Obama-nomics: coming January 20 Posted: January 05, 2009, 6:13 PM by Diane Francis Greed, Canadian Politics, U.S. Politics, economy

Obama-nomics is unknown, but is coming to a country near you on January 20 when the President-elect takes over the White House.

He is twice the luckiest President in living memory: He is not blamed for the current crisis which will give him political latitude at home and he has also had the luxury of watching the meltdown, and his lame-duck predecessor’s rescue efforts, safely from the sidelines since November.

The prescriptions are to fix national messes but also to bridle the world’s financial system. This economic catastrophe is rooted in the fact that the globalization of capital markets took place without the globalization of oversight or rules.

This created the vacuum into which crooks, as well as legitimate financial players, leaped. Hedge funds, mostly headquartered in secrecy havens and unencumbered by national rules such as disclosure or taxation or regulations, were culprits. But so were nationally-regulated institutions such as brokers, banks and insurers who indulged in off-balance sheet shenanigans in the world’s unfettered international space. So the fix is global not national. And leadership must be multilateral not just Washingtonian.

Not local, not global but glocal

All of which means that Obama’s domestic task will be to shore up the economy of the United States, its workers, homeowners and businesses by putting shovels in the ground within weeks, revamping Detroit and calming a frightened citizenry by providing European or Canadian-style social programs such as foreclosure relief, universal health care, more generous training and unemployment benefits.

But his biggest job will be to juggle short-term domestic self-interest with long-term, multi-lateral initiatives to reform and bridle the world’s global financial system.

And he will not be alone. The most important task facing all the world’s leaders must be to bring about the globalization of the type of oversight and regulation that has served mature economies well.

The first order of business will be to create mechanisms to bring the "shadow" financial sector to heel - hedge funds and derivatives markets. According to the Bank of International Settlements, the notional value of derivatives contracts have grown from US$75 trillion in 1997 to US$600 trillion. During that decade, the fastest-growing derivatives segment was Credit Default Swaps which brought down the system because Wall Street, AIG and others underwrote these hedges against bond losses without sufficient capital to back the bet when the bonds cratered.

North America’s New CEO

For Canada, Obama-nomics will set the tone for our response to the crises. This is because no two economies in the world are more enmeshed than ours.

So if Obama-nomics’ tax cuts damage Canadians, they must be matched no matter the cost to government coffers. Likewise, if Washington mandates greener energy, Canada’s energy companies and energy provinces must adhere to new cleaner requirements through innovatives, alternative sources or, in the case, of the oil sands, carbon sequestration initiatives.

If Obama’s team extends help, no matter how wrong-headed, to Detroit, Ontario and Ottawa must match their efforts.

All of which means that Obama-nomics won’t merely be the New Deal Part Two. It will have to be executed along with global reforms hammered out in partnership with the best minds in the world.

Fortunately, the world’s central banks and governments have already begun this task through real-time collaboration and the exchange of policy ideas. The real fix is to create a worldwide regulatory and transparent template that matches what is already in place in well-run economies so that there is no place to hide or concoct weapons of financial mass destruction. Fortunately, Obama and his advisors have a clean slate, in terms of blame; experience and some distance having watched the worst effects of this meltdown between the election and inauguration.