主题：03/23/2009 Market View -- 宁子

The bank plan may help, but there is still a piece of the puzzle missing.

Another day, another $1T from the federal government thrown at our financial woes. The Plan was much heralded and much maligned, one of the negatives mentioned above, i.e. that the banks and potential buyers still have to agree to a price, something that has not happened yet. The hope is the 6:1 leverage will persuade buyers to buy. The RTC back in the late 1980's and early 1990's had the authority to set prices where it wanted and that ultimately got the job finished. We will see if the feds have to go that route again. Banks take notice of history.

This is a key issue. The $1T and the 6:1 leverage definitely addresses the liquidity issue. If you WANT to sell to someone that WANTS to buy but could not do the deal because no money was available, this solves the problem. It does not solve the credit issue, however, the old 'what is this asset worth,' the entire crux of the credit problem. Again, that is up to whether the private parties get together and agree on a price. In theory it is a good idea, in practice this has been the problem, not the lack of funds to do deals.

Mark to Market takes on even more importance.

Now there is talk of altering the market to market rules, not suspending them. Many are saying that is not a real issue, just a side problem. Others say it is the heart of the issue. It was likely neither, but now it IS becoming the lynchpin given the way the government has set up its programs.

As outlined above, private entities have to agree to get the program to work. Banks are forced to mark assets to a fictional 'market' and they don't feel the assets are that worthless. On the other hand the buyers say that is what they are worth and want the next to zero price for them. The result: the banks won't sell, instead hoping the federal money gives them enough oxygen in the tank to ride out this crushing depression in their asset values. They are thus unwilling to sell at prices foisted upon them by these accounting rules.

What about mark to market? It was resurrected in the early 2000's after the corporate leadership and governance issues. When was it in use before? During the Great Depression. It was repealed as that economic nightmare dragged on and the US somehow managed to pull out of the GD and indeed weather each economic storm since without nearly the carnage to our banking system that the GD produced and what we are experiencing here.

Thus Mark to Market is a really bad idea and we are all anticipating some adjustment to allow banks to mark up otherwise good assets for long term investment that they were forced to write down to nothing on a short term basis. That is why banks are reluctant to sell and with word that M to M will be modified you can bet that they are not going to move forward on any 'private to private' sales until they see what rule changes there are. We still have two weeks before we get the suggestions from the accounting board back to Congress. Thus any Plan progress will be on hold for at least that length of time. The Fed knew all of this last week. As we noted over the weekend that is why the Fed issued such a massive program as it knew the Treasury plan would not get to the table fast enough.