First 100 Days: Prioritize and take a hands-on approach

January 20, 2009

ram-charan-photo— Ram Charan is the author several book, including “Leadership in the Era of Economic Uncertainty: The New Rules for Getting the Right Things Done in Difficult Times.” A noted expert on business strategy, Charan has coached CEOs and helped companies like GE, Bank of America, Verizon, KLM, and Thomson shape and implement their strategic direction. The opinions expressed are his own. —

The first 100 days demand that President Barack Obama sort out his priorities and choose the ones that will help solve many others. With many constituencies and direct reports clamoring for his time and attention, he cannot attend to them all.  He has to decide which of the many complex and urgent issues that have accumulated must be resolved first.

The new president will inevitably be pushed to spend a huge amount of time on foreign policy.  But I suggest that the president’s top priority should be to get the nation out of this economic and psychological funk.  He has selected some very capable people who will help sort out the economic mess. He made a brilliant move to have Paul Volcker in the White House.

But ensuring that various parts of the U.S. economy work together and with the rest of the global economy will take a significant amount of President Obama’s personal time and leadership. I have seen in my work with corporations that the best leaders are hands-on when it comes to making sure their top people coordinate their efforts.  The new president will have to do the same with the secretary of Treasury, Federal Reserve chair, SEC chair, and other relevant government leaders. Each of these experts sees the situation through the lens of his or her expertise.

The president must ensure that their perspectives are integrated.  He must provide the oversight to ensure that they communicate frequently and resolve any conflicts that arise to create cogent, urgent solutions to get the economy going.

The president also needs the common sense perspective of people who spend their lives dealing with the issues of falling demand, global trade, inflation, deflation, and layoffs.  He needs a way to gather “ground-level intelligence” from the business side. He should create a small group of perhaps ten active business leaders to periodically meet with him.

This country has many smart, thoughtful people doing their best to keep their companies going.  Communicating with them frequently will help the president grasp the depth and scope of the shifting economic problems better—and sooner—than hundred-page documents and statistical reports.

This group can help generate new solutions and provide insights into the practicality of solutions being proposed. They can help anticipate the second- and third-order consequences of proposed actions. The leaders must, of course, be carefully chosen so they don’t promote their self-interest; there is no room for PR grandstanding.  I have no doubt that there is an ample supply of business leaders who would donate their time to help get the nation back on track.

The aim should be to find a simple solution to the core problem rather than a comprehensive solution to all the problems created by the domino effect. Solving the problem of toxic assets that have gummed up the flow of money, for example, will have many positive ripple effects.

Here is one possible solution: Announce a program that converts all subprime nonperforming loans as of a particular date (say, February 1) to performing loans by having the Treasury make the mortgage payments for the next five years. As the banks become profitable, they will pay 25 percent of their profits to reimburse the Treasury. External audit firms can provide a check on which loans qualify.

Stemming the tide of foreclosures will turn the psychology of most Americans, who are anxious about their jobs and homes, and open the clogged transactions of CDOs and other derivatives that are based on the original mortgage loans.  Thus multiple problems are resolved by targeting the right one.  My discussions with bankers indicate that this solution is do-able.

Choosing the right priorities is essential.  Addressing them with realism, tempered with optimism, will enhance President Obama’s credibility, and, more importantly, build our future.


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I agree it is largely a matter of psychology. People have to made to believe that all of the money they have borrowed over the years will never have to be paid. They can and will live forever. So they can spend well beyond their means and never worry about anything. It is mind of matter. If we believe we are astronauts, we will become astronauts. If we believe we can topple mountains, most certainly those mountains will topple before us. Because reality does not matter nearly as much as our perception of it. When a guy enters a bar, you just tell him he will never have to pay his bill. Watch him spend and drink freely. Finally we have figured out how to perpetually stimulate the economy. Thank you, brilliant economists who would otherwise be unemployable in the real world.

Posted by Don | Report as abusive

What will happen to the “psychology” of those who continue to work hard and struggle to pay their mortgages and other bills on their own? How long will people go on being good citizens in a system that appears to reward the irresponsible and undeserving? While I appreciate the complexity of the current crisis, I fear the greater damage that will be done to the mindset of the good American.

