Barack Obama’s Three Mistakes

I voted for Barack Obama and still have much hope for his presidency. But from my humble perspective, his priorities were out of order coming into office. Healthcare should have been second to financial reform. The Financial Crisis Inquiry Commission hearings now underway started more than a year too late.

I see that the Obama Administration made three fundamental mistakes during its nearly first 14 months, which have undermined early momentum:

  1. Obama’s transition team lost its grassroots momentum during the transition to the White House.
  2. The new administration failed to seek financial reform when there was the political and public will for radical and effective change.
  3. The Obama White House made health-care legislation its top domestic agenda when litigation—starting by repealing the McCarran-Ferguson Act of 1945—could have been much more effective.

Pulling Out the Grassroots
The Obama political campaign ran one of the most effective marketing campaigns in US history. Advertising Age named Barack Obama marketer of the year in 2008. Successful brands typically take ownership of a single word. In Nov. 5, 2008, AdAge story “What Marketers Can Learn From Obama’s Campaign“, Al Ries explains how Obama came to own “change”. He writes:

Mr. Obama’s objective was not to communicate the fact that he was an agent of change. In today’s environment, every politician running for the country’s highest office was presenting him or herself as an agent of change. What Mr. Obama actually did was to repeat the ‘change’ message over and over again, so that potential voters identified Mr. Obama with the concept. In other words, he owns the ‘change’ idea in voters’ minds.

President Obama kept up the “change” concept coming into Office. But he didn’t effectively hold onto the concept’s most important collateral: People. The Obama campaign effectively used social media tools to engage and marshall supporters. In Janaury 2009, PR agency Edelman released report “The Social Pulpit: Barack Obama’s Social Media Toolkit“. The report explains, and to my reading surprisingly effectively, how the Obama campaign converted “everyday people into engaged and empowered volunteers, donors and advocates through social networks, e-mail advocacy, text messaging and online video.” Change was Barack Obama’s message, but social media tools were the means for marshaling volunteers and voters.

April 1, 2009 FastCompany story explains “How Chris Hughes Helped Launch Facebook and the Barack Obama Campaign“. Chris created the social media tools vital to the campaign’s eventual success. Chris’ now defunct blog offers insight into how volunteers used to establish “35,000 local organizing groups” in all 50 states.

On Nov. 9, 2008, New York Times‘ David Carr predicted that Barack Obama would cash in on his social media capital. From post “How Obama Tapped Into Social Networks’ Power“:

When he arrives at 1600 Pennsylvania, Mr. Obama will have not just a political base, but a database, millions of names of supporters who can be engaged almost instantly. And there’s every reason to believe that he will use the network not just to campaign, but to govern.

But something else happened instead. Chris Hughes left the Obama team early last year. In retrospect, his departure proved devastating to transitioning the social media momentum of the campaign to the presidency. Given the incoming president’s cult popularity, with “change” as his mantra, such transition should have been possible.

“Organizing for America”, continuing from, was supposed to take the presidential campaign’s email list of 13-million volunteers and move the grassroots supporters from campaigning to supporting governing. March 15, 2010 Pittsburg Post Gazette asks: “Is Obama’s grass-roots group losing momentum as it ages?” Reporter James O`Toole writes: “Since the inauguration, OFA has been active, sponsoring workshops and bus tours and encouraging voters to reach out to Congress on a variety of issues…But measuring activity is not the same as measuring effectiveness.”

Campaigning is like warfare. The heroes of war often find living with peace difficult. People campaigning for “change” found making and sustaining change to be a tough task. It’s one thing to sustain a grassroots movement when there is a fixed goal (the election), a single adversary (the political opponent) to rally against, a broad community experience and emotional energy (and the endorphines and satisfaction thus generated).

Dollars and Common Sense
The financial crisis was a unique opportunity to truly organize America. There was shared common goal (recovering lost jobs, homes and savings), a new adversary (the financial institutions considered responsible for the econolypse), a community of injured and emotional energy (anger at Wall Street and large investment banks). There wasn’t the same national emotion about healthcare.

