$1.4 Trillion Loss vs 67% Approval Rating

After seven weeks of the Obama Presidency, the numbers seem to say it all. The Dow has fallen 21% since the Inauguration, 44% since its peak in 2007. An inept administration or a horrific avalanche from the last administration that could not be stopped with a mere $787 billion bailout package? And what exactly is Wall Street saying with this continued and seemingly unstoppable decline?

Wall Street clearly does not see the path. An understaffed Treasury Secretary Tim Geithner, his key lieutenants not even in place, is struggling with how to get the financial ship right again, without tapping into an additional “ask” from a reluctant Congress and a mass of angry taxpayers. The March 10, WashingtonPost.com: “[S]ome prospective candidates for Treasury posts have been held up because the White House is carefully examining every candidate to avoid the kind of embarrassing tax problems that dogged Geithner and other nominees, sources familiar with the matter said. During Geithner's vetting process, the administration found that he had not paid some of the taxes he owed for his work at the International Monetary Fund, and that revelation sparked some opposition to his candidacy on Capitol Hill…

“The sources added that the agency is also facing difficulties recruiting financial experts because of rules that require senior Treasury officials to divest of their investments. With the markets plummeting, some candidates have been reluctant to sell their holdings and come to the department.” And that’s for senior appointments; they haven’t even gotten around to the day-to-day operational junior appointments.

One huge issue stands in Wall Street’s way, and whether you call it blackmail or a chokehold, in the way of our hitting bottom and beginning a tortuously slow rise from the ashes, it just sits there like a rotting corpse that no one will remove: the mass of bad investments (adoringly labeled “toxic” assets) dragging down the balance sheets of our biggest (and some of our smallest) banks – $2 trillion worth, by many estimates. Mostly in tanked bundles of subprime mortgage derivatives.

Our housing industry needs those assets disposed of, our business sector (America’s employers) need those assets removed to free up banks to use their balance sheets to access lending capital, the unemployed or soon-to-be-unemployed need money flowing for the sake of jobs, and even companies seeking to restructure in bankruptcy rather than liquidate (the Circuit City example) need debt to come back. As you have seen in recent blogs, the engine of America needs a direct and immediate federal intervention – whether you nationalize a few banks, create a central “bad bank” to take those assets (but valuation is tricky) or allow the banks to create their own split bad bank/good bank scenario – we need it now. The markets won’t settle for less. Don’t believe me? Look at the market after Citigroup (which has terrified analysts as home of the “toxic soup”) announced a first quarter profit. Explosion! Not subtle! Hmmm?!

But what’s with the 67% Obama approval rating? Hey, give the guy a break; he just got there, he’s trying to find a solution and we all know this one is going to take some time. With American business wanting a clear path to the removal of those toxic assets from the heart of the economy – banks and other financial institutions – and Congress and the taxpayers not wanting to write more checks (the Federal Reserve is buying more of the federal deficit as we are selling less of it overseas) – the resulting battle would normally provide an academic a thrill a minute… if it didn’t touch each and every one of us so painfully.

I’m Peter Dekom, and I approve this message.