw emotion rather than rationality.

It is possible that the extreme sentiments in the US body politic reached their cathartic moment in the confrontation between Stewart and Cramer, and that we will come in time to link the incident with the bottom of this bear market.

But on balance that looks unlikely. The mere fact that markets could bounce so sharply this week suggests that confusion still reigns and we are still in a bear market. And that is entertaining for nobody.

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From Karl Rove, former Senior Advisor to President George W. Bush

Team Obama demonstrated remarkable discipline during the presidential campaign. From raising an unprecedented amount of money to milking every advantage from the Internet to grabbing lots of delegates from inexpensive caucus states, they left nothing to chance.

And now the administration has scored a major legislative victory in an extraordinarily short period of time. Less than 700 hours after taking the oath of office, President Barack Obama signed the largest spending bill in American history.

Nevertheless, this fast start can't overcome a growing sense the administration is winging it on issues large and small. Take the vetting of cabinet nominees. Mr. Obama's aides ignored a federal investigation of New Mexico's Gov. Bill Richardson that started last August for a possible pay-for-play scandal. Mr. Richardson had to withdraw after being named to become secretary of commerce.

The administration treated as inconsequential the failure of its choices for Treasury secretary and White House performance officer, as well as its labor secretary-designate's spouse, to pay taxes. It failed to uncover Tom Daschle's problems with more than $102,943 in previously unpaid taxes, penalties and interest -- and once it did, aides assumed Mr. Daschle would be given a pass.

Team Obama promised Gen. Anthony Zinni he'd be ambassador to Iraq, then cut him loose without explanation. After the Bill Richardson fiasco, it romanced Republican Sen. Judd Gregg for commerce secretary -- then ignored his advice on the stimulus and wouldn't trust him with running the department, moving supervision of the Census into the White House. Mr. Gregg withdrew himself from consideration.

Then there is the stimulus itself. Mr. Obama's economic team met with congressional leaders in December to green light a bill costing up to $850 billion. But they described less than $200 billion of what they wanted in the envelope. In return for outsourcing the bill's drafting to Congress, the administration took on two responsibilities: running polls to advise Hill Democrats on how to sharpen their marketing, and putting the president on the road to sell a bill others wrote.

Team Obama was winging it when it declared the stimulus would "save or create" 2.5 million, then three million, then 3.7 million, and then four million new jobs. These were arbitrary and erratic numbers, and they knew there's no way to count "saved" jobs. Americans, being commonsensical, will focus on Mr. Obama's promise to "create" jobs.

It's highly unlikely that more than 180,000 jobs will be created each month by the end of next year. The precise, state-by-state job numbers the administration used to sell the stimulus are likely to come back to haunt them as well. Bipartisanship? The administration failed even to respond to GOP offers to endorse an Obama campaign proposal to suspend capital gains taxes for new small businesses.

Inexplicably, the president, in a prime-time press conference, raised expectations for Treasury Secretary Tim Geithner's bank rescue plan, which turned out the next day to be no plan at all. The markets craved details; they got none. When markets cratered, spokesmen didn't acknowledge the administration's poor planning, but blamed the markets.

Team Obama was also winging it on enhanced interrogation of terrorists. First it nullified all the Bush administration's legal authorities before considering what rules it should have in place. When the CIA briefed White House officials on the results obtained from these techniques, the administration backtracked and organized a four-month study of what rules were appropriate.

Something similar happened with the promise to close Guantanamo Bay within a year: The administration has no idea what it will do with the violent terrorists detained there. And on ethics, Mr. Obama proclaimed an end to lobbyist influence in government -- even as he was nominating lobbyists for major posts and filling White House ranks with former lobbyists.

Team Obama has been living off its campaign reputation for planning and execution. That reputation is now frayed, and all the bumbling and unforced errors will have an impact. Such things don't go unnoticed on Capitol Hill or in foreign capitals.

The president, a bright and skilled politician, has plenty of time to recover. The danger is that what we have seen is not an aberration, but the early indications of his governing style. Barack Obama won the job he craved, now he must demonstrate that he and his team are up to its requirements. The signs are worrisome. The world is a dangerous place. The days of winging it need to end.

Mr. Rove is the former senior adviser and deputy chief of staff to President George W. Bush. Karl writes a weekly op-ed for The Wall Street Journal, is a Newsweek columnist and is now writing a book to be published by Simon & Schuster. Visit Mr. Rove on the web at Rove.com.

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President Barack Obama promised to reach out to rivals and embrace all good ideas when devising economic policy. But his 11th hour demagoguery over the stimulus bill – publicly lambasting Republicans for not meekly supporting his bloated legislation – reeked of partisan politics. Now, his second nominee for Commerce secretary, a conservative Republican, has withdrawn, saying he has irreconcilable policy differences with Obama. That leaves the bipartisan policy myth in tatters.

