Obama walks line between politics, economy

By Jeff Mason - Analysis

WASHINGTON (Reuters) - How do you strike a balance between good politics and sound economics when trying to achieve financial stability?

That's a question President Barack Obama has had to answer just weeks into his tenure at the White House. The results, so far, have been mixed.

Exhibit A, in the "could do better" column: Tuesday's unveiling by Treasury Secretary Timothy Geithner of the administration's plan to rescue the banking industry. Politically pesky details, such as the ultimate cost to taxpayers, were thin and stock markets fell.

Industry officials wondered just how the plan would work and average Americans questioned how much more would come out of their wallets to support the financial system and the high-living bankers who ran it.

"The politics and economics are opposing each other," said Charles Trzcinka, professor of finance at Indiana University's Kelley School of Business.

"The economists know that to save the banking system, more cash is needed, but Americans are furious at giving money to the bozos who caused the problem."

Obama, who took office on January 20, is aware of that dilemma and has tried to balance the needs of the economy and the hopes of his political base.

He has expressed his own outrage, shared by the public, over how the first $350 billion of a government-run financial rescue plan was administered even while asking Congress for the second $350 billion tranche and potentially much, much more.

He tapped public scorn for big Wall St pay in grim times for the sector when he announced measures to cap compensation for top executives at financial institutions getting government funds. But the gesture was largely symbolic and stopped short of broader pay limits many observers had demanded.

Then Obama let Geithner -- not as gifted a communicator as his boss -- announce the latest banking moves.

Observers said market confusion may have stemmed from competing positions within the administration itself about how tight a leash to impose on the industry.

A New York Times report said Geithner had prevailed over senior advisers such as David Axelrod in preventing even tougher conditions on financial institutions.

Obama aides were reluctant to discuss any differences among administration officials.

"It's clear there are divisions in the administration about where the financial bailout should be targeted as well as how much authority the government should gain over financial institutions," said Princeton history professor Julian Zelizer.

"The best bet is that Geithner was vague on the detail because the administration has not settled what that detail should be."