December 31, 2008 7:30 PM

What are the things the Obama administration should do in its first months to improve the economy and capital markets?

This post contains the answers to one of 10 questions sent out in our quarterly survey of investment professionals and economists.

7. What are the things the Obama administration should do in its first months to improve the economy and capital markets?

Don Cassidy: Targeted tax credits such as for buying USA-made cars with high MPG ratings only. Conversely, add a 10 percent tax on purchases of SUVs etc. Credits for solar installations. Increase the deductible capital loss amount for a year or two, from its present $3K/year. Pass a moratorium on (mandatory distributions) from IRA plans, so people are not forced to lock in their losses by taking withdrawals near the lows. Stop all federal purchases of vehicles with conventional gasoline engines, forcing Detroit to make the switch as fast as possible. Reduce aid to states that do not do likewise. Take advantage of the low gasoline prices by raising the fed gas tax by 1.5 cents/month until price hits $3.50 again. Use the added revenue for deficit reduction and road/bridge projects, 50/50.

John Goltermann: There is only so much a president can do, although trying to push through corporate tax cuts and capital gain tax cuts would do a lot.

Michael L. Serota: I believe that improving our infrastructure is vital, as well as continuing to put pressure on the banks to begin lending. Alternative sources of energy would be a good thing to pursue this go around, so when oil spikes in the future, maybe we will have made some inroads in that area.

Bill Greiner: First, don't do anything harmful. He is going to have his hands full keeping a rein on Congress. Given congress's disposition towards "solving" the economic problems (spending money on pork items) the new President is going to have his hands full. Second, we believe the government CAN'T SOLVE this economic problem. The problem resides directly in the issue of too much debt outstanding on a macro economic scale - the government can't solve this issue. The private "sector" - which represents more than 75 percent of the overall economy - needs to "fix" this issue. The government can help with this issue by lowering corporate tax rates and keeping trade barrier issues away from the docket.

Jerry Paul I think the Obama administration should come out with a two prong attack on the housing crisis. The first would be something similar to the plan Treasury has floated with respect to creating availability of 4.5 percent 30 year mortgages of up to $1 million. In this case, the plan should be available to all home owners who have remained current on their existing mortgage. For these individuals it would result in reduced monthly housing costs, which in turn provides economic stimulation. It would also return capital to current holders of securities that would experience prepayment allowing them to make a new determination on their capital, which would likely include new lending of some portion of it. Similar mortgages would be available to home buyers who met traditional underwriting standards which will assist in reducing housing inventory and return mortgage levels towards more traditional interest rate spread relationships to US Treasuries. The second prong requires addressing the foreclosure problem. On this, I would defer to FDIC Chair Sheila Bair's ideas.

Dennis Clark: We have a confidence crisis currently. I think the Obama administration needs to calm those fears. We have pumped a massive amount of liquidity into the system, we now need it to work. A solid economic plan will help.

Martin Shields: President Obama should look at this as an opportunity to invest in the next American economy. In other words, what do we want our economy to look like in 5 years? This is one driven by global technological leadership and occupational mobility of the workforce. In particular, substantial investments in clean energy, energy efficiency and human capital should be the centerpieces. For a shorter term stimulus, there are billions of dollars of road and bridge repair projects that are already on the books, and if funded, will help rebuild a key part of our infrastructure and put people to work. Another short-term stimulus package would be to invest more in pre-k education, perhaps through vouchers for low income families. This will put more child care providers to work, and improve the chances of school success for kids from poorer households.

Tucker Hart Adams: I wish there were some magic bullet for Obama, but unfortunately there isn't. The most important thing for him to do is to remain calm and thoughtful, acknowledge the seriousness of the problem and the time it will take to recover, and give the world confidence that someone is in charge who knows what he is doing, who won't rush in panic from one "fix" to another.

Gregory Anderson: The newly elected government has indicated that another stimulus package is warranted. These new dollars pumped into the economy should provide the much needed economic jump-start. A jobs program, for instance, would have an immediate and positive impact. Any tactic that builds investor confidence in the markets and/or improves regulatory agencies will encourage investors to return.

Gary Horvath: The most positive thing the new administration can do is to take steps to instill public confidence on a number of fronts. This will begin with the inauguration and Obama's first speech as president. Increased confidence will continue as the public can begin to see that either time or stimulus efforts are making a difference. Unfortunately, there are no quick fixes for many of the problems facing the new administration.

Fred Taylor: President Obama needs to sign into law his proposed trillion dollar stimulus package within the first 30 days in office. He also needs to instill confidence here and abroad that his new team in place has a plan to create jobs, keep lowering mortgage rates, and move forward on his alternative energy plans. If he can do these things that will go a long way in restoring investors' faith in the stock and bond markets.