Senator Judd Gregg’s decision to drop out over policy differences looks slightly less embarrassing for the Obama team than the forced withdrawal of his earlier Commerce nominee due to a grand jury investigation and two other top appointees – not counting Treasury boss Tim Geithner’s nearly derailed nomination – due to tax problems. But in fact, it stems from the same issues – poor vetting and judgment.

After all, Gregg said he discussed his opposition to several Obama policies, including the stimulus, with the administration early in the courtship. If Obama really did want dissenting opinions in his cabinet – a promise that had the commentariat comparing his administration to Lincoln’s “team of rivals” – he should have been able to accommodate Gregg. As it is, this fiasco makes the appointment look like a failed attempt to acquire the patina of bipartisanship without the substance.

Of course, the problem might have been Gregg’s intransigence as much as Obama’s. But such profound differences over policy should have come to light earlier.

It's still early days, but Gregg’s decision adds to the markets’ worries at the worst possible time. In light of Obama’s problems with his other nominees, the partisan fight over the stimulus and the lack of details in the bank rescue plan, his administration needs to act decisively to rebuild confidence in its ability to assemble a strong economics team and produce coherent and effective policies.

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A crowd of at least 50 people abandoned their breakfasts at nearby banquet tables to watch U.S. Treasury Secretary Tim Geithner outline his plan to rescue the financial system Tuesday morning.

They gathered around a flat-screen TV at the Wilmington Trust booth in the exhibit hall of the American Securitization Forum Convention at the Venetian Hotel in Las Vegas. It beamed CNBC’s coverage of the speech, prompting snickers in the group about the stock market’s 200-point drop as Mr. Geithner spoke.

“The marketplace wanted to hear more detail from Geithner,” says Julia Coronado, U.S. economist at Barclays Capital.

The government’s plan impacts attendees of this conference quite directly, and many have expressed skepticism that the government’s plan will jump-start the markets for securities backed by pools of mortgage or consumer loans. Attendance at the event was roughly half the approximately 7,000 or so attendees of earlier years, and there were no highly publicized big parties. On the other hand, many attendees are first-timers from small investment shops, say organizers, and the Securitization 101 educational panel on the first day was packed, says Ralph Daloisio, managing director at Natixis, and new chairman of the ASF. In recent years it was empty.

As bankers, lawyers, investors and technology providers involved in structuring, valuing and selling asset-backed securities backed by auto, credit cards, student and small business loans, their livelihoods have nearly ground to a halt, since the market for these loans seized up last fall. According to Dealogic, issuance of asset-backed and mortgage-backed securities is down 91% year-to-date in terms of dollars, with just $4.6 billion issued this year. These markets have been waiting for some firm initiative to help get things functioning again.

Mr. Geithner’s new plan addressed two pillars preventing lending to consumers. The idea of an investment fund with private market partners is intended to find ways to move bad assets off of banks’ balance sheets. And, expanding the Term Asset-Backed Securities Lending Facility to lend to investors to buy Fed-approved securities is encouraging to most, even though there is push-back from hedge fund investors and lenders on the terms of TALF.

“The government is trying to jump ahead of this crisis,” says Mr. Daloisio. Expanding TALF before the industry has truly embraced it means “they have to make it work.”

Bankers say that the Fed’s loan terms, as announced last Friday, pushed many hedge funds away because at rates lenders are willing to make loans, the funds cannot reach their goals of obtaining double digit returns. Issuers are also not eager to borrow for three years at onerous rates.

Others zeroed in on Mr. Geithner’s emphasis on involving private capital to the programs to restore financial markets to health. “We are moving in the right direction by getting private money involved,” said Paul Jorissen, partner at New York law firm Mayer Brown LLP. “It is a really important inflection point.”

He adds that private equity firms may play a role in the program, adding that there are ways to structure investments for private equity that allows them to inject capital into troubled banks, and that with more participation, there will be less of a wait-and-see approach to the financial markets. Previously, investors were hoarding their cash as they wait for the government’s next move.

The introduction of private money into the programs may also bring some clarity to pricing of banks’ troubled assets, said Nellie Liang, associate director of the Federal Reserve Board, on a panel. She added that the private sector should be setting market prices, not the Fed, though she noted the difficulty in evaluating pricing on such complex instruments.

“There’s a little bit of hope here and a little bit of thinking this will really work,” said the Fed’s Ms. Liang, on the question of pricing.

“The government isn’t going to be able to find that clearing price,” said Evan Firestone, president of New York-based Firestone Consulting, which advises on the structures of mortgage securities and products. “That’s best left to the private sector.” But Mr. Firestone said that one problem for the private sector–banks and hedge funds–is bridging the gap between the sales price for consumer-loan securities and the price that distressed buyers such as hedge funds are bidding.

TALF has attracted interest from dozens of hedge funds who had previously never been interested in asset-backed securities — once the investing purview of insurance companies, pensions and other institutions that focus on only highly-rated securities. Now there are distressed players in the mix.

Ms. Liang said the government is aware of the risks inherent in TALF’s reach to hedge funds as well. “We need to make sure the government is not taken advantage of,” said Ms. Liang.

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