The Obama Markets

Barack Obama believes his administration can allocate resources better than free markets, and on Thursday he moved one step closer to trying. Obama’s new budget proposal seeks to increase taxes by $1 trillion on America’s wealthiest, including a $24 billion increase on hedge fund and private equity execs via carried interest tax reform. You know how I feel about Obama’s approach, but it’s valuable to review the thoughts of others. I've included the opinions of three highly regarded capital market participants, and then I describe how Obama continues to create one of the easiest trades in recent history...

In this recent article, Eugene Fama suggests government bailouts are unlikely to achieve their goals. A direct quote from the article is worth repeating.

Even when there are lots of idle workers, government bailouts and stimulus plans are not likely to add to employment. The reason is that bailouts and stimulus plans must be financed. The additional government debt means that existing current resources just move from one use to another…with no effect on total current resources in the system or on total employment.

As another example, Rudy Giuliani doesn’t think very highly of Barack’s resource allocation efforts. Specifically, he recently said limiting Wall Street bonuses will cause unemployment in New York. I’m not going to defend the Wall Street execs themselves, but Giuliani makes a pretty compelling argument about the way resources are efficiently allocated in New York.

Sadly, George Soros thinks our current crisis signals the end of a free-market model. Trying to allocate resources better than the free markets is a daunting task, but Obama seems to think he can do it.

Ironically, the only capital market participants Obama seems to be helping are the short-term traders. Over the last month, the Obama Administration has created several of the easiest "Buy the Rumor, Sell the News" trades in a very long time, and there are more to come!

Comments

[Jimbo:]

From what I can tell, many of the Prophet Obama's campaign supporters were very well to do folks on Wall Street. I wonder how they will feel about their choice in a year or two. The Cap and Trade proposals look to lay a heavy tax consequence on the very poor folks he is claiming to help.

Feb 28 09:54 AM

[mavericks:]

You just don't get it do you? It has been the 'allocation of resources' over the past decade which have gotten us into this mess. Obama is going to change that distribution whether you like it or not. He does not care what the market does in the short run or who gets hurt. He is of the mind that he will be judged in 4 years. If things haven't improved for the masses by then, then he will not be re-elected and America will go another direction. Whether he is right or wrong...time will tell, but at least he is doing what he said he would do.

Feb 28 10:01 AM

[dan-d:]

It's obvious, or should be to most by now, that Obama doesn't really care how the markets react to his plans. He observed the destruction of the capitalist system by the free market participants. Many of those who are now critical of his plans, are the very ones who came running to the government for handouts when the economic debacle began. They don't like the medicine that they are now getting. Let them continue to sit on their sidelined money and collect zero real returns. As for Rudy Giuliani, he had his chance to try for the top job and couldn't cut it. George Soros is a more creditable economic opportunist but I don't think he really minds what's happening. He'll pick his time to strike again. We are a nation we have responsiblities to each other as citizens. We'll see how this plays out.

Feb 28 11:25 AM

[Alphameister:]

For all the talk about his intellect and rhetorical skills, Obama is stupid in the way all left-leaning "thinkers" are stupid. No intelligent person who has studied history could possibly choose socialism over capitalism. Obama and his ilk are all about control because markets do not reliably deliver the outcomes they, in all their arrogance, prefer.

Feb 28 05:28 PM

[CLH:]

yes free markets work. bama is a totally uneducated man who will destroy America if he isnt stopped.

Mar 01 07:42 AM