Monday, March 23, 2009

Another Muddle Headed Plan -- Geithner's Folly

The plan released today by Treasury Secretary Geithner is absurd on the face of it. Recall that there are two types of assets that are currently called "toxic:" 1) debt assets that are performing with no indication of default...they are toxic because of FASB rules and government intimidation...many of these assets are currently trading at prices between 50 cents on the dollar and 80 cents on the dollar; 2) debt assets that are not performing and therefore are in default.

On the former set of assets, what conceivable motive could induce a bank to sell such assets? (Recall that banks are extremely liquid right now...they don't need cash except for the absurd Tier 1 rules interacting with mark-to-market inanities). Holding these assets to maturity means that the banks can make a huge return just by sitting still. What's the motive to sell? On the latter set of assets, how in the world is the government in any position to value distressed assets? There is an entire industry in the private sector already in place to buy these assets with a ton of money to deploy, if the government would simply get out of the way.

Finally, who wants to partner with the government anyway. Look at the "outrage" over Merrill and AIG bonuses. There will be many more such "outrage" incidents fueled by the Obama Administration to soften the public up for more and more government control of the private sector. The private sector is well aware of the risks they might take on by participating in the Geithner plan and then facing ex-post facto laws and Obama-Frank-Dodd-Cantor outrage over their compensation plans for off-site meetings with clients or their top producers. Nobody wants to be in the headlights with this administration and Congress in charge.

This plan will only add to a more corrupt, inefficient and dishonest government than we already have and will do nothing for the nation's banking system. Another government false step and taxpayer disaster looming.