Last week was a busy one for Administration watchers, particularly on the financial and economic front, with new announcements or leaks on financial regulation, executive pay, corporate taxes, and more. Except that much of what was announced wasn't all that new after all.
The relentless cycle of leak, announcement, and update is fast becoming a hallmark of the Obama Administration, and the pace seems to be accelerating as officials at the Treasury, the White House, and regulatory agencies expand existing programs and add new ones to the list.
But look past the breathless headlines, and another pattern emerges: For the most part, Administration officials are doing what they said they would. That parallels the Administration's record so far in other areas as well— Politifact, the Pulitzer Prize-winning St. Petersburg Times Web site that tracks how well Obama keeps his campaign promises, figures he has already kept about a quarter of them, while a little over half of the rest are "in the works," where some factors are in the hands of Congress or otherwise out of the Administration's control.
The strategy could provide the kind of reassuring, stabilizing message the economy has been craving: The government has a plan and is sticking to it. But the approach also has its pitfalls, especially early on. Treasury Secretary Timothy Geithner's much-trumpeted Feb. 10 unveiling of the Administration's financial-stability program fell with a thud because of a paucity of details, many of which have been filled in since. The Administration also faces the risk that without something dramatically new, further refinements no longer grab the public's attention—or the market's. Or the economic game plan, no matter how closely followed, may not deliver the results needed. Either turn could weaken the ability of the White House and Treasury to steer policy.
In the financial sphere, this past week offers a graphic look at how officials have laid out basic plans and then returned to fill them in with some detail. Take the May 13 announcement about derivatives regulation, which drew wide coverage in the financial media. Treasury proposed sweeping new powers for the Securities & Exchange Commission and the Commodity Futures Trading Commission to fight fraud, require better disclosure, and force much of the murky derivatives market onto exchanges and clearinghouses.
outline, fill in, revisit to tweak
Yet on Mar. 26, Geithner had promised to do just that when he unveiled his "framework for regulatory reform" (see Section IV of the press release). A condensed version appeared in the Apr. 2 communiquÃ½ from the G-20 summit in London (see the bottom of page three). And Paul Volcker—the legendary former Federal Reserve chief now serving Obama as an elder adviser on regulatory reform, among other things—had made similar, if more general, recommendations in a report he spearheaded for the Group of 30 (see page 52), and about which he testified before a Senate committee on Feb. 4.
"I was a little surprised by the reaction I heard from the clients that there was some surprise" over the derivatives announcement, says Brian Gardner, a financial-services policy analyst at Keefe, Bruyette & Woods. "I thought this was fairly well telegraphed."
Ditto on word filtering out that Treasury was looking at ways to rein in executive compensation beyond companies that have taken in bailout funds. The idea is to prevent pay practices from encouraging the kind of excessive risk-taking blamed for worsening the financial crisis. Citing unnamed sources, The Wall Street Journal on May 13 said that the Treasury was evaluating how to change executive pay practices broadly for financial firms, including those not receiving federal bailout funds. "This is not going to be about capping compensation or micro-management," the paper quoted an Administration official saying. "It will be about understanding what is the best way to align compensation with sound risk management and long-term value creation."
Sound familiar? It should. On Feb. 4, the same day Obama announced pay caps for top executives at companies getting bailout funds, he warned that more was to come: "We're going to examine the ways in which the means and manner of executive compensation have contributed to a reckless culture and quarter-by-quarter mentality that in turn have wrought havoc in our financial system," he said in prepared remarks."We're going to be taking a look at broader reforms so that executives are compensated for sound risk management and rewarded for growth measured over years, not just days or weeks."
echo from a year ago
In fact, in a widely watched economic speech more than a year ago, during the Presidential primaries, Obama declared it "time to realign incentives and the compensation packages so that both high-level executives and employees better serve the interests of shareholders."
And so it goes. When the Treasury released its Greenbook, detailing its tax proposals, most of what was in there had been sketched out in the Administration's earlier tax announcements. Investors learned this week that some life insurers will get federal bailout funds—something telegraphed weeks ago (and, indeed, even late in the previous Administration).
"These are all ideas they have been putting out," Gardner says. "So far I think it's going according to script."
However disciplined the Administration proves at pursuing the program it has outlined, there's no guarantee it will be successful. It helps, though, that so far officials have shown themselves willing to revisit plans that aren't panning out.
Take the Treasury's press conference the morning of May 14 that unveiled subsidies for lenders willing to take a hit from homeowners selling at a loss and sweetening incentives for lenders that modify mortgages where home prices are falling. It marked at least the third expansion of the Administration's foreclosure-prevention program, which began as a vague promise in Geithner's ill-starred Feb. 10 introduction of the Administration's financial-stability plan. In early March it gained more detail, including a series of financial incentives to encourage lenders, investor, and the firms that service mortgages to modify the loans for homeowners at risk of foreclosure.
On Apr, 28, Treasury unveiled a companion program, previously only hinted at, with incentives for second-mortgage holders to relinquish some or all of their claims, making it easier for many homeowners to benefit from the original program. Now, the Administration is expanding it once more.
mortgage rescue a work in progress
To some degree, the latest set of changes also sweetens the original set of incentives. That's tantamount to an admission that the government didn't hit the mark the first time. Indeed, a new wave of foreclosures is in progress as banks pull back from voluntary foreclosure-suspension programs they put in place as they waited to see what the government would come up with. The good news is that the Administration is willing to revisit programs when they fall short, says John Taylor, chief executive of the National Community Reinvestment Coalition, the low-income consumer advocacy group that hosted the May 14 press conference with Geithner and HUD Secretary Shaun Donovan.
"I think it's recognizing that what they were doing was not working," says Taylor. While he called the latest iteration of the program encouraging, he said he would prefer to see the government buy and modify mortgages wholesale.
Administration officials have acknowledged that, as time goes on, they may have to revisit other aspects of their mortgage-rescue efforts as well. "We're going to be refining this program over the next couple of months," Geithner said at the May 14 press conference.
Francis is a correspondent in BusinessWeek's Washington bureau.