The Garbage Collectors of the Future

Robert Teitelman, editor-in-chief of theDeal.com, often presents some intriguing if not difficult questions that lots of folks just plain miss. In his February 19^th editorial, he asks a very simply question, which I will take the liberty of paraphrasing: since all the traditionally conservative bankers (who really asked borrowers the logical and tough questions) have long since been pushed out of the system to be replaced with aggressive MBAs looking for ways to package new debt instruments (the folks who got us into this mess), just exactly who is left to separate the good debt from the bad?

It seems that Washington has been assuming that these evaluations will be done in the private marketplace, creating jobs from the ranks of Wall Street’s unemployed financial community. But do folks who have spent their lives looking for ways to avoid analyzing the borrowing ability of potential debtors and have depended on a false marketplace to place value on collateral actually have the skill-set to get it real? And if it is not this cadre of experts, who will need to step up and fill the shoes of the valuation experts? The Obama administration hasn’t even really begun to fill the ranks of the more junior political appointments – those who will be charged with implementing the American Recovery and Reinvestment Act expenditures – so this expertise appears to be elusive, to put it mildly.

Teitelman: “To cut to the chase: Today, the best of these traditional bankers who viewed credit as a high calling are either dead or retired. The banks are full of the quants who know securitization products but not necessarily the reality of borrowers or the intricacies, even the art, of credit; ironically, many of the credits the banks thought they'd unloaded on someone else are back on their balance sheets (or that of the Feds, which is increasingly the same thing) stinking to high heaven. This isn't about portfolio manipulation, trading or hedging anymore; it's about working out the value of the underlying credits. It's hard, it's dirty, it's real. A lot of it involves old-fashioned banking. But where are all the old-fashioned bankers? How do we restore credit without a credit culture?”

To make matters worse, for a very long time now, traditional business schools have actually trained financial experts in how to skirt the real values and create new marketable securities, including the now clearly toxic derivatives of recent years. With appraisers raised in a different era, bankers used to living in a rising marketplace, it seems that there is a real opportunity for a new set of training requirements and a new set of valuation experts to step and take control. The obvious problem? We have run out of time.

I’m Peter Dekom, and I never cease to be amazed at the litany of issues we face.