Strike two, Tim Geithner

Treasury Secretary Geithner’s op-ed piece in The New York Times today, “How We Tested the Big Banks” fell far short of what was needed to explain where we are.  Add that to the billions in TARP funds he has approved with not enough strings attached (strike one), and I am on the verge of losing all trust and confidence in him.

First of all, his explanation of sending “hundreds of supervisors to spend 45 days rigorously reviewing the banks’ detailed loan data.”  Really?!  Just what have the bank people been doing all this time, if not that?  We have been hearing about seven and eight figure retention bonuses for “key” executives at these banks and then we send in hundreds of “supervisors” in to run some basic spreadsheets and risk analysis?

But before I get too far into beating up “how” Mr. Geithner is going about this work, let’s back up and take a closer look and “what” he is trying to do, specifically his measures of success.  Give him, well credit, for addressing the need to stabilize the banks and their reserves and their ability to lend.  That’s banking 101 and we now know a lot more about how mortgage backed securities and other crazy high risk businesses blew up the financial markets including a lot of the banks.  What this is really about is getting a handle on debt risk.  That is the measure.

That “what” is in plain view and lots of people are talking about it.  I don’t know why it’s taking so long to get transparency on that, I think everyone has Excel, right?

The “what” part that I am not hearing as much about, which is also one of the bigger variables in this equation is displaced families, homeless people.  Homeless people are not new, and while that is in some ways a very complex topic in its own right, there is a “new” addition to that homeless community and that’s people who are losing their homes because of foreclosures – a big part of this current crisis.

Someone in the administration needs to provide some tolerance thresholds for how much additional risk a bank can take before foreclosing on a house, and that has to tie to some logical articulation of how much extra leeway homeowners will get before getting the boot.  There are car ads saying that if you buy a car and can’t make payments, you can just bring it back, we need something like that for housing, but also have some clear and specific messages about secondary housing options when friends and family are not an option.  The government needs to be specific about its role here, and how much it will help, and what’s the federal and state role here, and then also be very specific about how much more lenient banks can and cannot be.  Without that, there are still too many variables, and “how” we go about it is most assuredly going to fail.

OK Tim, last chance – let’s see what you can do.  We need you to hit one out of the park.

-Ric