Obama 'threading the needle' of a crisis

by Mark Silva

President Barack Obama says he is trying to "thread the needle'' between warning Americans of how dire the economic situation is and causing any panic.

"I'm constantly trying to thread the needle between sounding alarmist but also letting the American people know the circumstances that we're in,'' Obama says in an interview with ABC News' Nightline airing tonight. "And the fact of the matter is, is that we are in not just an ordinary recession, we are in a perfect storm of financial problems.''

Obama has made the rounds of television networks in recent days - he made a round-robin of interviews last week to promote his economic stimulus, only to juggle the withdrawal of Tom Daschle from a Cabinet appointment that day and admit that he had "screwed up,'' and he staged a prime-time news conference on the stimulus last night.

The president's talk with Nightline during his visit to Fort Myers, Fla., today comes on a bittersweet day for Obama: The Senate has approved an $838-billion stimulus bill, setting up negotiations with the House over its $819-billion plan. But the stock market also lost hundreds of points - read billions of dollars - on word of the Treasury's new, highly vague financial remedy.

"Wall Street, I think,is hoping for an easy out on this thing and there is no easy out,'' Obama tells Nightline. "Essentially what you've got are a set a banks that have not been as transparent as we need to be in terms of what their books look like.

"And we're gonna have to hold out the Band-Aid a little bit and go ahead and just be clear about some of the losses that have been made because until we do that, we're not going to be able to attract private capital into the marketplace,'' he says.
"So, you know, I think that you have two choices in this situation - you can prolong the agony and shareholders will be happy until they're not happy, and that could be a year from now or two years from now, or in the case of Japan, eight years later,'' he says. "Or you can just go ahead and acknowledge that yeah, there's, there's a lot of work that has to be done to put these banks back on a firmer footing. ''

What about economists who suggest that some of the banks are "essentially insolvent,'' and that they should simply by nationalized, ABC's Terry Moran asks.

"Well, you know, it's interesting,'' Obama says. "There are two countries who have gone through some big financial crises over the last decade or two.

"One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what's called "The Lost Decade." They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But eventually, nothing happened and they didn't see any growth whatsoever.

"Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model.

"Here's the problem -- Sweden had like five banks,'' Obama says. "We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the, the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn't make sense. And we also have different traditions in this country.

"Obviously Sweden has a different set of cultures in terms of how the government relates to markets and, and America's different. And we want to retain a strong sense of that private capital fulfilling the core -- core investment needs of this country,'' he says. "And so, what we've tried to do is to apply some of the tough love that's going to be necessary, but do it in a way that's also recognizing we've got big private capital markets and, and ultimately that's going to be the key to getting credit flowing again. ''

Moran suggests that "people are angry'' over "so much taxpayer money going into the banks,'' and asks: "Why shouldn't the government, why shouldn't you just fire the executives who wrecked these banks in the first place and tanked the world's financial system in the process? ''

"Well, some of them are gone because their institutions have effectively collapsed,'' Obama replies. "You know, keep in mind though, there are a lot of banks that are actually pretty well-managed -- JP Morgan being a good example. Jamie Dimon, the, the CEO there -- I don't think he should be punished for doing a pretty good job managing a -- an enormous portfolio.

"And so what we want to do is to say, if you're going to take money from the taxpayers, then you're going to be constrained in terms of how you give yourself compensation and shareholders are going to be empowered,'' he says. "If you're not taking money, then we'll let shareholders and boards of directors handle things as they generally have handled them.

"I do hope that we're going to see a change in culture where everybody in the financial system starts recognizing that a hundred -- $100 million bonuses annually are not a birthright... and that, you know, we've got to recognize that if you're going to reward people for success, you've also got to punish them for failure and that hasn't been happening. ''

"Take a step back,'' Moran tells Obama in the Nightline interview. "You've been sounding some very dire warnings about the economy in recent days. How close do you think the country is to a kind of economic catastrophe that you're warning them? ''

"I'm constantly trying to thread the needle between sounding alarmist but also letting the American people know the circumstances that we're in,'' Obama says. "And the fact of the matter is, is that we are in not just an ordinary recession, we are in a perfect storm of financial problems and now, a decline in worldwide demand that is resulting in huge numbers of jobs being shed, the lowest consumer confidence we've seen, credit locked up.

"And so this was a big difficult situation,'' Obama says. "Now, I think we've got to keep perspective. We're not going through the Great Depression. I know there have been some analogies there but when FDR took over, unemployment at that time was 30 percent, as opposed to 7.5 or 7.6.

"And so, you know, I think it's important to recognize we've still got enormous assets,'' the president says, "we've got the same workforce that we did that's as productive as it's ever been, we've still got some of the best universities in the country and you know, a wonderful infrastructure and some great companies. ''