Secs. Paulson/Kashkari: IT and Enterprise Software Want to Help Roll up the TARP


Since the politicians began discussing securitized mortgages, credit default swaps, and financial instruments so complex that even their investors didn't understand them, I have been wondering what the role of IT is in the whole mess. No doubt IT was used to create the securities, tranches, and so forth that no one supposedly can understand. Why can't IT be used to uncreate them?


It turns out that one U.S. politician is also wondering the same thing. Congressman Darrell Issa (R-CA), ranking member on a U.S. House of Representatives investigations subcommittee, looking into foreclosure prevention, is trying to get IT suppliers involved through one or more of the IT industry's professional associations. He thinks these groups can/should/want to help the U.S. Treasury better understand the implications of the asset-purchase program covered under the Troubled Asset Relief Program, known as TARP.


In a Nov. 14 congressional hearing, Issa asked Interim Assistant Treasury Secretary Neel Kashkari - who runs TARP - if he had talked to the

"... Professional Services Council, Information Technology Association of America, and others (that) would like to help (Treasury) understand and model what you want to do with the securitized mortgages etc.

(See the video by scrolling down on Recent Programs page on C-Span for Friday Nov. 14, 2008. The conversation begins at the 46-minute mark.)


Issa is not an IT neophyte or tech groupie like some U.S. politicians who recently figured out how to use a Blackberry. Issa founded DEI Holdings (DEIX) in 1982, then known as Directed Electronics. He has also been president of the Consumer Electronics Association. Issa sold his family business to Trivest in 1999, after which he successfully ran for Congress. DEIX went public at the end of 2005 and Issa remains on the board of directors. DEIX distributes consumer electronics products through such outlets as Circuit City and Best Buy under the popular brands Viper, Polk Audio, Python, Orion, Valet, Hornet, Astroflex, Autostart, Cobalt and others. DEIX also makes satellites radios under the Sirius (SIRI) brand although that arrangement ends in early 2009.


Issa obviously still relates to the firm because he told Kashkari at one point in the November 14 hearing:

"I am from Directed and you're from Goldman Sachs."

So what would an IT-based model of the financial crisis look like and how could it help?


As I understand it, the securities need to be unraveled so that markets can figure out their value. Some are actually worth something, but no one in the Treasury or on Wall St. seems to know which ones. Somewhat confusing the issue is that Kashkari and Treasury really don't want to buy the assets any longer (although that's what Issa and the rest of the Congressional subcommittee thought the TARP legislation was all about) and the Professional Services Council and Information Technology Association of America are not quite sure what Issa is referring to. (That's according to spokespeople, who are still checking around their organizations and who are sure their groups would be happy to help - given their roles as conduits of information about the industry to Congress and government.)


I think Issa's on to something. I'll let you know if I hear any more.


Aside: I think modeling the credit default swap mess will represent a separate IT challenge than modeling the securitized mortgages, although the two types of financial instruments are always mentioned in a "financial crisis" conversation as if they were the same thing. Assuming they can get them unraveled from the mortgage securities, there should be pretty much a finite number of problem mortgages equivalent to some hopefully relatively low percentage of the number of residential properties in the country that have mortgages (let's assume 7,500,0000, plus or minus, if 10 percent of all mortgages are a problem).


But the default swaps market is more like a pari-mutuel pool with tens, hundreds or thousands (I dunno) of investors betting on each of the mortgages, good or bad, as if it were the "monthly Calcutta" at the country club (except that the monthly Calcutta has better IT support).


Mr. Totaliser, please give the U.S. Treasury a call.