Obama chides past leadership as he charts future

He called them “gathering clouds and raging storms,” “icy currents” in a “winter of our hardship.” But as Barack Obama spoke to the country for the first time as president, the world beyond Washington was filling in details of the hardships he alluded to in his inaugural address.

As he finished the oath of office, the crisis in the financial services industry sent banking stocks plummeting, and the Dow Jones industrial average turned in its worst Inauguration Day performance in its century-plus history, losing 4% of its value.

For a nation weary of war and racked by economic anxiety, it was a signal that Obama’s problems could be even worse than expected.

The new president offered few details of the path to prosperity beyond calling for shared sacrifice and cautioning that finding a fix will not be easy. Rather, he spent a surprising amount of time drawing connections between today’s problems and political leaders who he said had become consumed with “protecting narrow interests and putting off unpleasant decisions.”

It was a rebuke of the highly partisan wars of recent decades that handicapped Washington, and it was delivered as his predecessors, including Presidents Bush and Clinton, joined him on the platform on the Capitol steps.

“In the words of Scripture, the time has come to set aside childish things,” Obama said, seeming to belittle what had come before him as frivolous. He called for a “new era of responsibility,” implying irresponsibility on the part of current political leaders.

“We come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics,” he said -- a passage that seemed to summon the impeachment of Clinton, the disputed 2000 election and the sharp-elbowed electioneering of Karl Rove, all of which helped leave Washington in gridlock for more than a decade.

In promising such a clean and dramatic break from the past, Obama elevated his own role in guiding the nation from its problems, rather than diminishing expectations.

Obama drew directly from a president who remained popular while navigating a severe economic crisis -- and who made some mistakes in his first term.

Just as Franklin D. Roosevelt sought to buck up Americans in his 1933 inaugural address by assuring them that “plenty is at our doorstep,” Obama said American workers were “no less productive than when this crisis began” and that “our minds are no less inventive, our goods and services no less needed.”

Roosevelt retained public confidence as he tried, and at first failed, to restart the economy. Obama is asking Americans to grant him time and room for experimentation.

“People are willing to exercise some patience here as long as they see him taking steps to address the problem,” said Rep. Chris Van Hollen (D-Md.), a member of the House leadership.

But Van Hollen added: “How long that can go on before people are overtaken with frustration -- the jury is still out on that.”

Obama had hoped he could focus his early efforts on winning congressional approval for an $825-billion economic stimulus plan widely seen as aimed at helping ordinary Americans.

But the eruption of new financial troubles Tuesday will probably force him to take steps to save the banking sector, a problem that federal officials hoped had been resolved. Indeed, the Bush administration’s $700-billion bailout program for the financial services industry proved so unpopular that Obama and his top aides had to personally lobby lawmakers even before they took office to ensure that Congress did not block use of the program’s remaining $350 billion.

Now, Obama may need to take more drastic action -- possibly seizing troubled big banks, which could avoid drawing on more taxpayer money but risk spooking investors.

A less extreme option the administration is thought to be considering is the creation of a government-financed “bad bank,” similar to the Resolution Trust Corp. of the savings and loan era. It would take over the mortgage-backed securities and other toxic assets of banks, an effort to shore up their finances and rekindle the kind of lending needed to revive the economy.

The sell-off in banking stocks Tuesday was an eerie reminder of the banking crisis that greeted Roosevelt’s 1933 arrival in office.

Obama had no sooner reminded a throng of more than 1 million well-wishers that “without a watchful eye, the market can spin out of control” than shares of many of the nation’s big banks threatened to do just that, amid investor fears that the institutions could be in even worse shape than previously thought. Bank of America lost nearly 30% of its value despite receiving $45 billion in federal bailout funds.

“In Roosevelt’s era, it was a run on bank deposits. Today, it’s a run on bank stocks. But one way or the other, it’s a run,” said Robert Litan, a former advisor to the Treasury Department.

“People are realizing, ‘Oh my God, we’re not done with this problem yet.’ ”

In his inaugural address, Obama employed almost biblical language in calling on Americans to pull together and sacrifice in order to right the nation’s economy.

“Let it be said by our children’s children that when we were tested, we refused to let this journey end,” the president told the crowd, “that we did not turn back nor did we falter. . . . We carried forth that great gift of freedom and delivered it safely to future generations.”

It is improbable that bailing out banks and propping up a deeply damaged financial system are what Obama intended in sounding such a sweeping call, or what most Americans are prepared to endure in order to help the country. Obama blamed the nation’s economic problems on “greed and irresponsibility on the part of some” -- language that seemed to encompass banks, mortgage brokers and Wall Street financiers.

Obama takes office with big advantages, such as a Democratic majority in Congress, a grass-roots network and e-mail list of 13 million people, and high approval ratings. A new Gallup poll showed that nearly 75% of Americans feel optimistic about his presidency.

The enormity of his achievement -- becoming the nation’s first black president -- adds to a sense that, as Pastor Rick Warren put it in his invocation, the Obama administration marks a “hinge point in history.”

Even Republicans, who are searching for new leadership and a new identity, will be wary of challenging Obama, at least right away.

“Nobody wants to be painted as the guy that wouldn’t give Barack Obama the chance to get his program started,” said Dick Armey, a former House Republican leader who is now a conservative activist. “No one wants to be seen as the skunk at the garden party.”

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peter.wallsten@latimes.com

peter.gosselin@latimes.com