When I used to be a headhunter during the Internet bubble days of the 1990’s, I had colleague from the Deep South with whom I would chat at least once a week. We couldn’t have been more different in outlook and temperament but we got along well and always enjoyed each others company. Although Jimmy was a good ole Southern boy who lived deep in country 100 miles away from Atlanta, his understanding of human nature was far sharper than that of most urban sophisticates. Whenever I’d ask his opinion on some latest, wacky, software start-up we were sourcing for, he’d pause, consider it and then say in his Southern drawl, “Baaaaaris, I think they got lots a heat but little light,” and then break into deep baritone laugh.

Lots of heat but little light is exactly what we have going on the currency market, as no one really knows how to combat the financial crisis and authorities continue to blow more more hot air on an increasingly impatient public. Nothing was more embarrassing then the performance of Tim Geithner this week whose Richie Rich youthful looks and smarmy, pontificating delivery only highlighted the fact that he is completely unprepared for the challenge that confronts us all. The warmed over financial prescriptions from the Obama administration were nothing but a version of Bush lite - hardly the reason the country elected the man and if Barak Obama continues on this dithering path of appeasing his enemies rather working for his friends, he -not George Bush- will be known as the Herbert Hoover of the 21st century.

Ask anyone who is a professional on Wall Street and there is almost uniform agreement agreement on the proper policy solution for the financial sector - nationalize the big four banks (Citi, BoA, Wells Fargo, JPM) that control 80% of all deposits in the country. Guarantee the depositors, bankrupt the shareholders, ram down 50% haircuts to bondholders, recapitalize, stabilize and privitize with new management. Let the vulture hedge funds bid on all the asset backed paper sitting on the bank’s books at whatever price they want (I think most people will be surprised by the strength of the bids) and let’s just get this over with. In short as Steve Ballamer of Microsoft said, the whole system needs a reset. Welcome to capitalism 2.0.

However, instead of revolutionary change we have an incremental, technocratic approach of the Obama administration where all hope now rests on the “Hail Mary pass” strategy of the stimulus package. Yet fiscal stimulus without contemporaneous reform of the financial system is a prescription for disaster. It makes the former ineffective while doing nothing about the problems caused by the later.

For now the markets continue to give the benefit of doubt to the dollar. In one of the great ironies of financial life, the worse investors feel about the prospects for a quick US recovery, the better the dollar does as risk aversion flows continue to support the greenback - but how long will this dynamic last? For now the risk aversion/risk assumption trade remains in place, but we’ll watching for any early signs of its rupture which could signal that the dollar honeymoon is over. Certainly the Obama honeymoon is.

Boris Schlossberg serves as director of currency research at GFT, and runs bktraderfx.com.