Geithner's Gotta Go

President Obama,
Treasury Secretary Timothy Geithner needs to be replaced with a leader who engenders respect and can create and explain in detail an honest, fair, realistic, general-purpose plan to restore the US' financial health.

Many people were skeptical of Geithner's nomination since he is one of the key banking insiders responsible for our current financial crisis. After all, as head of the New York Fed, Geithner was the primary regulator for Citigroup and other Wall Street banks. Additionally, he ignored the danger of the unregulated OTC derivatives market which appears to be the most destructive, yet completely unaddressed, threat to our financial institutions. It seems unlikely a person so blind to the warning signs and ineffective in the past year will guide us out of this crisis.

Today's joint release is a shockingly perfect example of Geithner's ineffectiveness. The Magic Pixie Capital 'plan' whereby Treasury and the Fed sprinkle borrowed/printed capital on obviously insolvent financial institutions whenever they need it is worse than ineffective. The stock, bond, commodity, and political Markets are looking right through this thinly-veiled guarantee to 'bail at all costs.' The Markets know that Citigroup and its ilk are worth far less than zero, and the US taxpayer cannot bear their debt. US fiscal policy alone has placed us on the path of monetizing the debt (aka buy silver and gold - Asia, India, and the Middle East love these timeless monies). Adding the financial system's liabilities to the US' balance sheet risks the destruction of the dollar. Iceland and the UK have provided us a warning -- the krona is done and the pound is on its way. China's warning has been even more explicit.

The citizens of the United States are already on the hook for three black holes: AIG, Fannie Mae, and Freddie Mac. Combined, they have expressed need for $260B in the last 7 days! We do not need Citigroup, Bank of America, or any other institution. If a bank is insolvent, guarantee the deposits and cram down the capital structure until it is ready to go. If there is not enough capital, then liquidate them without creating more 'too big to fail' institutions. We need a functioning banking system and there are plenty of good banks out there -- the zombies are just getting in the way.

Former Treasury Secretary Henry Paulson's ad-hoc approach to the financial crisis could be explained away as the winddown of the Bush administration and the 'surprise' of it all -- classic Kick The Can by a guy who helped create the problems. However, now that we have been in the frying pan for more than a year no one can claim to be surprised, least of all Timothy Geithner.

Maybe it's time to pass the reins to Volcker; he is a respected leader with a track record of speaking clearly and he proved his mettle in hard times. There are many people qualified for the job, but perhaps the most important quality to obtain is courage as there is a lot of painful work that needs to be done and now is the best time to start that work. If the plan is honest and fair, the American people will do their part.

P.S. Press Secretary Gibbs should probably tone it down. Many people have had the chance to read the Homeowner Affordability and Stability Plan Executive Summary and it will bailout a significant number of reckless lenders and borrowers. We get that you need to throw another $100B at both Fannie and Freddie -- not your fault. However, marketing the Affordability Plan as something which will not bailout Sub-prime/Option-ARM/Alt-A/income-could-never-retire-the-debt borrowers and lenders is a mistake because it's provably not true. Gibbs probably doubled the turnout to the Chicago Tea Party with his response to Santelli which starts off decent enough, but then goes overboard on the sarcasm.

Romantic Statistics

Significant-other logic from the brilliant XKCD:

Shutterfly is Hiring

Shutterfly is hiring!

The most immediate openings are to staff the new printing facility here in Phoenix. The three main categories of jobs are:

• shift manager
• maintenance manager
  
• maintenance tech

Details are available on the Shutterfly jobs page.

I really like Shutterfly and recommend it. I think they are looking for folks with industrial engineering and/or supply chain experience for the shift manager positions. The maintenance folks will be responsible for printing as well as bindery tools. Shutterfly is participating in a job fair next Monday and Tuesday at the Crown Plaza Phoenix Airport location.

The jobs page doesn't list it, but if you are an Adobe Flex and Flash all-star, we would love to have you.

I will pass on your resume if you are interested in any of these jobs.

Better than BARF

The banksters are ramping up the talk of a "bad bank" to take the losing bets of the financial system and give them to the US taxpayer. Naturally, the financial system will keep the winning bets. The Bad Asset Repository Fund is a bad idea for a lot of reasons -- the best two of which are that the US taxpayer can't afford the 3-4 trillion dollar tab and no one is going to lend it to us anyway. Forbes has more of the story on BARF.

However, something must be done. The best suggestion I have seen so far is from Karl Derringer at Market Ticker and it runs basically like this (full post):

1. Bring the Credit Default Swap market above-board:
   
• Force contracts to be backed by capital -- if there's no capital, void the contract.
• Require all new CDS contracts to be written against a public exchange.
• Consider prohibition of 'naked' shorting via CDSes. (I would.)
2. Suspend trading of bank stocks for two weeks; send in the bank regulators and mark everything to market. Banks that are insolvent according to Tier Capital rules get "crammed down" and their new owners (current bondholders) decide if current management stays or goes.
3. If a crammed down bank still cannot survive, the FDIC takes over the bank and handles it like the Resolution Trust Corporation of old. This is actually a self-funding bad bank model that has no/minimal asset valuation problems. The taxpayer won't be financing a give-away to the banksters.
4. Offer the second half of the TARP to healthy banks that want it or to spin up new banks. Personally, I wouldn't mind seeing the creation of a few more P2P LendingClub-like organizations.
5. Investigate the fraud and prosecute it vigorously (go Andrew Cuomo!). The financial system is rife with it:
   
• the banks, commercial and "investment"
  
• the rating agencies
• the Fed
• the government: Treasury, FDIC, SEC, OTS, OCC, Congress -- all of them

Derringer's plan:

1. The total cost of this approach to the taxpayer is practically nothing -- stimulus bill rounding error not counting #4, and $350B with it included
   
2. Brings transparency back to the financial markets (mark-to-market), no more 'over-the-counter' CDS contracts
   
3. Punishes management and stockholders of the banks that made bad loans and decisions; gives what is left of the bad banks to its creditors -- exactly what happens to other bankrupt businesses
4. Rewards well-managed banks for their prudence by clearing the way for them to take the bad banks' customers
5. Serves up justice for the people responsible for this mess