Posted by Maggie | Report as abusive


Posted by alberto clavijo | Report as abusive

The idea will in short term improve market sentiments, thereby will create a great boost to Investors around the world (make more Madoff’s in the trade world)while innocent investors spend their money for some time unknowingly they will soon become Popper. This idea in anyway will not solve the major crisis, but rather will burden the treasury (since proper repayments made by salaried people will fall in this bucket). Maybe the author is a huge investor in the Market :)

Posted by Senthil | Report as abusive

Don is not too far off base with his opinion. Living in Saudi Arabia for a few years, this is much the way they live their lives. People borrow money for a variety of reasons that never has to be paid back. Once every 3 yrs or so, the KING forgives and repays all debts incurred by his people..Let’s just say I would go to a bank and borrow money ($20 million) to build this grand hotel. As long as the top floor of the hotel is not complete, I would not have to start paying the banks any money. As I said before, every 3 yrs. or so, the KING would pay off my $20M debt and I would have a hotel scot free. Now that I have a free hotel, I can go ahead and complete the top floor.

Posted by dean yorgey | Report as abusive

People who have been borrowing responsibly must be terribly perplexed and frustrated – even angry to see their property values and stock (401-k) investments keep going down! The proposed solution would probably stop that and set the stage for them to increase again. The burden on the treasury (taxpayers) would eventually be recovered in increasd tax revenues as the economy began to prosper years sooner than if we continue on as we have.Maggie – I understand how you feel. However,here in South Florida, I know dozens of “good citizens” who had 700 to 800 credit scores that finally realized that it made no sense to keep paying on a $300,000 mortgage when the house value had fallen to $120,000. Especially when it’s likely that it will drop to $100,000 in a few months. These were not sub-prime loans.It was mostly this viscious cycle of forclosed homes being dumped on the real estate market by the banks at give away prices that caused this decline.I don’t know if Ram Charan’s proposal is the best one possible, but I noticed none of the commentors had any constructive ideas at all. I guess it takes less intelligence to critisize than to come up with a good idea of your own.

Posted by John Morarre | Report as abusive

The companies and banks that made the investment mistakes should have had to go bankrupt, period. That’s what a capitalist market is all about: the smart take over from the not so smart. Yes, lots of upheaval, but the losses would be confined ultimately to the shareholders and not the U.S. taxpayers. I know, there would be reduced tax revenue for a period, but the difficulties this interruption would cause is not anything like the ultimate piper we will have to pay in the coming ten years or more. Congress is acting like a child who doesn’t want to face the punishment of wrong-doing, so it is trying to spend us out of our problem, which is how we got here in the first place. Spending money we as a country don’t have has not and will not work. Face the music and stop the bleeding now, or we won’t have a body to even fix later on. The author’s idea of making mortgage payments would induce everyone who has a mortgage to get in line. And those who don’t have mortgages would would feel, and are already are beginning to feel that responsibility has no place in this country, and are understandably very angry at a government rewarding failure and punishing responsibility.

Posted by ArtH | Report as abusive

Agriculture finance solved the restructure problems associated with falling asset values, in the 1980s. Several options are available. Write down loan to value of the asset, interest rate adjusted to repayment ability, defer payment for up to 5 years if repayment is not feasible with an asset shared appreciation clause. Cash flow analysis using different amortization schedules will find solutions to most people’s delinquent loans.

Posted by DirtyShame | Report as abusive

The largest Problem with the special interest in washington is the lobbiest. Make it a felony to lobby any congressmen and senator with mandatory 10 year jail sentence no matter who you are. Things in washington would straiten up very quickly. The problem with the economy is the greed of the big business. I am a small business owner and I can not grow and have not been able to grow my business in 4 years. This past year I have gone into debt. It cost me more to stay in business than what I make. It has been this way for 4 years. The big business just sends the lobbiest to washington and they get the tax breaks and the special government contracts while the little guys like me struggle to just keep from going further into debt. The oil companies have made out like bandits over the past 8 years and nobody did anything to stop it. Now our cuntry is paying the price. You want to stimulate the economy, give the money to the individual families and let them spend it and get the ecomony growing. Giving the money to the power hungry CEO’s just doesn’t make scense. They caused the problem to begin with and the government is just feeding the sharks so they can get larger. The little fish are being swallowed alive. What happens when there is no more little fish to feed the larger one’s. They all die off……………..

