Wednesday, February 11, 2009


Stand back, ladies and gentlemen.  There's a new sheriff in town---our Man at Treasury, Tim Geithner---and he's come loaded for bear (  

I'm not going to pile on about his presentation skills or even the lack of full details about what is an extremely complex financial challenge.  Let's admit it:  there is no plan that can anticipate and respond to every contingency that the Catastrophe is going to throw at us over the next 12-18 months. 

Here's what he's not telling us about the banking problems:  the money center banks, and therefore the core of the banking system itself, are technically insolvent.  The so-called toxic assets---financial derivatives of underlying risky mortgage assets--if marked to their market value on bank balance sheets, would throw the entire system into chaos, and probably collapse. There is no reliable way to value these assets---it's all based on financial models of risk---and the risk analysts and managers who warned their management teams about these assets in the first place, are now front and center in the crisis.

Either Congress and the White House are in denial, or they are shading the truth, and, given the consequences of full disclosure, I'll bet on the latter.  Can't blame them, frankly.  We need an accepted and orderly manner for valuing the detritus that is to be composted in the Bad Bank.  I wrote about this months ago---and there is still no resolution of how we are going to value the assets that the public is 'buying' from the failing banks.  Seems to me that we have to get this part of the puzzle solved before we have a credible bank rescue plan in place.  

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