Good marketers succeed or fail around several common principles. One of the most important: Do more than promised. The oft-used term: “Underpromise and overdeliver.” By focusing on healthcare when there was a more immediate crisis for which Americans wanted “change”, the Obama Administration overpromised and underdelivered. But the message of change stuck. Candidate Obama’s message of change resonated among Americans during his early presidency, particularly as recession and financial gloom blanketed the nation. However, his administration didn’t deliver the change many Americans wanted, or felt they needed.

In the vacuum left behind the message of change, a new grassroots movement formed. Republicans like to claim the Tea Party movement as their own, and they’re working hard to instill such public perception about the origins. But it’s a populist movement seeking change—what Candidate Obama promised American voters supporting him. The consistent theme among Tea Party protests is change—and from the perceived socialist agenda of ruling Democrats. There is another important undercurrent: Accountability.

Like the exiting Bush Administration, the Obama camp hasn’t held accountable the financial architects of the “Great Recession“.  In a September 2009 blog post “Why the Dow is So High But Consumers are So Low” I asserted: “The true beneficiaries of government stimulus spending are many of the institutions responsible for the econolypse.” I then asked: “Where is the moral hazard?” Forbes Investopedia defines moral hazard:

The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

With regard to the housing bubble there was moral hazard on the frontend—lenders and other financial institutions passing on bad mortgages as sound investments—and on the backend, by the government bailing out—and so not holding accountable—the institutions responsible for the financial crisis.

When Barack Obama assumed the presidency, the financial institutions responsible for the housing bubble, its collapse and related derivative crisis were backed into an alley. Americans were angry, politicians were responsive to taking action and many financial institutions were in such risk of insolvency they couldn’t put up much of a fight against new regulations. Dramatic financial reform was plausible during 2009—and the promise of meaningful, food-in-your-belly change was the rally Organize for America could have used to build from the grassroots campaign foundation an incendiary political movement.

Instead, President Obama exhausted his political capital on health-care reform, which Congress recently pushed through under special circumstances. The Financial Crisis Inquiry Commission is now conducting hearings, but to what end? The President could barely get health-care reform legislation passed into law. Exactly how can he marshal the political capital for financial reform, particularly with the harbingers of the econolypse renewed by federal stimulus dollars and flush by moral hazard? They can and will fight back, as the recent scuffle over Wall Street bonuses shows. The time to act was April 2009, not April 2010.

For a no-nonsense, and arguably cranky, perspective on the housing bubble and following financial crisis, I recommend three Matt Taibbi stories published in Rolling Stone:

One Sick Priority
President Obama wasn’t wrong to tackle health-care reform, he should have simply done so after making more concerted efforts to fix the economy. From a marketing and messaging standpoint, supporting the Bush bailout was absolutely the wrong way to go. Exactly what kind of change was there perserving the status quo presumed responsible for financial collapse? Is that what Obama supporters voted for?

Economists charged with solving the crisis were part of the problem fixing it. January 11 The New Yorker story “Letter from Chicago: After the Blowup”  is deeply disturbing reading. With nearly the exception of Judge Richard Posner, nearly all the economists quoted by reporter John Cassidy exhibit some state of denial about the failure of their economic models and/or principles. (Apologies, the archived story requires a subscription.)

I’m no economist, just a lowly journalist, but even I saw this crisis coming. In August 2005, I blogged “Pop Goes the Housing Bubble“. A year earlier, my family shopped for a new home but gave up after my realization that a dangerous housing bubble formed. What I didn’t understand until the bubble burst was how lenders had repackaged bad mortgages as dangerous derivatives. Why can’t the economists lift their noses from mathematical models and look at human behavior, like greed? There lies the truth behind the econolypse’s causes.

Obama family arrives at US Capitol prior to inauguration swear-in

The bailout prevented a run on the banks but failed to fix the fundamental causes behind the econolypse. More the problem: The aftermath. Americans had amassed huge debt, but the artificial credit economy that generated the debt was gone. I’ve long believed that the Obama Administration could live up to the promise of “change” by doing something quite radical: Bailing out American consumers instead of financial institutions; buy consumer debt from banks at pennies on the dollar. Consumers free of debt could start spending again and perhaps even jumpstart lending, given the Fed’s lowered interest rates.

