Yesterday’s announcement ducked the central question of how to value the toxic assets. It is an issue that confounded Mr Geithner’s predecessor Hank Paulson, who ditched a plan for the government to buy assets directly, instead focusing on direct capital injections for the banks.
The Treasury said its programme would be “designed with a public-private financing component, which could involve putting public or private capital side-by-side and using public financing to leverage private capital”. The involvement of private-sector money would mean the government was not setting the price, it added. The exact mechanism, though, could take weeks to decide. Joseph Lavorgna, an economist at Deutsche Bank, said: “It is not big enough. There are few details. The administration is trying to buy time and they don’t get the fact that we need to get something yesterday.”
Tony Crescenzi, an analyst at Miller Tabak & Co, said: “It remains extremely uncertain how the Treasury will entice investors to do something they have been avoiding since the start of the crisis.”
The dilemma is that pricing the assets too low could make many big banks insolvent, while pricing them above market value means taxpayers handing a no-strings-attached subsidy to lenders.
And yet they won’t relent on the idiotic mark to market regulations that are contributing mightily toward this crisis.
The only way to value these assets is on a liquidation basis. Right wrong or indifferent it needs to be done.
Is it not a sublime thought to realise that there is still absolutely no discussion as to what got us into this hole?
Shakespear said that all the world was a stage…… I’m about to say that all the world is a circus, and P. T. Barnum is running the show.
Don