Obama is twice the luckiest President in living memory: He is not blamed for the current crisis and he has the luxury of watching the meltdown, and his lame-duck predecessor's rescue efforts, safely from the sidelines since November.
But Obama-nomics must be global, not merely national.
The world's financial system must be multilaterally bridled. This current economic catastrophe is rooted in the fact that the globalization of capital markets took place without any globalization of oversight or rules.
This created the vacuum into which crooks, as well as legitimate financial players, leaped. Hedge funds, mostly headquartered in secrecy havens and unencumbered by national rules such as disclosure or taxation or regulations, were culprits. But so were nationally-regulated institutions in the U.S. and other countries -- such as brokers, banks and insurers -- who indulged in off-balance sheet shenanigans in the world's unfettered international space.
Glocal not global or local
So Obama's domestic task will be to shore up the economy of the United States, its workers, homeowners and businesses by putting shovels in the ground within weeks, revamping Detroit and calming a frightened citizenry by providing European or Canadian-style social programs such as foreclosure relief, universal health care, more generous training and unemployment benefits.
But his administration must also juggle short-term domestic self-interest with long-term, multilateral initiatives to police the global financial sector.
Attack the crooked "insurance" scam
The first order of business will be to create mechanisms to bring the "shadow" financial sector to heel -- hedge funds and derivatives markets. According to the Bank of International Settlements, the notional value of derivatives contracts have grown from US$75 trillion in 1997 to US$600 trillion. During that decade, the fastest-growing derivatives segment was Credit Default Swaps which brought down the system because Wall Street, AIG and others underwrote these hedges against bond losses without sufficient capital to back the bet when the bonds cratered.
These swaps by AIG, Lehman and the others were, in essence, nothing more than insurance policies bought by others to protect them against a financial hurricane, but AIG and the others failed to put aside the capital and assets needed to back up that insurance when the hurricane hit. This was not only disastrous but immoral, unethical and illegal in terms of other insurance policies they wrote around the world.
Reforms to insure sustainable growth
So Obama-nomics won't merely be the New Deal Part Two. It will have to be executed along with policies hammered out in partnership with the best minds and most enlightened leaders in the world.
Fortunately, the world's central banks and governments have already begun this task through real-time collaboration and the exchange of policy ideas. The real fix is to create a worldwide regulatory and transparent template that matches what is already in place in well-run economies so that there is no place in the future to hide or to get away with concocting weapons of financial mass destruction.
Fortunately, Obama and his advisors have a clean slate, in terms of blame; experience and some distance having watched the worst effects of this meltdown between the election and inauguration.