To have a real chance at saving the banks, the policy wonks need to get out of town a little more – beyond the urban cinch of the Washington Beltway or the City of London.
If they would shed their bankers’ grey suits and cordovans for a weekend in rubber boots and overalls, they’d learn that to nourish the “green shoots” of economic recovery – optimistically foreseen in mid-March by Federal Reserve Chairman Ben Bernanke – they need to spread some fertilizer around.
Even as potential buyers of toxic financial assets are balking at committing their funds, and bankers themselves are reluctant to sell troubled assets into the rescue programs, models for success are in place all over America -- literally at the grass roots.
These are the Manure Exchange programs – sponsored by soil and water conservation districts around the US, from Virginia and Illinois and Wisconsin down to Texas and up to Washington and Oregon.
Their mission, to quote this example from the Pacific Northwest, is to “bring gardeners searching for free organic fertilizer in contact with livestock owners that have excess composted manure.”
Just as the toxic asset programs aspire at the national level to scrub the ordure from the balance sheets of the troubled banks, the barn-cleansing function of the Manure Exchanges is to “remove the composted manure from farms that do not have the acreage to adequately utilize its nutrients.”
Symmetrically, toxic asset investors who seek opportunities to acquire troubled assets at attractive prices resemble the “gardeners and landowners searching for sources of local, free, organic fertilizer.”
And while classical literature does not reveal whether Hercules had the appropriate waste-disposal permits when he hosed out the stables of King Augeas, the Manure Exchanges achieve a two-fold sustainability dividend, by “enhancing the natural environment while protecting … cultural, social and economic values.”
No fees are charged under the Manure Exchange programs, thus aligning financial incentives in ways the banking industry could well study. And administration is simplicity itself: farmers who “wish to share their manure” – how delicately put is that – need only sign up with details of times and places for available pick-up.
Just as subprime mortgage portfolios were sliced by type, the rural raw material is divided out by degree of ripeness – fresh or composted – and categorized by livestock of origin – horse, pig, goat or llama.
Here lies a business opportunity for the rating agencies: Moody's or S&P could, by employing the agricultural expertise of a local Four-H student or Future Farmer, learn to divide and rate the piles into separately graded tranches.
Arbitrage opportunities also abound – a vegetable gardener’s need for cattle waste being tradable against a farmer’s excess of chicken droppings.
In the rural programs’ composting guidance -- which prescribes turning and aeration to convert raw excrement to richly nutrient gardening material, bucolically praised as “evenly textured and crumbly like soil” -- there even lies a solution to the financial markets’ inability to solve its asset valuation and recording issues.
That is, just as with a portfolio of distressed mortgage securities, Mark-to-Manure accounting would clearly require the write-down of a wagonful of untreated horse poop. But with time, patience, and diligent wielding of a pitchfork, those willing to hold their noses and tend the heap to maturity will stay the course and realize the benefits of Marking-to-Compost.
There is one serious disclosure issue with the Manure Exchanges, although it pales in comparison to the black-box opacity of the now-failed markets for exotic financial derivatives – namely, the explicit warning that without conducting tests “to determine weed seed viability,” the output should be assumed simply to be “raw organic material.”
Oh, would that Bear or Lehman or Merrill had been so candid: “If it looks like sh*t and smells like sh*t, buyers should assume it is sh*t.”
Foot-dragging bankers, holding back from participation in the “yes, we can” spirit of the White House’s new occupant, should take inspiration from the exuberance of the program in Jackson County, Oregon: where else could a composted pile of horse manure be re-packaged as “a great way for gardeners and landscapers to find black gold!”
There is an obvious program title: the Community Recovery Asset Plan.
It’s a stirring patriotic call. President Obama should don a baseball cap in eco-friendly John Deere green, enlist Al Gore and Barney Frank, and march arm-in-arm to the offices of Treasury Secretary Geithner and Fed Chairman Bernanke, to demand:
“Hey, pull on your boots and gloves. Get out there and start shoveling.”
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