Wednesday, April 1, 2009

Mark to Bullshit

The debate continues about to evaluate the "assets" held by the banks. The Treasury plan for a public-private partnership can only get started if the value of the assets held by the banks can be negotiated. It's crazy to say it out loud but the fact is no one knows what those assets are worth. And what makes this even crazier is the banks won't admit what everyone else knows already" the assets they hold have (gasp!) lost value.
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They call it "mark to market" when they set a value on an asset by comparing the asset to the prices similar assets have been sold for recently. Take housing, the fundamental bank asset that is losing value these days be it as a mortgage or as a mortgage-backed security. The Feds would like to reorganize bank debt by purchasing those assets using the soon-to-be-created PPIF- public-private investment fund, which would, get this buy the crap assets of banks using 10 percent private money and 90 percent public money. Private money gets its share of profits and public money pays for all losses incurred. And remember these are crap assets so profits are not too damned likely.
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So the bank says crap asset A is worth 100. Mark-to-market shows recent sales of crap asset A similar products have sold for 10. mark-to-market says crap asset A is worth 10. The bank insists it's worth 100 because it loaned out 100 to buy the asset in 2005. So what do we do? You and I, being commonsense people, say let the bank go bankrupt then reorganize the assets for their real value, package them and sell them off to small regional banks around the country and let's keep moving. The banks say "change the mark-to-market rules." The Treasury, which is run by an ass appointed by President Obama, says "we'll think about it." Thus we prolong the economic crisis by refusing to acknowledge reality.
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It seems so simple and so obvious. If we continue to fund everything by continuing to borrow we will make things worse. So the federal government does just that. If we don't establish values faithfully to reality we can never work our way out of this crisis. As the banks are doing just that and as unemployment continues to rise I predict no possible end to this Depression can be in sight. And I'm just a dude with a laptop and an Internet connection. What on earth do our leaders think? They're supposed to be the brainy ones.

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