Of all of the many challenges facing the new US Secretary of the Treasury, Timothy F. Geithner, one, at least, should not prove too onerous.
In seeking to set up the new 'Bad Bank', he will be spoilt for choice of Bad Bankers to (mis) manage the new institution. The problem may actually be picking the worst, because there are lots to choose from.
If nationality were not a problem, the directors at KFW the German state owned development bank would be a shoo-in to be on the Board. KFW has already been labeled by the German Press as the 'stupidest bank in the world' for sending some 319 million Euros to unwind a swap agreement with Lehman Brothers on the day it was declared bankrupt. KFW are still waiting for Lehman to remit the other side of the swap. However, since Germany is also considering setting up a Bad Bank the ex-KFW board members may be tapped for that job. Like airlines, every country needs its own Bad Bank.
In late 2008, Daniel Gross, of the on-line magazine SLATE, held a poll for the world's worst banker and selected his own personal favorite, Sir Fred Goodwin, ex-CEO of the UK bank RBS. Fred, knighted in 2004 for services to banking (I kid you not), took a staid, boring, perfectly good bank (the Royal Bank of Scotland) and through (in-) judicious, highly leveraged mergers & acquisitions, and investment banking Snafus, drove it into the ground. RBS is now nationalized. But Fred won't qualify for this job (or any job?) because the new bank is already bad; his particular skills are not needed.
But the US has no shortage of its own Bad Bankers.
For example, Alan Schwartz, former CEO of Bear Stearns, who on March 12, 2008, said "We don't see any pressure on our liquidity, let alone a liquidity crisis". Just 5 days later, JP Morgan (were pressured to?) put in a bid at a fire sale to acquire the now illiquid investment bank. Alan just didn't get the meaning of liquid? Good job the assets of the Bad Bank are illiquid, in fact they are perma-frosted.
In the same week, John Thain, ex-something or other at Bank of America and at that time CEO of Merrill Lynch reportedly said, "We have more capital than we need, so we can say to the market that we don't need more injections. We can confirm that we have tackled the problem." Some problem, some tackle? However, it is rumored on the grapevine that the Bad Bank could save money if it hires Mr. Thain, as he will bring his own office furniture.
The ex-heads of Fannie Mae (Daniel Mudd) and Freddie Mac (Dick Syron) would also be excellent candidates but they are being tipped to run the Bad Mortgage Lender. Likewise, Robert Willumstad, ex-head of AIG would be a serious contender were he not tipped to head up the Bad Insurer. As CEO of the now defunct Californian sub-prime lender Countrywide, Angelo Mozila certainly knows how to lend money to people who won't pay it back but can he manage money that the taxpayer won't get back? But there are lots of bankers who have lost billions and are out of a job with only millions in bonuses.
The outstanding candidate for the top CEO job at the Bad bank is, I believe, Richard (Dick) Fuld, who was CEO of Lehman Brothers at its demise. But like his namesake, Tricky Dickie, none of this was his fault; in testimony to the US congress he whined: "Not that anyone on this committee cares about this but I wake up every single night wondering what I could have done differently". Self-pity and blindness to one's own faults are invaluable traits for a Bad Banker. Fuld is also greatly admired by his peers in the industry, winning the Financial Times 'Lex Overpaid CEO' Award for services to the bonus taking industry. If nothing else, Dick Fuld's ability to value the distressed assets on the books of the new Bad Bank is unsurpassed. The Times of London just reported that Fuld sold his Florida mansion, valued at over $13 million in 2004, to his wife for just $100. Now that is taking a write-down!
Of course, the Bad Bank deserves a Bad Bank Regulator and, while there is no shortage of candidates, the job has to go to Christopher Cox, who luckily is now free having just vacated his post as Chairman of the SEC. One might ask what has Mr. Cox done to deserve such an accolade, in fact one might ask what did Mr. Cox do during his 4 year tenure as the top securities regulator - nothing? One example takes the Oscar. On 11th December 2008, the SEC announced that it was charging Bernie Madoff (surely a shoo-in as investment adviser to the Bad Bank), with fraud and was "moving quickly and decisively [author's emphasis] to stop the fraud and protect remaining assets for investors". Whoops! It transpired a few days later that the SEC had been investigating Madoff for over 10 years. Cox, to quote a former president, was 'disappointed' - "I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations". Who pray, was to do these investigations other than Mr. Cox? As a clincher at the job interview, Cox can quote his September 2008 forecast "The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets," Yeh - right!
The most difficult choice for Geithner, however, may not be who to put in charge but where to put the Bad Bank HQ. That problem may be solved shortly too as a piece of land that the US leases from Cuba may be about to become vacant - water-skiing/boarding anybody?
Michael Jackson succinctly outlines the serious task facing the new head of the Bad Bank:
"Well They Say The Sky's The Limit
And To Me That's Really True
But My Friend You Have Seen Nothing
Just Wait 'Til I Get Through . . ."