Robert Sonora: I think they should concentrate on the real economy and asset markets will follow. As of now, attempts to stimulate the economy with liquidity have fallen short, so some fiscal stimulus is necessary. Spending on public investment is good and that includes infrastructure and human capital (education and health). Some defense spending would be helpful to rebuild depreciated defense capital. Just don't do any more "no-bid" contracts.

Andre Ratkai: The Obama administration's biggest challenge is to revive confidence among consumers, businesses, and investors. By implementing a thoughtful and methodical fiscal spending program, rather than using a shotgun approach of pork barrel projects, they will reinforce the perception of the electorate that a common sense man (and cabinet) has been put in charge. If they demonstrate leadership, the country will gladly follow.

Jeff M. Wilson: The broad stimulus package Obama has already announced appears well targeted to improve long term employment and economic stability. Its success will be the result of how successfully it is actually implemented. The bank bailout was a bust. The government must immediately pump money directly into the hands of small business through an enhanced SBA loan program. Obama must reassure Americans and re-establish confidence and trust in our government and our economic system.

Rich Wobbekind: First and foremost lead with confidence. Part of what we are facing right now is a crisis of confidence and that absolutely needs to be restored. He must convey that he has a plan and we the people will survive these troubled economic times. President Obama has surrounded himself with very capable economic and financial minds and he will receive sound advice. I fall into the category of strong supporters of the infrastructure investment programs which will ultimately improve the "supply side" of the economy if you will. While these investments might focus on physical infrastructure in the near term (bridges, transmission lines, roads, rail, etc.) longer term they should focus on human capital as well as physical capital.

Maclyn Clouse: The financial system has capital flowing again, but only to those with excellent credit. The problem now is not with the supply of capital; it is a problem with the demand for capital. With our economic slowdown, what firm needs to borrow to expand its production capacity? With consumers fearful of losing their jobs, who wants to borrow to buy a new car, or take on more consumer debt for other things? The Obama administration needs to use targeted tax-reduction strategies that will give tax breaks for specific consumer and business spending.

Mark Lee Levine:
a. Recognize the issues;
b. Gather good information on the existing data;
c. Analyze the impact of each decision that is being considered, e.g., the continuance of the auto industry as it exists today as compared with the cost of supporting the same.
d. Make the decisions that must be made to address these issues; and
e. Consistently review and analyze the impact of the decisions, being ready to adjust the course and positions as needed.
The problems are complex and the implications to decisions being made are huge. "Staying the course" in concept is good, but such position must be tempered with the attitude and commitment that some decisions will be wrong and must be changed as we test the positions taken."

Michael Williams: What the new administration should not do is raise taxes on those business entities that can provide for future economic growth. By raising taxes on "individuals" earning more than $250,000, the government is reducing the amount that small businesses have to plow back into the business. S-corporations and partnerships pay taxes on 100 percent of the organizations earnings but rarely pay out 100 percent of the earnings. The difference is the amount of additional investment in the business. If taxes are increased, the business will have to pay out more to the individual owner to cover taxes thus leaving less to use for growth of the small business.

Patty Silverstein: (1) continue efforts to stabilize the housing market, providing funding for mortgage loan restructuring; (2) move forward on infrastructure projects across the country; (3) review and revise regulatory processes in the financial markets - provide more transparency; (4) while stricter lending standards are certainly welcome, need to make sure that funds are still flowing to those individuals and businesses that qualify. (5) do not increase taxes on any income brackets - now is not the time.

David A. Peterson: Make wise use of the remaining TARP funds. This is about the only tool that will benefit the economy near term. Longer term his administration should focus on improved regulation. We now know that introducing leverage into the financial markets should be regulated whether it is a traditional home loan or an arcane Wall Street derivative. Unfortunately, adding more regulation is less efficient for people who do business prudently and honestly.
Warren Olsen: The Obama administration needs to very quickly focus on two major initiatives to improve the economy and the capital markets. The first is to pass a major fiscal stimulus package that is viewed as both significant and credible. To be significant it must be very large (maybe $1 trillion) and it must be credible - real investment in infrastructure and not "bridges to nowhere" or other pork barrel projects.
The second initiative is to quickly implement an overhaul of the regulations governing financial services and capital markets. Everyone knows change is coming and the sooner a well thought out structure is put in place the better.

Barbara Walchli: Obama needs to provide some clarity about direction in economic stimulus, tax policy, business incentives so investors and businesses can begin to make decisions.
Craig Callahan: Because of the recent growth in the money supply (M1), we believe economic recovery is assured. It appears, however, that a fiscal stimulus package targeting infrastructure and technology is coming anyway. This will be an additional powerful boost to the economy.

Posted by David Milstead at 7:30 PM | Comments (22)