Why are we not yelling about Geithner’s toxic plan?

Professionals should be yelling about Geithner’s apparently toxic plan to solve the US financial crisis.So far – silence.

As seems more and more the case, we have to look at what’s going on in the US to gauge whether we’ll have a shirt left on our backs in six months’ time. Right now, it looks increasingly likely the US tax payer is going to take one hell of a shafting from the Geithner plan. If that happens in the US, the UK is next.

In order to understand what’s going on, you have to read through Umair Haque’s polemic and follow ALL the links. Rortybomb provides the most complete analysis I’ve seen so far of what he describes as Modeling an FDIC Robbery. Those are harsh words but followed through by remarks attributed to Nobel prize winner Joseph Stiglitz where he says:

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

His comments echo those of fellow Nobel Prize winner Paul Krugman, who said on Monday that the plan is almost certain to fail, something which fills him “with a sense of despair.”

Despite Rortybomb’s best efforts, his analysis is far from man-in-the-street-friendly. But if you can pick through the quant argument you come out the other side believing there can only be one conclusion: the banking investors win – so setting them straight – but if anything goes wrong, then the American taxpayer foots the bill. Why? Because the architects of the Geithner plan are simply replacing one set of toxic assets with a high risk toxic deal. According to the analysis, the chances of failure are high.

While I don’t subscribe to Stiglitz reasoning because I am as yet to be convinced that we understand enough about behavioral economics, I do subscribe to the generality of the analysis. I’m also assuming that the analyses will remain in the pages of the specialist media rather than making it through to the front pages of the popular press or onto the TV where it would likely have the most impact.

What I truly don’t understand is why the profession isn’t picking this apart and yelling ‘foul’ to any business person who will listen. We’ve seen enough complicity in and around Wall Street and government to convince that the relationship between those two communities is toxic. We know the Big Four auditors have been heavily duplicitous in the wrecking of some of the largest financial institutions through a continued failure to understand what they were looking at and accepting without question the opinions of others without adequately weighing them.

That only leaves the Tier 2/3  professionals to interpret what’s going on and fight for their clients’ futures. Because at this rate, we’ll all be paying for the bankers’ swindle the rest of our lives. I mean the UK as well and possibly a number of other nation states.

This could work. the Big Four wield power by virtue of their global reach and presumed power. But the Tier 2/3 could emerge as the ‘mob’ that brings back some semblance of sanity. It only takes enough ripples and the right amount of pressure to be applied for  that to emerge.

The usual US method of solving these problems is through legal action but I don’t believe that makes sense. It’s not reasonable to expect the judiciary to understand the ramifications of these complex deals and their potential to inflict even more pain. It’s been hard enough for newly minted CPAs to even start getting their heads around quant based derivatievs. While there are people like Rortybomb out there, we should at least be attempting to make sense of what’s being said and encourage more explanation. Instead, I see we’re more fixated about the proposed new regulatory framework Wrong ball to be looking at. New frameworks make no sense if Geithner’s plan is as toxic as we’re being led to believe.

Tom Hood wants to see a bit of revolution. I want much more than that. I want an end to recasting the old as new in a desperate attempt to continue enriching those who got us into this mess in the first place.

In the meantime I remain deeply concerned that just a matter of a few days after Geithner’s plan is released and Obama looks like Blair Mk II – weak, inexperienced and ineffective. This was something I warned about many months before he was elected on a Newsgang Show. It’s not something about which I want to be shown as correct.

In the meantime it doesn’t go un-noticed that Haque’s piece gets flayed or, on the other side, the language of reason is increasingly replaced with epithets and a tone that at one time you’d expect fomr the tabloids. Some people are deeply worried. Don’t be surprised to see a few f-bombs thrown before this game is played out.

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Tagged as: big four, FDIC, Paul Krugman, Umair Haque