KEY POINTS:
Never in my life has the world seemed more like one place. Through satellite television people everywhere could watch events in Washington on Wednesday and not since World War II, I imagine, have people everywhere had so much of their personal welfare riding on an American presidency.
As
if Barack Obama didn't have enough to do, lifting the lot of Black America, restoring his country's respect in the world, reviving international efforts to control nuclear proliferation and climate change, now, urgently, he has to reinvent capitalism.
The worldwide financial crisis is deeper than generally imagined a few weeks ago when governments were feeding enormous sums of paper wealth into their banking systems. It is now evident the banks are not passing it on.
Bankers, the Brahmins of business wisdom, keepers of capitalism's keys, have lost their confidence to lend. And no wonder, when they consider the clever financial products their industry created and traded for so long. They were so sure of them they called the products securities.
Now, they are expected to lend money to people who do risky things like trying to sell things that bankers know nothing about, to fickle consumers against competitors, in a recession.
Just about all business operates on bank credit. In Britain, according to the Economist, the supply of new lending to companies has completely dried up. The Labour Government there has now offered to carry half the banks' risk of credit extended to small and medium-sized companies.
No such banking failure has been reported in this country yet. When John Key was asked the hypothetical question at his first post-Cabinet press conference on Tuesday he said the Government would step in, "If a New Zealand corporate could not raise money in its own name ... and we deemed it in the best interests of the country."
This is not how capitalism was supposed to work. Governments don't claim to be very good at allocating investment on hard-headed criteria of profitability. The British scheme invites banks to select credit-worthy companies and present a package of them for the 50 per cent guarantee.
Meanwhile, the United States Federal Reserve Board, overseer of its financial system, would prefer to see governments relieve banks of their bad debt, taking the losses on the taxpayer, and hope that private institutions will then start lending afresh.
What might the Obama Government do? His inaugural address gave no hints, except that its low-key tone left no doubt that he recognises the scale of the task and he seems to have no theoretical pre-conceptions.
"The stale political arguments that have consumed us for so long, no longer apply," he said. "The question we ask today is not whether our government is too big or too small but whether it works...
"Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control - and that a nation cannot prosper long when it favours only the prosperous."
I hope that last remark was a throw-away. The cause of this financial crisis was not "greed" as moralists suppose, but it's antithesis: fear. Fear of ordinary business risk.
Calculated risk is the essence of capitalism, essential to its generation of wealth though no business welcomes risk for itself. A market economy is in a state of constant tension between the need to expose all business to risk and the efforts of every business to minimise its own.
Capitalism did not begin to fail in mid 2007, when the US property boom collapsed, it began to fail years before, when the financial services sector started to manufacture concoctions of supposedly secured debt. The purpose of all of them seems to have been to hedge, hide or cancel risk.
Somebody has to reinvent capitalism with regulations that keep financial products anchored to real goods and services. In the meantime, if trade credit is drying up, governments should not hesitate to bypass their banks. It will be a sad day for efficient economies when governments have to make such decisions but it was a sad day for those economies when private finance began to deceive itself.
President Obama looks capable of leading the reinvention of capitalism. He recognises its productive energy when properly harnessed. He seems smart, studious, thoughtful and comes to power with the world willing him to succeed. He can.
