Affordable Housing Institute : US

Set a thief to catch a thief, runs the saying, but what do you do when all the thieves are still in business?

 

Find a brain surgeon?

 

That’s the challenge facing Treasury, which, as reported in The Wall Street Journal, has discovered that, because complex financial restructuring is no business for amateurs, the processing bottleneck isn’t the money, it’s the workouts:

 

Workouts were popular in the ’70’s, and they’ll be popular again!

 

Rescue Plan Strained by Lack of Staff

 

The current Treasury has so far struggled to keep up with the task of hiring enough people to handle the $700 billion financial rescue package passed by Congress in October. The man now in charge of running the Troubled Asset Relief Program, Assistant Secretary Neel Kashkari, said the department’s Office of Financial Stability, with about 40 full-time employees, is operating at half-staff.

 

You put the money right here, Senator …

 

Federal banking regulators, who must approve the applications from banks before they go to Treasury, said there is a backlog of unprocessed applications for relief.

 

Even a bureaucracy has a value chain – a linked sequence of actions necessary to produce the result.  Any blockage and the machine stops.

 

Keep moving the books

 

Outside observers said the difficulty of quickly building a qualified staff may be one reason the Treasury abandoned its original plans to use the TARP to purchase assets from financial institutions, deciding instead to inject capital into the banking system.

 

Yes, I think asset complexity played a part.  As I wrote before:

 

What it boils down to: you will take the money, and you should pay it off as quickly as you can

 

Once again, the financial rescue team has made a bold, aggressive move that’s used the bully pulpit and extraordinary executive powers to force through sweeping change.  (It has other plans for the GSEs, which I’ll detail in a future post.)  Just as the Treasury is banking on value, it’s forcing banks to raise their value – not necessarily for the banks’ individual interest, but for the country’s – and the world’s – economic health.

 

You’ll agree voluntarily … unless, that is, you’d like me to exercise some more of those powers Congress saw fit to grant …

 

By investing in the banks, rather than buying assets from them, treasury found a low-complexity, fast execution that left the mess on the banks’ plates – it’s up to them to restructure their own paper.  Meanwhile, Treasury appears to be turning the GSEs, Fannie Mae and Freddie Mac, into its own private RTC, taking advantage of all the financial and banking talent resident there to concentrate the complex non-performing assets.

 

“I don’t think that was a small part of why Treasury in the end abandoned the asset-purchase program. It’s very people-intensive,” said Wayne Abernathy, executive vice president of financial-institutions policy and regulatory affairs at the American Bankers Association.

 

Abernathy knows people-intensive businesses

 

Mr. Abernathy, who spent two years at Treasury himself, knows that it also takes particular skills not found on street corners.

 

You can’t pick me up on street corners

 

A Treasury spokeswoman declined to comment on Mr. Abernathy’s assertion.

 

No comment necessary – the facts speak.

 

In the past month, the Treasury has been scrambling to make major policy decisions while at the same time conducting the nuts-and-bolts tasks of finding a permanent staff.  Decisions have largely been left up to interim staff members, many from other federal banking regulators, who are temporarily at Treasury but are expected to eventually return to their previous positions.

 

That they are interim is less important than whether they are experienced?

 

Smile when you’ve got experience!

 

The challenge of the situation has already been seized on by lawmakers. Mr. Paulson, appearing before a House committee recently, was told by Rep. Gary Ackerman (D., N.Y.) that “you seem to be flying a $700 billion plane by the seat of your pants.”

 

Any restructuring you can walk away from is a good restructuring!

 

Just out of curiosity, what’s the alternative?  Joshua stopping the sun?  Or enlist executives out of their offices like a press gang?

 

Treasury has need of your services, sirs

 

Mr. Kashkari said he hopes to double the number of full-time employees by the time the Obama administration takes over Jan. 20.

 

Mr. Abernathy, however, said achieving that sort of progress before January could be difficult. In addition to the challenge of running the TARP on a daily basis, Mr. Kashkari and other Treasury officials will have to deal with a Treasury in transition. This means the potential for reduced staff levels and some remaining employees who may be eager to leave the government before the changeover to a new administration.

 

At least Treasury will have Mr. Geithner (assuming he’s confirmed), as we’ve noted the third architect of the financial restructuring and by far the best man for the job.

 

Mr. Kashkari and other officials working on the financial-rescue plan have committed to staying with the program until Jan. 20, or until their permanent successors are named.  But he said they are likely to be gone before finishing their biggest task: sifting through the thousands of applications from banks, thrifts and other financial institutions eager to receive capital injections.  “There may still be executions going on beyond the inauguration,” Mr. Kashkari said at his luncheon speech.

 

When Mr. Kashkari says ‘executions,’ he means ‘transaction closings.’

 

Bring out the tumbrel carts!

 

The Office of Thrift Supervision said it has received applications from roughly a third of the firms it oversees, including 174 applications over the past week, as well as a large number of applications from closely held private banks. Officials at the regulatory agency said they expect those figures to grow in the coming weeks.

 

“We’re not holding [the applications],” Office of Thrift Supervision Deputy Director Timothy Ward said. “We’re letting the piles sit at Treasury as opposed to waiting here.”

 

So the OTS is determined to move its link in the value chain. 

 

Can’t afford a brain freeze

 

Adding another degree of difficulty is the pressure on Treasury to complement the capital-injection program with other proposals to deal with foreclosures and the consumer credit market.

 

All of these are both technically challenging and politically incendiary – the sort of activity best given to experienced hands, of whom there are too few right now.

 

“Don’t tug on that – you never know what it might be connected to”

 

Mr. Paulson has said Treasury is still creating a lending facility through the Federal Reserve using TARP funds to help the student loan and auto finance markets. Treasury must also deal with the growing demand on Capitol Hill to implement broader programs to avert foreclosures, which Treasury officials have also said they are considering.

 

Just remember, the best program is often the one you can execute best.

 

I’m voraciously consuming knowledge

Send post as PDF to