Are We There Yet?

Is this financial crisis over? When even Paul Krugman and Nouriel Roubini are arguing that we have avoided the catastrophe that was looming a few months ago, and so many others are speaking incessantly of "green shoots", it is tempting to think so. Markets are up by more than 30% and while unemployment continues to rise, it is always a lagging indicator we are told.

Yet as Sandy Lewis and William Cohen argued in yesterday's New York Times, this crisis, which began in the financial sector is far from over, principally because that sector remains in dire condition. Massive subsidies and accounting rule changes have papered over many of the problems and allowed the banks to return to a sort of faux profitability.

What has changed? The structural problems remain. Incentives continue to reward excessive risk-taking -- witness the gaming of rescue measures by the rescued. Banks retain the very toxic assets that did so much damage on their books because they do not wish to face the writedowns that even subsidized sale would allow -- aided by controversial accounting rule changes. The erstwhile "masters of the universe" that did so much to create this mess have not been held to account -- not hauled before congress or prosecuted. And when we continue to believe that debt fueled consumer spending -- also a contributing factor -- will re-ignite a stagnant economy.

Will more of the same really create something different?

The authors argue, and it is hard to disagree, the any remedy will begin with real transparency. So while

Treasury Secretary Timothy Geithner has made much of financialstability.gov, the Treasury’s new Web site dedicated to “transparency, oversight and accountability.” But look it over and try to find, for example, just one record of a bona fide credit-default swap, or the names of the hedge-fund and private-equity investors who have participated in the Term Asset-Backed Securities Loan Facility bonanza. It was only a lawsuit filed by a watchdog group that convinced the Treasury to divulge details of former Secretary Henry Paulson’s October meeting with the chief executives of the 10 largest Wall Street firms to force them to take money from the Troubled Asset Relief Program. A lawsuit filed last November by Bloomberg News to force the Federal Reserve to reveal the details on more than $2 trillion in loans that went to banks including Citigroup and Goldman Sachs is still pending in federal court.

And in Canada, the Extraordinary Financing Framework is even more opaque than this. As so many have noted before, sunlight is the best cleanser. Solutions crafted in the dark are usually no solutions at all.