Real economic reform would have partly aligned with President Obama’s health-care agenda. The majority of Americans, 64 percent, receive health insurance from an employer, according the US Health and Human Services’ Agency for Healthcare Research and Quality. If people lose their jobs, they typically lose their health insurance. If they return to work parttime, they typically don’t recover health insurance. According to Gallup, the underemployment rate rose in March. On top of the about 10 percent unemployed, another 9.9 percent are working parttime but wanting full-time jobs. Preserving or creating full-time jobs is an effective way of keeping Americans insured.

More numbers: In March, 15 million Americans were unemployed with “involuntary part-time workers” reaching 9.1 million, according to the US Department of Labor. “These individuals were working parttime because their hours had been cut back or because they were unable to find a full-time job.” That puts the number of Americans losing insurance with jobs as high as 24 million.

President Obama sought health-care reform through legislation, but there was another way. As I explained in August 2009 post “America’s Health Insurance Cartels are the Problem“: “The Obama Administration should treat health-care reform as a matter of litigation rather than legislation,” starting with repeal of the McCarran-Ferguson Act. The legislation allows insurance companies to fix prices at both ends—what the insured pay for coverage and how much doctors and other health-care providers receive for services. Health insurers operate as protected monopolies.

Obamacare is law, with revisions in progress and provisions rolling out over many years, all without the “change” promised during the campaign. As such, the Obama Administration has a real marketing problem. While, according to Gallup, 49 percent of Americans approved of health-care reform after Congress passed the bill, there is overall dissatisfaction with daily life. “Americans’ access to basic necessities, such as health insurance and money for food, has yet to recover to pre-economic crisis levels,” in March, according to Gallup.

In the absence of meaningful change, the Tea Party Movement has started to seize control of the word. Tea Partiers promise to bring meaningful change to aggrieved Americans. However, “change” has recently become a hotly debated word among Tea Partiers because of the “We are Change” movement. The “we are” or “we are not” change drama started playing out about two weeks ago.

Bizarrely, by nearly unanimously opposing the Democratic agenda on Capitol Hill, Republicans have taken ownership of the word “no”. Republicans are now often referred to by the news media and in political circles as the “Party of No”. Talk about strange branding.

With the health-care distraction behind him, President Obama’s challenge is reclaiming “change” and delivering on it. His overall approval rating is around 51 percent, according to Gallup. There is foundation. In the aforementioned November 2008 Advertising Age article, Al Ries writes:

Nazi propaganda chief Joseph Goebbels was the master of the ‘big lie’. According to Goebbels, ‘If you tell a lie big enough and keep repeating it, people will eventually come to believe it’. The opposite of that strategy is the ‘big truth’. If you tell the truth often enough and keep repeating it, the truth gets bigger and bigger, creating an aura of legitimacy and authenticity.

The big truth is change—that change is still possible. But the change America needs most won’t be easily achieved. Financial reform will be challenging so far removed from the crisis. Americans still have mountains of debt, which is declining mostly because of mortgage and other credit defaults, based on data released by the Federal Reserve.  Joseph Carson, AllianceBernstein’s global economic research director, calls the process “debt destruction“. Declining household debt isn’t sign of recovery but ongoing crisis, as jobless Americans or those with onerous mortgages walk away from their debt obligations.

Those obligations are huge, and consumers can’t abdicate responsibility. While greedy financial institutions engaged in destructive lending and investing practices, Jack and Jane consumer played their role. According to Columbia Professor David Beim, US household debt reached 100-percent of GDP in 2007—$13 trillion. This happened before: In 1929, the year the last great financial collapse started.

There is now one priority for the Obama Administration: Fixing the economy the best way it can and, related, building in accountability that helps prevent the dangerous practices responsible for the econolypse. Is change possible? Barack Obama must start by reclaiming the word and rebuilding Americans’ belief in it. Perhaps it’s time he laid claim to another word. No. And brandished it like a club. Financial reform and economic recovery will require bipartisanship, which will be harder with one party in Washington consistently saying “No”.

Photo Credits: The White House