O'Neill's Prescription for the Financial System

As banks continue to undergo the stress tests announced last month by the Obama administration, former Treasury Secretary Paul O’Neill is advocating his own prescription for the financial system. O’Neill laid out his proposal to ABCNews.com.

I believe there is no hope for a market bottom until we embrace the companion ideas of truth and transparency. If I were in charge I would require each financial institution to classify their assets, by amount, into rating classes, beginning with AAA, and then down through the investment grade ratings. For assets such as credit card debt, I would have them post the dollar amounts, late pays and defaults and update the numbers every day. All of this would be posted on the Internet. For those assets the institutions claim cannot be properly valued, I would have them specify the amount and put them into a separate category called the quarantine account. The expectation would be that such assets would be held to maturity or until some event causes them to be reclassified.

The argument against doing this is that we can't handle the truth. However gruesome the truth may be, I believe the truth would give us a base to build on. ... We can't build a base so long as uncertainty causes the market to act as though there are no valuable assets at any financial institution.

The stress test idea is inside baseball. Is the market going to accept a judgment from people who have no credibility? I don't think so. If we, the people, had the facts I have called for, we could make an informed decision as to what action should be taken next. Without these facts one has to wonder, what is the basis for the actions that are being taken and contemplated by the people in our government?

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