Posted by Thurlow Harper | Report as abusive

In Asia, we are suffering the consequences of the US financial crisis.I was in the US in January 2007, as I was indeed preplexed by banks’ advertisements that they would provide loans to those with debt problems and were unable to get loans from banks. Two years forward and we are at the brink of a global recession.Americans must realise that they have to repay their loans but the government should have a unit to help them restructure their loans over a fixed time frame.It is indeed disheartening to see the average American who worked so hard having to suffer the consequences of the irresponsible investment bankers who drove the economy into the ground.All the best Obama, Asia is counting on you to turnaround the economy and hopefully help us to.

Posted by joe chin | Report as abusive

Consider the Connection to:Going in a POSITIVE DIRECTION.

Posted by jerry Lee Mayeux | Report as abusive

Ram (if you allow me), I hope your advice is taken into account and implemented. I remember you saying the same things a few months ago and I wonder what’s taking them so long to figure it out.That way, we can also avoid the fiscal over-burdening of our governments and a complete financial collapse a few years down the road.Respectfully,A reader from Greece

Posted by mantz | Report as abusive

President Obama must issue of law as soon as possible about lower interest rate.-For all home owner/paying mortgage;-The house volue made less 20%;-Existing all loans with lower interest rate 3.0% – 3.5%-All the banks must sent to customers note aboutdecrease interest rate without negotiation on 5.0 years

Posted by Anatoli | Report as abusive

Maggie and Dean Yorgey are correct: Ram’s policy, if implemented, would make a large perverse incentive to mortgage payers. Perverse incentives make the market work worse.We have 2 million homes whose owners cannot afford them. These are going to have to be sold to people who can afford them. Those people don’t exist right now. However, if we can get the economy growing at a usual pace, we will need those 2 million new homes over the next 5 or ten years. So, we need to keep them in good shape until we can transfer them to others.I think the Fed can intervene before a mortgage goes into foreclosure. The Fed would buy a partial stake in the house, so that the homeowner would be financing just the portion of the home that they can afford. The Fed would price the house not at current prices, but at something closer to the price the original mortgage was based on. The catch for the homeowner is that the Fed gets to decide when the house gets sold.Voila: by choosing a rate at which not to intervene, the Fed can set the default rate for mortgages behind mortgage backed equities, thus stabilizing their prices. The Fed also keeps people in their houses. Deferring home sales keeps housing prices from collapsing. And by metering the rate at which it forces sales, the Fed can deter home builders from building housing which is too expensive, so that they concentrate on building an asset base we can actually afford.Total taxpayer money put at risk would be about $700 billion, and my guess is that we can unwind all the Fed’s commitments in about a decade, with probably only a $100 billion actual cost to the taxpayer.

Posted by Iain McClatchie | Report as abusive

The simple truth none of these “experts” ever talk about is the simple fact that high wages create wealthy nations. And ONLY high wages do it. Nothing else can succeed in doing so. Simply put, the worker must earn enough to keep the economy rolling along on cash, not credit. What we have now is what you get with 40 years of wages not keeping up with inflation and increases in productivity. We’ve had a 600% increase in productivity in 10 years and no increases in real wages. That means workers have to buy on credit, creating this huge mess. This guy is totally out to lunch. Like Greenspan, he thinks the economy is what happens in someone’s office. It’s not. It’s what happens in YOUR home. At last people are starting to join unions and force wages up. Maybe a few are waking up to the fact that they are screwed by people like this author. High wages is what makes a nation rich, not low taxes, not high credit and not a great stock market. Wages are the key and nothing else.

