Obama's First Job? Execute an Economic Water Landing for the Banks

Change is upon us.   Now the work begins.

America starts its real new year Wednesday with a curious cocktail blend of hope and anxiety, chased with long-term optimism.   The beautiful festivities in Washington provided a brief cover from a fit of negative economic news, but the tarp comes off Wednesday.   Lost in the confetti Tuesday was massive declines by many large cap banks.    Bank of America (BAC), Citigroup (C), State Street (STT) and many others sank as the world watched Washington.   There are reports that more bailouts may be needed for the financials, both here and abroad.   If we needed it, this is proof again that the global financial markets do not sleep and the awakened investing crowd is voting more problems may well lie ahead.

The water landing of U.S. Airways flight 1549 reminds us that at the beginning and end of every story are people.    The Airbus 320 is a high-tech piece of machinery that performed wonderfully for a task its designers hoped would never be needed, but the real genius of the day is found in the actions and heroics of ordinary individuals.    History shows that just when we think things can’t get worse, Americans have a past filed with overcoming obstacles and triumphing.   In some ways the U.S. Airways story couldn’t have come at a better time.   Sometimes triumph over tragedy can trump current trends.

As Niall Ferguson reminds us in his recent book “The Ascent of Money,” the root word of ‘credit’ is credo, Latin for “I believe.”   Money, Ferguson argues, is simply trust.   The belief one will receive what she bargained for in return for payment.

Now the new crew takes over in Washington and the challenges ahead are formidable.   There are numerous, simultaneous economic water landings ahead.   The men and women in the wheelhouse with whom we have placed our collective trust have no time to delay, and their performance in the early days and weeks may well define the mood of economic America for years to come.   Everyone one of those people is now a player in a generational crisis.   Many are young and untested.   That may turn out to be a blessing, with change pushed through in a fresh approach.   The alternative, as the collective market is already showing us with the retraction of the bank stocks, is further economic disaster.

Pilots have a clear checklist of procedural order for each flight.   The new Administration needs the same and it needs to make that checklist available for all to see, so the world financial markets can understand where the priorities are and place its bets.    That economic checklist must begin with the banks.    Unpopular as it may be, saving the banks is the basis for any recovery.    There can be no housing or retail recovery without credit.   Ferguson’s book details how the age of money as a physical object is largely behind us.   We are now fully ensconced in a credo economy.   Belief is the basis for recovery.   And it begins with a belief in the soundness of American banks.