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What Obama can do

November 6th, 2008 · No Comments

Actually quite sensible stuff from Jim Cramer. We’re not too sure about bailing out the car manufacturers though. Were would it end if the government begins with that? There is a precedent though, in the early 1980s, Chrysler was bailed out by the Fed. The part about natural gas seems a very good idea to us.

The European banks obliged. The European Central Bank cut rates half a percent (still no sense of urgency there) to 3.25%, the Bank of England was a lot more bold, cutting rates a whopping 1.5% to 3%.

Jim Cramer outlined a plan for President-elect Barack Obama to fix the struggling economy on his “Mad Money” TV show Wednesday.

  • Cramer said the first steps to turn the economy around are unfortunately beyond our control. The European and Asian central banks must cut interest rates, he said, ahead of what is sure to be a awful unemployment number on Friday. Without it, the markets will undoubtedly be in for another significant slide.
  • As for what Barrack Obama can control, Cramer said the first step is to fix the ailing auto industry. He said a major federal bailout, similar to that of AIG, will be needed.
  • The government should buy huge chunks of both common and preferred shares in General Motors, Ford and Chrysler to stabilize their stock prices and secure the companies’ corporate debt until structural changes can be made.
  • Second, Obama needs to solve the country’s energy independence problem. Cramer recommended relying on the U.S.’s huge reserves of natural gas to bridge the gap to renewable energy.
  • Obama, he said, should mandate the U.S. automakers to make natural gas vehicles and encourage the oil industry to use tax credits to open natural gas fueling stations. Natural gas, he said, is not only a quick solution but one that could create thousands of jobs.
  • Finally, Cramer said the country must fix the housing crisis. Cramer says the remaining $400 billion in the TARP program should be used to buy 1.3 million homes in the hardest hit areas of the country.
  • The government then can offer these homes to Americans for low down payments and fixed 5% mortgages. He said this strategy will stop home price depreciation cold.
  • With these steps, Cramer said any president could easily fix the country’s problems in his first 100 days.

We also like that latter idea, instead of buying toxic assets from the banks, injecting them with capital and guranteeing loans was always a better and cheaper idea (and, more importantly, it is working), so to use a good deal of the Tarp fund to fix housing seems a fine plan to us.

Tags: Credit Crisis