President Obama announced he wants to prohibit banks from forming hedge funds, private equity funds and trading securities on their own accounts, and he wants to limit the size of banks and financial institutions generally.

Hedge funds, private equity funds and proprietary securities trading did not cause the banks to get into trouble, and the size of banks did not cause the credit crisis.

Banks, small and large, failed or required bailouts because of poorly considered loans, and the kinds of engineered products that were created from those loans by non-bank entities.

Collateralized debt obligations and swaps created and marketed by non-bank financial institutions, such as Lehman Brothers and Goldman Sachs, compounded the errors of foolish bankers. Later, Goldman Sachs and other financial institutions became banks to access inexpensive credit from the Federal Reserve, but those decisions could be reversed if bank holding companies are not permitted to trade on their own accounts.

Prohibiting securities trading by banks and limiting the size of the banks would not keep those mistakes from happening again.

Many smaller banks invested in risky securities-commercial mortgage backed securities. They did that and could do it again without a proprietary trading arm.

Large banks failed or required bailouts, because they continued to hold residential mortgages, residential mortgage back securities and credit card and auto loans that soured. Bad loans will sink a bank, regardless of whether it is owned by a holding company that trades securities on its own account.

The president’s statement on bank policy does not demonstrate a clear understanding of the causes of the credit crisis, and more importantly, it does not chart a clear path to reforms that would keep another crisis from occurring.

The president’s statement appears intended to distract public attention from record profits and bonuses on Wall Street, and from his political troubles.

Coming on the heels of news that 450,000 Americans continue to file for first time unemployment benefits each week, and the Democrats loss of a special senatorial election in Massachusetts, the President’s Obama’s statement on bank reform appears political and disingenuous.

One year after taking office, the administration should demonstrate a better understanding of the causes of economic crisis and articulate confident solutions for unemployment.

The Obama team simply does not have a grasp on the nation’s economic problems.

The economy continues to bleed jobs, even as GDP rebounds. Employment may be a lagging indicator, but job losses should have abated by now even if a lot of new jobs are not being added.

Coming off a deep recession, GDP growth should have been much stronger than the 2.8 percent recorded in the third quarter. A poorly conceived and badly executed stimulus package and the failure to correct structural problems that caused the Great Recession are holding down growth.

Consequently, the economy is not creating jobs, and certainly not creating good paying, full-time jobs with benefits.

Friday, the Labor Department will report employment data for November. In October, the economy lost 190,000 jobs, and the consensus forecast is for another 100,000 jobs lost in November.

Unemployment was 10.2 percent in October, and professional forecasters expect it to stay at that level in November, though that rate is expected rise further into the New Year.

Unemployment would have already pierced 12 percent had not so many adults quit looking for work and left the labor force. Also, many adults have been forced to accept part-time work, but would prefer and need full time employment.

Factoring in adults that have left the labor force and those who work part time but would prefer full-time jobs, the unemployment rate is greater than 19 percent.

From December 2007 through September 2009, the economy lost 7.3 million jobs. The recession has wiped out all the jobs created in the private sector over the last decade.

Unemployment claims continue to exceed 450,000 each week, indicating the bleeding will not end soon.

Construction and manufacturing shed 1.6 and 2.1 million jobs, respectively, as the credit market meltdown and trade deficit wrecked havoc on residential construction and manufacturing. Layoffs spread to commercial construction, finance, retail sales, and other sectors.

The economy expanded 2.8 percent in the third quarter, but 0.8 percent of that was cash for clunkers, 0.5 percent was the tax credit for new home buyers, and a slower pace of inventory liquidation accounted for 0.9 percent. Sustainable growth was only about 1.0 percent. Economists expect that sustainable growth to improve to 2.8 to 3.0 percent in the fourth quarter but that is not enough to pull down unemployment.

With productivity growing at least two percent a year and the working aged population increasing one percent a year, GDP growth must exceed three percent to bring down unemployment. Hence, unemployment will exceed 10 percent in 2010 and stay there for the foreseeable future.

Unless President Obama addresses the structural problems that caused the recession-bad loans and securities on the balance sheets of regional banks and huge trade deficits on oil and with China-the recovery will not be strong enough to bring down the unemployment rate.

Regional banks labor under the weight of commercial real estate failures. Unable to effectively access Wall Street capital markets, regional banks are short on funds to loan to worthy small and medium sized businesses.

The TARP was intended to create a bad bank mechanism to sweep troubled assets off the books of the banks, much like the Resolution Trust during the Savings and Loan Crisis of the early 1990s. Instead, President Obama and the Federal Reserve have focused on boosting the profitability and bonus pools at the largest Wall Street banks and left to the wolves the regional banks and the businesses that rely on them for credit. Already, 124 of these banks have failed, while the Treasury and Federal Reserve prop up Bank of America and Citigroup.

During the economic expansion from 2001 to 2007, the trade deficit increased from about one percent of GDP to more than five percent-nearly all of this was oil from the Middle East and consumer goods from China. The former was caused mostly by higher prices and the latter by China’s persistent export subsidies and manipulation of currency markets to keep its yuan and products on overseas markets artificially cheap.

Trade deficit required Americans to spend a dollar and five cents for every dollar they earned to create enough demand for all the goods and services produced in the United States. Americans spent more than they earned by borrowing on their homes and credit cards, while Middle East oil exporters and China supplied the funds through New York financial houses. When the bubble burst, the banks and economy collapsed.

