ABC: Third Treasury choice withdraws

Obama depression = Epic Fail

[rquoter]Obama, Geithner Get Low Grades From Economists
By PHIL IZZO

U.S. President Barack Obama and Treasury Secretary Timothy Geithner received failing grades for their efforts to revive the economy from participants in the latest Wall Street Journal forecasting survey.

The economists' assessment stands in stark contrast with Mr. Obama's popularity with the public, with a recent Wall Street Journal/NBC poll giving him a 60% approval rating. A majority of the 49 economists polled said they were dissatisfied with the administration's economic policies.

On average, they gave the president a grade of 59 out of 100, and although there was a broad range of marks, 42% of respondents rated Mr. Obama below 60. Mr. Geithner received an average grade of 51. Federal Reserve Chairman Ben Bernanke scored better, with an average 71.

The economists, many of whom have been continually surprised by the depth of the downturn, also pushed back yet again their forecasts for when a recovery would begin. On average, they expect the downturn to end in October. Last month, they said the bottom would arrive in August. They estimate that U.S. gross domestic product will continue to contract in the first half of this year, with slow growth returning in the third quarter.

Economists were divided over whether the $787 billion economic-stimulus package passed last month is enough. Some 43% said the U.S. will need another stimulus package on the order of nearly $500 billion. Others were skeptical of the need for stimulus at all.

However, economists' main criticism of the Obama team centered on delays in enacting key parts of plans to rescue banks. "They overpromised and underdelivered," said Stephen Stanley of RBS Greenwich Capital. "Secretary Geithner scheduled a big speech and came out with just a vague blueprint. The uncertainty is hanging over everyone's head."

Mr. Geithner unveiled the Obama administration's plans Feb. 10, but he offered few details, and stocks sank on the news. The Dow Jones Industrial Average is down almost 20% since the announcement, as multiple issues have weighed on investors' confidence. The Treasury secretary has since appeared before Congress and offered more specifics but has said action on key parts of the plan still is weeks away.

"We have taken an unprecedented level of action toward economic recovery, accomplishing in weeks what took other countries years to do," Treasury spokesman Isaac Baker said. "While Wall Street and investors were disappointed when they didn't get a sweeping bank bailout, we've laid out a plan to stabilize the financial system while protecting the taxpayer and ensuring government funds are spent wisely. This crisis was years in the making, and it will take time to solve."

Treasury has started implementing a housing-recovery plan, moved forward on a joint program with the Fed to boost consumer lending, and has begun stress-testing banks in an effort to determine which institutions will need additional capital from the government. The results of the stress tests won't be known for a few weeks. Meanwhile, a key part of the plan -- a public-private partnership to take toxic assets off bank balance sheets -- remains in the planning stages.

The economists' negative ratings mark a turnaround in opinion. In December, before Mr. Obama took office, three-quarters of respondents said the incoming administration's economic team was better than the departing Bush team. However, Mr. Geithner's latest marks are lower than the average grade of 57 that former Treasury Secretary Henry Paulson received in January.

Mr. Geithner, who is relying on a skeleton crew of advisers in the Treasury Department as the administration struggles to make key appointments to his staff, is encountering the same problems as his predecessor in dealing with the complexities of a bailout plan. Richard DeKaser of Woodley Park Research, who gave high marks to Messrs. Obama and Geithner, admitted disappointment in the delay in action but said he appreciated the magnitude of the task. "I don't know what's holding it up," he said. "But I'm assuming it's not just because they're hitting the golf course."

There was widespread initial support for the appointment of Mr. Geithner, who as president of the New York Federal Reserve had been on the front lines of the crisis since it erupted. However, in the ensuing weeks Mr. Geithner has had to deal with tax troubles and criticism from those opposed to any bailouts as well as those who think the government needs to be doing more.

Meanwhile, the economists surveyed this month predict that the economy will shed another 2.8 million jobs over the next 12 months as the unemployment rate climbs to 9.3% by December, up from the 8.1% rate recorded in February. Economists also see nearly a one-in-six chance that the U.S. will fall into a depression, defined as a decline in per-person GDP or consumption by 10% or more.

"We just keep moving the date [when the recession will end] out, hoping at some point in time we will be able to move the date back in," said Diane Swonk of Mesirow Financial.

The economists didn't just single out the U.S. for criticism; 70% of participants said the response of governments around the world to the global recession has been inadequate. "The Europeans or Japanese don't seem to be doing near enough to kickstart their economies," said Nariman Behravesh of IHS Global Insight. "It could be we've done all the right things, but the rest of the world goes down the tubes."

Despite the growing criticism elsewhere, the respondents were broadly supportive of the Fed. More than 85% of the economists agreed that the central bank's proliferating lending programs are well-designed, well-executed and helping the economy. And while grades for Mr. Bernanke remain off of their 2007 highs, the average has stabilized after falling as low as 69 in the November survey.

Amid all the gloom, there is a bright spot: Four-fifths of the economists said now is a good time to buy equities, especially if the investor has a long-term view.[/rquoter]