Posted by robert1234 | Report as abusive

As proposed by some Republicans and Democrats; give every one that really qualifies a 4.0% fixed rate loan. If you don’t qualify, sorry but there has to be some pain. This way, you help those hard working americans that need help and really help the psychology of the markets. You can’t just pay for ALL bad subprime mortgages….that would be bad for market psychology way into the future as people will come to always expect a bail out.

Posted by Jaime Medina | Report as abusive

MY SEVEN STEPS TO SAVING AMERICATaking toxic waste (In this case loans that are never going to be paid) and moving that waste to another county (in this case the US Treasury), then shipping it back 5 years later to the county it came from miraculously making potable soil is irresponsible dreaming!STEP 1 (STOP FEEDING THE LIES)The first thing that the President can do is stop the phoney-baloney that the Treasury Secretary, Federal Reserve Chairman, and people of the ilk of Robert Rubin, and the Media Like the New York Times are serving up to the public. ALL OF IT to date is complete and utter hogwash. The public can smell a rotten egg and if Obama doesn’t come to terms with that fact quickly, then he will not spend more than one short term in office.STEP 2 (BECOME REALISTIC)All of this nonsense about the Government taking the failed debts of the banks ”temporarily” to be repaid later is an effort to hide the fact that the Plutocracy of America is more important than the rest of the American People and as they all run for cover the rest of us will be left holding nothing.STEP 3 (STOP PRINTING MONEY)As the Goverment continues to print new currency at an alarming rate (that I might add is no longer reported due to M3 no longer being published), we risk Weimarian inflation. We will be carrying 100 Billion US Dollar Notes in the next 5 years at the current rate of inflationary dollar creation.STEP 4(REVITALIZE MODERN FED.RES.GOLD CERT. RATIO)There is no solution to the current financial problem that we face, other than creating ”The Revitalized and Modernized Federal Reserve Gold Certificate Ratio” as per Sinclair.STEP 5 (HIRE RON PAUL AS SPECIAL ADVISER)Obama should also make Ron Paul his Special Advisor to work with Volker.STEP 6 TELL THE ENTIRE COUNTRY THE ABOVE AND EXPLAIN TO THEM WHY IT IS NECESSARY.Let the Bankers and the Motor companies and any other company that has failed, to fail. Then you will have the trust of the people and other Nations.STEP 7 (USE THE BIBLE AS YOUR GUIDE)That’s my solution and it will work if Obama tries it.

Posted by McGregor | Report as abusive

Obama is using this recession to expand the size of government and for taking more control over the American people. I’m 52 years old and I’ve lived through numerous recessions many much worse than this one. But Obama is telling us it will take years to solve this one instead of months. It will only take years if he wants it to take years unless of course he’s stupid which I doubt. Obama and the democrats are taking a chapter right out of the Communist Manifesto by using economic crisis to gain power. America will be a full blown Communist country run by the communist democrat party in four years unless we start a revolution now.

Posted by Dr. Moon | Report as abusive

The past eight years were most notable for their evidence of procrastination – ignore the problem and it will go away – and laissez-faire – let other people do it.At least this President is doing something.

Posted by Bernard Campbell | Report as abusive

I think that rent is a very important driver of the market and that is what Ram Charan is addressing in his writeup. I think the way out of this mess lies in “value addition” to their products and services in economic sense i.e. companies must come up with ways for retaining loyalty of customer, forcing the corporate cash flows to stabilize , thereby enabling businesses to hire more or pay better wages. This will have a cascading effect allowing people to pay their mortgages rents/ allowing landlords to pay their mortgages.Regarding falling prices on real estate leading to equity in homes taking a hit the Federal reserve can issue “GUARRANTTED BONDS FOR THE FALL IN REAL ESTATE PRICES ” to make up for the difference in fall in equity .This will give genuine home owners an incentive to keep paying their mortgages since they know they will be able to recoup their losses in say “20 years on on their death by their successors / heirs)

Posted by Rajiv Walia (Chartered Accountant India) | Report as abusive