If Washington DC is serious about "stabilizing" the value and pricing on these so-called "troubled assets", they need to make up their damn mind what they're going to do - even if its nothing - and then do it.
They also need to commit that they will not change the rules again, and put that in writing.
There are a lot of hedge funds and other sources of private capital that will buy provided they can go in and make a value determination with some degree of certainty, and with the market as the only "wild card".
Market risk is expected and part of the business. What's not expected and is impossible to quantify is the game-playing coming out of Washington DC for the last 18 months.
The "freeze" in the markets is not due to "fundamental disagreements" in price. It is due to the risk of government changes in the rules that have ridiculously widened spreads to where no trade can take place.
If the bid and offer on something is 60 x 70, then there's a decent chance you'll meet in the middle at 65 and trade. If its 20 x 60, no trade is going to take place - period.
The problem is that the banks are convinced that government will increase the value of this paper (perhaps by buying at above-market prices directly!) and buyers are convinced that changes in policy like cramdowns will destroy more value.
Both of these expectations work to widen spreads - exactly backwards from what we need to have happen.
By the same token this same game-playing is what is creating these 5% moves in the stock market. Nobody can look at a balance sheet and come to a reasonable conclusion on value because of the risk of government intervention that destroys the assumptions - in both directions. This is why we had the huge move yesterday and why we had the monster moves in front of and on the Geithner news conference.
This interference with the market must stop or the market will literally destroy itself - freezing trading of debt products and whipsawing equity traders (whether bull or bear) until all their capital (and patience) is exhausted and their liquidity is withdrawn - permanently - from the market.
Government needs to make up its mind, set a policy, commit to not changing it and then shut the hell up.
If we're going to do cramdowns (I think we should) then that has to become policy. If we're going to NOT support debt market prices (I think we shouldn't) then we must say so and mean it. If we're going to prop up banks with unlimited funds (or not) then we must say so. If we're going to force consolidation of SIVs and such, we must say so.
Whatever the policy is, the market can and will clear so long as everyone is convinced that the rules will not change as soon as they make their trade, destroying their value not because they made a bad decision (a risk everyone takes in the marketplace) but because they were gamed by some Washington politician.
If we do not get this clarity and a promise with teeth to quit changing it every 15 minutes the market will grind itself into dust, failing one support level after another as liquidity is destroyed until finally gravity takes over and we find ourselves with the S&P 500 trading at 300 and half the firms in the S&P 500 bankrupt.
I can't price one stock in the S&P 500 right now on a balance sheet analysis. This is not due to economic uncertainty - it is due to Washington DC - and until this changes in both the equity and credit markets both will continue to deteriorate and choke off any hope of recovery.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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