Going forward, as the stimulus package pushes up government and consumer spending, the trade deficits on oil and with China will grow. This tax on demand for U.S. made goods and services will limit jobs creation.

Consequently, as the economy expands, businesses will struggle to find enough capital, and the trade deficits will create a shortage of demand for U.S.-made goods and services and new layoffs will begin once the stimulus spending ends. Unemployment could easily rise to 15 percent, and depression like conditions will become commonplace in many parts of the country.

President Obama’s near term energy policies address mostly the more efficient use of domestic coal and natural gas and alternative energy sources to generate electricity, and will do little to quickly reduce oil imports. Increased mileage standards for cars and trucks will not have a meaningful impact on the value of oil imports for several years.

President Obama, like George Bush, emphasizes diplomacy to persuade China to stop subsidizing exports, undervaluing its currency through currency market manipulation and blocking imports. Treasury Secretary Geithner has downplayed the importance of China’s biggest unfair trade practice-the undervaluation of the yuan by some 40 percent. Diplomacy has failed for more than ten years, and now Secretary Geithner is assuming away the problem.

When Democrat Bill Clinton was in the White House, America enjoyed export growth and a trade-led economic expansion. Now that Democrat Obama is in the White House, Geithner says the Clinton prosperity was all a ruse-merely, premised on a shaky financial system.

Clinton got the banks working again, Obama subsidizes Wall Street bonuses. Clinton got American manufactures exporting again, whereas Obama wants to shut them down with cap and trade.

Treasury Secretary Timothy Geithner has not explained how the Obama administration can deliver jobs without taking on the trade deficit and in particular the high price of oil and Chinese mercantilism.

The jobs summit will deliver more band aids. Ordinary working Americans and the unemployed will get little of lasting value until the trade deficit, in particular imports of oil and from China, are addressed.

From Berlin to Bangkok, governments are screaming about the falling dollar, because they can no longer rely on reckless American consumers to power their economies.

From the late 1980s to 2007, the global economy enjoyed The Great Moderation-low inflation and sustained growth interrupted by brief recessions. Driving global growth was an eight fold increase in the U.S. trade deficit, facilitated by a doubling of the value of the dollar against other currencies from 1989 to 2002.

Deregulation and new technologies powered U.S. growth, and Americans flush with success bought whatever the world had to sell. However, when imports substantially exceed exports, Americans must consume more than they earn producing good and services, or demand for what they make is inadequate, inventories pile up, and layoffs and recession follow.

From 2003 to 2007, the U.S. trade deficit averaged $665 billion, and Americans massively borrowed from abroad to keep the U.S. economy going. They posted as collateral overvalued homes financed on shaky mortgages. When mortgages failed, banks failed, home prices dropped, and retail sales tanked. The U.S. economy was thrust into the worst recession in 70 years and pulled the rest of the world into crisis.

Imports of oil and consumer goods from China account for the lion share of the U.S. trade deficit. Americans drive big cars powered by thirsty engines. They sit on vast untapped deposits of natural gas but burn too much heating oil in the winter. Simply, conservatives in Congress are unwilling to submit to genuine energy conservation, and liberals teach developing domestic fossil fuels resources is evil.

For nearly two decades, China has maintained an undervalued currency. The Chinese government tightly regulates private trading in the yuan, and each year, purchases more than 400 billion U.S. dollars with newly printed currency to keep the yuan artificially cheap against the dollar. That is 10 percent of China’s GDP and 20 percent of exports to make Chinese goods artificially inexpensive on U.S. store shelves and juice Chinese exports.

China amasses huge trade surpluses that power its impressive growth, and the rest of the world suffers slower growth to compensate. An economic miracle sold to the world as policy genius but really built on currency mercantilism and beggar-thy-neighbor protectionism.

Japan has propped up its economy by purchasing dollars and permitting private investors to borrow yen at near zero interest rates and trade those for dollars-denominated Treasury securities. Now, Tokyo signals it will not let the yen drop much below 90 per dollar when a market equilibrium value would be closer to 80.

Other Asian export powerhouses have practiced variants of the Chinese and Japanese currency model too. It is no wonder the dollar was so strong for so long.

In recent years, private investors have grown wary of massive American borrowing. They have turned to the best substitutes available for the dollar-the euro, yen and gold-and driven up their values and pushed the dollar down against every major currency but the Beijing regulated yuan.

Now, with Americans no longer able to borrow madly to prop up global growth, protests are shouted around the world about a “cheap U.S. dollar.”

The hard facts are the dollar became overvalued earlier in this decade, in no small measure thanks to the currency policies of China and other Asian governments. Now, as private traders flee the dollar, its average value has fallen near the middle of its trading range for the 1990s.

The dollar has fallen too much against the euro and some other currencies, because China, Japan and other Asian exporters have been unwilling, in varying measures, to abandon currency mercantilism and let their currencies rise in value as free markets would require.

If China and others ceased subverting currency markets, the yuan would rise at least 40 percent, other Asian currencies would appreciate too, the U.S. trade deficit would shrink dramatically, and the new demand for American goods would rocket the U.S. economy.

With higher incomes, Americans would need to borrow less, and the global economy could go forward, embracing free trade in goods and currency.