Thursday, April 2, 2009

Geithner Plan DOA

It wasn’t going to work anyway, as I pointed out here. The reason banks aren’t lending aggressively is that the economy is in the dumps.  C&I lending declined in aggregate after the last two recessions and will likely to do after this one.  But the relaxation of mark-to-market is the final nail in the coffin of the PPIP monstrosity.

Via Zero Hedge:

Mark to Market, Time of Death, 8:45AM, April 2, 2009

April 2 (Bloomberg) -- The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies,voted to relax fair-value rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive.

The changes approved today to fair-value, also known as mark-to-market, allow companies to use “significant” judgment in valuing assets to reduce writedowns on certain investments, including mortgage-backed securities. Accounting analysts say the measure, which can be applied to first-quarter results, may boost banks’ net income by 20 percent or more.


Well, now that banks are all good in perpetuity, there goes the need for the PPIP. Hopefully this at least means that Bill Gross and Larry Fink won't make billions compliments of U.S. taxpayers. But don't take my word for it: the head of the world's largest hedge fund voices these very concerns. In fact, Dalio is so disgusted by the insanity in equity markets, rumor is he has moved out of trading equities entirely.

Via Contrary Investor: Foreigners have virtually stopped buying American paper, so guess who’s going to be buying?  Hint:  initials “FR” (hyperinflation alert; see this).

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