Stay the course? What course?

Lately people including Fed Chief Timothy F. Geithner and ecnonomist Paul Krugman have gone on record saying it’s too early to declare victory on the the global recession despite reported progress on many fronts.  While Geithner focused more on the importance of the timing of the “unwinding” of extraordinary government policy measures put in place to protect markets, and Krugman spoke more of a cash “liquidity” trap, I was surprised by the continued absence of one thing in these and other conversations about the recovery – a definition of success.

Yogi Berra, the baseball player-cum-insurance-pitchman was quoted as saying “If you don’t know where you are going, you might wind up someplace else” and my growing concern is that with all of the money and smart people focused on this problem, it’s not clear that everyone is pointed in the same direction, or that they even will recognize or agree on a finish line when we get there.

I appreciate that there are some very complicated issues, especially in the financial markets, but there ought to be specific measures that can be articulated so that we can all get a better sense of where we are. Here are five areas that strike me as vital to tracking our progress through this situation:

1) Debt.  Governments around the world have been borrowing and creating huge budget deficits, can’t we quantify or speculate how much of this borrowing the markets can sustain so we can sense how much worse it can get before even more serious measures are needed?

2) Risk.  The basic notion, and math, related to risk was badly abused widely and broadly in the financial services sector, from mortgages, to the then bootstrapped mortgage-backed securities that grew the risk to cartoonish proportions.  Can we quantify the risk of the bank debts today and report against the progress being made?  What is the metric for tolerable banking and insurance risk to start talking about exit strategies.

3) Main Street.  With so much talk about fixing Wall Street, we also hear about continued foreclosures, bankruptcies, and unemployment. Thankfully a lot of people have not lost their jobs, but aren’t there some numbers, even by region that show progress and draw some line above which things are now “OK”, at least?  Some regions will always be doing better than others, so it’s probably not a bad idea to have some sort of reporting mechanism like this so that the next time it happens, we can start to see which regions are suffering, how badly, and when/if action is needed to help them get on their feet.

4) Liquidity. Growth, innovation, and fixing things all cost money. Lots of organizations from banks to businesses lack the financial liquidity to make key  investments today, and I think we should be able to have measures that tell us where liquidity is an issue (by company and/or geography) so that decisions about how/if to handle them make sense.   This is a level of transparency that we should have today and it will serve us well in the future.

5) Regulation.  Some say that the way to prevent this kind of mess from happening again is significant new regulation that will force transparency and accountability.  While there is little argument about the lack of transparency and accountability playing a key role in the current situation – how to fix this is open to a livelier debate.  There need to be clear statements about how much oversight and regulation is needed through each stage of the recovery.  In some cases I expect Mr. Geithner is right that there needs to be some unwinding as we go from”red” to “yellow” or whatever indicators are used, but specifics need to be included.

Many of us have felt the impact of the current crisis in some way in our personal lives, and it seems that it would go a very long way to have some sort of scorecard, consumable by the masses, that tells us where we are, and whether we should be more or less worried when we go to bed at night, whether we can afford that new jacket this month, or whether we need that insurance that Yogi talks about.

Given how much depends on the success of all of these efforts, shouldn’t we really work to define “what” success is at some level of detail before we get into debates about “how” we do it, and when we are finished?  Not to suggest everyone will agree with the definition, but at least with a definition we can all have greater context for why decisions are, or are not being made.

-Ric