It's true that putting things into perspective enables priorities to be established and, more, executed. After slogging through 18 months of writedowns, bank seizures and management failings, there is no better time for the industry to take control of its own destiny. Here are five things to consider when digging out of this recessionary ditch so the industry is stronger in its aftermath.
1. Refine implementation of the Troubled Assets Relief Program and all of its scattershot acronym progeny - CPP, TALF, etc. while well intended from the outset in the face of a ballooning crisis, helped turn the markets into a basket case of uncertainty. What's needed is an equity-led recovery plan, the merits of which are outlined for taxpayers, recognized and used by strong banks as a means to fuel sustainable performance over the long term and welcomed by investors. Only then can the industry see stabilization.
2. Regulate the unregulated. The banking industry - already highly regulated - needs to apply pressure to regulators to focus on the unregulated, including mortgage brokers and investment banks. No-doc loans? Forget it. As for derivatives, they should be traded on an exchange. Price transparency will follow. Fast-track clearinghouses for credit default swaps, and mandate that all CDS holders/issuers participate. Then draw up exchange contracts for CDS.
Yes, there will be more regulation. But what is politically delightful is often dreadful in the end. Remember when the chart lines were all pointing up? That brought on the Great Deregulation. Now some critics want a cop for every spreadsheet. Make the new rules simple and fair, but make sure they apply to all.
3. Take on mark-to-market accounting. The Emergency Economic Stabilization Act of 2008 required The Securities and Exchange Commission, the Federal Reserve, and the Treasury Department to study the ramifications of mark-to-market standards "on a financial institution's balance sheet [and] the impacts of such accounting on bank failures," among other things. The SEC welcomed "feedback at any time from investors, financial institutions, auditors and others."
The report to Congress is due this month, but the drive to unseat this onerous convention must continue in earnest. Why? Mark-to-market accounting ranks toward the bottom of the list when it comes to how to accurately price anything.