Tuesday, February 10, 2009

The market fell hard yesterday, supposedly because details from Treasury Secretary Geithner about the next bank rescue plan were sketchy. In a more rational world, the market would plunge because of the details rather than the lack of them. After all, what could be scarier or more depressing to investors than word that The Government is about to blow another trillion or two in yet another futile attempt to jump-start the banking system? We don’t envy them the task of convincing investors in the U.S. and abroad that the green-and-white confetti held in the vaults of U.S. banks and the Federal Reserve is actually worth something, This is notwithstanding reassurances from Helicopter Ben that 95% of the Fed’s nearly $2 trillion balance sheet is “gold-plated secure.” You can’t make stuff like that up – he actually said “gold-plated secure.” We don’t blame the guy for sounding like a dolt every time he opens his mouth -- it is his job, after all, to pretend that the central bank is in control of the situation even though everyone senses strongly otherwise. Under the circumstances, how could he not look like a fool? Perhaps Bernanke meant “gold-plated” literally? Which is to say, the alleged assets on the Fed’s balance sheet are about as “golden” as a flea-market necklace. Unclogging the System If Bernanke’s latest attempt at spin control laid an egg, there were at least a few brave souls on Wall Street who seem capable of facing up to the problem. “We still have no way to value the assets” clogging up banks’ balance sheets, said Richard Peterson, director of risk strategies at Standard & Poor’s in New York. No argument on that one. However, what Peterson neglected to say was that a market for distressed assets cannot develop as long as