What will Barack Obama do to tackle the financial crisis?
The roots of the current global financial crisis are to be found in the US. It was the American sub-prime mortgage market – in which US citizens were offered mortgages despite the fact they were deemed a credit risk – that caused ripples of financial turmoil around the world. Once the people who had been given sub-prime mortgages began defaulting on them, the global financial system started to unravel.
It will come as a relief to many that the man who presided over the beginning of the collapse of the world financial system, George Bush, will be out of a job come January. But what will his successor, Barack Obama, do to tackle the crisis? It seems certain that Obama – who this week defeated his Republican rival John McCain in the US presidential election – will look to increase government regulation of the financial sector.
During his election campaign, Obama blasted Washington for its “ethic of irresponsibility” in relation to the worsening economy. He also demanded that the US government’s bail out of financial institutions should only go ahead on the condition that the government was given more power to regulate the way banks do business. “We cannot give a blank check to Washington with no oversight and accountability, when no oversight and accountability is what got us into this mess in the first place”, he said earlier this year.
It is also clear that Obama is a strong opponent of the laissez-faire economics to which some of his predecessors – namely Bush senior and junior and, before them, Ronald Reagan – strictly adhered. Obama dismissed the laissez-faire attitude – which he said was also shared by McCain – as the habit of “ignoring economic problems until they spiralled into crises”.
Financial institutions operating in the US should certainly expect a government clampdown on excessively risky practices – Obama used his campaign to pledge an overhaul of Wall Street regulations. But, of course, pointing out what is wrong with the US financial system is the easy part for Obama. Now he has been elected President, responsibility for putting the system right falls on his shoulders – in other words, the hard work starts.
