Measure Geithner's proposal tomorrow against this: Bury the dead

Tomorrow, Treasury Secretary Geithner is scheduled to unveil his proposals for dealing with the financial crises. I will be measuring the proposals against the solution outlined by Ian Walsh on Friday: How to Perform Triage on the Banks and Stop the Bleeding

Not only is the financial situation  getting worse, but a lot of securities either really have no market (they're hardly ever sold) or the market price is actually below their probable long term value.  If the government is going to take over banks, or insure the securities, or set up a bad bank, they need to know whether they're solvent and how risky the securities they hold are—how likely they are to go bad in the future.  Once they know that, they know how much to pay, which banks to take over and which banks can be saved.

How to value securities to allow proper bank triage and surgery


This process probably isn't much like what Geithner's going to propose Monday, but it should be. It's based on three principles.

  1. Find out How Deep the Hole Is

  2. Perform Triage: Bury the dead, help the injured, let those only mildly wounded fend for themselves

  3. Make sure the damage to the financial sector doesn't spread any further beyond the financial sector

We can only hope Geithner's plan will do all three of these things.

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Banks have "own solution"

Citigroup and others have their own proposal

The idea, as drafted and as articulated by Citigroup's Flexner, is for the government to create a massive new fund to lend money at a fair price to professional investors -- pension funds, hedge funds, private equity funds and endowment funds -- for the sole purpose of providing reliable long-term financing to allow these investors to buy the various "toxic assets" in the secondary market that are now frozen on the balance sheets of financial institutions the world over.

This is a practitioners' plan, born of an inviolate belief that the way out of the current crisis is to create a dynamic where frozen assets can be bought and sold and a semblance of normal trading can resume. A version of this idea has surfaced before, most notably in an October 2008 Bloomberg column by Sandy Lewis, the onetime Wall Street arbitrageur and son of Cy Lewis, the legendary senior partner of Bear Stearns, where Lewis called for the creation of a Public Value Fund to help spur trading in the toxic assets. But unlike Lewis, Flexner, Edens and Sternlicht are still in the game and have serious Washington connections, especially with Senator Chris Dodd, chairman of the Senate Banking Committee.

It sure looks like the banks want U.S. taxpayer money to create yet another fictional value marketplace with that very money going to private firms where it probably cannot be traced too well.

Private Capital "Answer" - Larry Summers

Larry Summers says Private Capital answer to banks.

Something is afoot. We have the bad banks pushing their own "policy" and now we see this....and a "delay" in the release of the "expanded plan" from Geithner.

I posted Russ Winter's blast on TARP management earlier and I hope someone is going to post on the foxes in the hen house on this one.

Sounds like Summers is running the show

and also has more influence than Geithner.

Which is exactly what was said in that Institutional Risk Analytics interview last week.

No sense getting up; might as well stay bent over.

Why I put the "read this" on the Russ Winters blog post

Through Larry Summers the same bastards who caused this mess are now robbing the U.S. taxpayer blind...that is in essence what he says with links, references to back it up.

At what point

Do the lower people on the trading scale stop committing suicide and start doing what the law will not do for them and commit homicide?

What does it take to get the American people to turn the anger outward instead of inward?

I suspect we will not have a true solution to this until the "cost of doing business" for Wall Street is death at the hands of the people you stole the money from.

Maximum jobs, not maximum profits.