Why Does Wall Street Dislike Obama?

A few of my Chinese friends cast votes for Obama in the election, hoping he would bring change. They have not been disappointed, for he has brought a series of changes, the biggest of which involves Wall Street. Of course, stock market reforms were absolutely not the change my friends were hoping for – they expected the stock market to go up, but what makes people lose hope is that the market instead remains in free-fall.

The day after Obama won the election, the stock market fell, setting the record for a post-election drop in the market. Then, on the day Obama took office, the market fell again – the largest drop on inauguration day in history. Then, again, following Obama’s first address before both houses of Congress (dubbed the best such speech in history by some in the media), the stock market remained in continuous decline. Since inauguration day, the Dow has already fallen nearly 2,000 points, or more than 20 percent. I can’t say that the fall of the stock market is wholly due to Obama, but considering the market’s 6-12 month forecast for the economy, it’s obvious that Wall Street does not like Obama, marring his first month in office with a 2,000 point drop.

Why does Wall Street dislike Obama? Actually, it may be better to say that Obama has disdain for Wall Street and was heavy-handed toward it during his first month in office, causing the stock market to fall continuously.

During his election campaign, Obama often talked despairingly of the American economy, saying America had already entered its worst state since the Great Depression. This was an understandable strategy and nothing more than a desire for Bush to assume responsibility for the U.S. recession.

Among the factors affecting the stock market, the U.S. government’s attitude toward the prospects of the economy is an extremely important one, receiving a lot of attention from both domestic and international investors. This is not to say that America’s economic condition is not severe, but Obama’s habit of saying “the economy may never recover” is really too pessimistic – even former President Clinton indicated that Obama should not simply be discounting the economy, but instead needs to point to signs of hope. In his address, Obama mentioned his hopes for the renewal of the U.S. economy, but in the past month, Obama and his cabinet members had, through speeches, already made their attack on Wall Street a fait accompli. One speech alone cannot change this reality; Wall Street and the market have already lost confidence in Obama.

Obama’s economic policies, in particular his stimulus package, are also unfriendly toward Wall Street. His plan is mainly focused on government spending. To be sure, government spending can stimulate the economy, but government spending is inevitably less efficient than private investment. Furthermore, government projects are very slow and the stimulus package contains a number of capital projects that would need more than a year to impact the economy. In addition, a lot of capital has been wasted. In the city where I live, for example, $80 million has been allocated to expand the light rail system, though hardly anyone has used it for the past few years and the local government has already lost a lot of money. I’m afraid this $80 million will also be washed away. More importantly, tax cuts only comprise a small part of Obama’s stimulus package, mostly through tax cuts for individuals: an individual will get $13 in tax cuts per week, not even enough to go to a restaurant. Regarding corporate taxes, capital gains taxes will hardly go down. In fact, lowering corporate and capital gains taxes could help companies ride out the storm, lower unemployment, and provide an immediate economic stimulus.

After securing the $800 billion spending plan, Obama then urgently put forward a $75 billion rescue plan for the housing market as an attempt to pass a government subsidy for homeowners to stay in their homes. However, many of these homeowners are absolutely unable to pay off their mortgages and Obama’s rescue plan does nothing more than prolong their sort of harmful behavior. In the end, the homeowners will not pay off their housing debts and the subsidies will wind up in a bottomless pit with $75 billion being only the beginning. Facing this type of expenditure, Wall Street was, of course, not happy. After the $75 billion plan was announced, the market again fell. At a White House press conference, reporters asked Obama’s press secretary about the hit on Wall Street, who said that the government cannot pay attention to the fluctuations of the stock market at this time – it’s more important to give aid to troubled homeowners.

Of course, not all American voters are willing to support people on welfare and, in fact, the latest opinion poll shows that half of voters oppose Obama’s spending plan. These kinds of poll numbers do not favor the course the Obama administration has taken. Perhaps Obama forgot that more than 60 percent of Americans own stock, directly or indirectly. If the market continues to fall and the economy keeps changing, the Democratic Party will certainly lose a lot of votes come election time in 2010. And if the economy is lifeless in 2012, it will be very difficult for Obama to stay out of the frying pan.