Many media pundits are blasting the Obama approach to the economic crisis, saying that they should have fixed the banking industry first and maybe then there would be more confidence in the programs from there on.  There seems to be little good that Geithner is doing, according to most in the broadcast media.  They are blaming him for the screaming fall in the markets.

But if you really want to fix the banking industry then there is an answer.

While the Treasury busily fills in the gaps in its latest plan to save the banking industry, a former Federal Reserve official says that regulators should instead apply a law enacted in the wake of the savings and loan meltdown.

The law, the Federal Deposit Insurance Corporation Improvement Act, was signed into law in 1991. In an interview with Financial Week, Bob Eisenbeis, a former research director of the Federal Reserve Bank of Atlanta, said the FDICIA contains more than enough tools for regulators to help stem the current financial crisis.

If regulators had applied FDICIA’s provisions once the solvency of major banks was first called into question, Mr. Eisenbeis said, many would already have been taken over by Uncle Sam.

That would mean that their good assets would have been separated from their bad and sold off to healthy institutions or other investors.

Indeed, he said the Treasury’s approach suggests regulators have forgotten that the earlier law is in place, since the capital injections the department has provided since the Troubled Asset Relief Program was authorized by Congress last October reflect what Mr. Eisenbeis calls “regulatory forbearance.” Rather than apply FDICIA’s numerous capital adequacy tests, he said, regulators seem intent “to throw it out and start over.”

While that may buy the banks time in hopes that they won’t need further capital injections, Mr. Eisenbeis is skeptical. He said both the stress test and the plan to relieve banks of their toxic assets would only mask their losses—that is, if the banks aren’t required to value the assets on a mark-to-market basis.