Month: January 2009

Ringfence the Financial Trash

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

One way or another  — a governmental “bad bank” to buy toxic mortgage and other asset-backed financial assets and get them off US banks books, or governmental guarantees against certain levels of excess loss on such assets effectively separating them from the rest of the banks’ balance sheets — the Us needs to act quickly and decisively at the heart of the financial and economic crisis. No time for blame, or who didn’t do what, or how impossible it seems to fairly price these assets or calculate the risk premium on an insurance package. Pick a number!

Maybe the number should just be whatever the Congress and White House decide to put to the program overall — since there is only one ‘bidder’, let the bidder set the price. pouring money into bank equity, which had only a short-term palliative effect, has clearly not been a good deal for the taxpayer, and it will henceforth come with so many stings as to be relatively useless equity for the banks.

One way or another, we need a ‘”Yucca Mountain” for the toxic waste to let normal financial processes begin to take hold; ringfencing these assets either by a national “bad bank” or a national balance sheet insurance scheme is a better solution than the three alternative: outright nationalization of the leading US banks (which we are creeping towards like sleepwalkers in the Fun House); doing nothing and letting the chips fall where they may (isn’t that where we came in, with Lehman Brothers); or waiting for “private capital” to step up (so far, no one has followed Buffett’s lead).

Happy New Year!

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

The Dow was down for the first full week of the year, with bad news on retail sales and job losses, and carping from all sides about the Obama stimulus plan. The last item is the only piece of good news, in that if Barack has managed to displease so many CNBC “free-markets” pundits (CNBC is fast becoming the Fox News of Money — “we report, we decide”) as well as Paul Krugman, he must be getting something right.

Give the man a chance already. He didn’t cause this mess, and in a few days he will be the one President we’ve got, at which point he of course loses all immunity from attacks from any quarter because he’s in charge of things, if only by inheritance. But until then, blaming him for getting it wrong already seems to reflect more the prevailing state of pessimism than any rational critique of policy proposals. As to the latter, he has publicly welcomed them anyway, so what’s the problem?

There are many divergent views as to what measures precisely would lead to economic recovery in a reasonable time, but the key fact seems to be that there is none that would provide the very kind of “instant gratification” we still seek — although lusting after precisely that is what got us into this mess in the first place.

It’s a new deleveraging world out there, and it will take some time to get used to; but when even orthodontists are discounting, you know there is change we can believe in.

If we are painfully honest about it, there is a lot of excess still around in the American experience, and I don’t just mean obesity — some of which results from the effects of malnutrition borne of poverty. Look at your average cable TV programming — the Real Wives of Orange County;  any number of Spring Break videoramas; the remaining reality TV shows. But I also noticed how many bowl games — even the bedevilled BCS ones — had many visible empty seats at ‘sellouts’ . The party, it seems, is well and truly over — get over it!

I expect the new President to issue a call to a “‘generation of responsibility” in his Inaugural Address — a shift from self-indulgence to service particularly among the young, and “Generation Y’ has already demonstrated that it will be fertile ground for such a calling. That would be change we need.