Usually I’m loathe to recommend the Bourbon Street Mardis Gras ethos of
“beads for boobs”, but due to the current financial crisis, I’m going
to make an exception. In short, I think it’s time for banks to “give it
up”. If they want any more Treasury “beads”, they’re going to have to
publicly reveal their nasty assets. This “take without showing” routine just won’t do anymore.
at many of the nation’s largest banks fell in recent months, even after
they received $148 billion in taxpayer capital that was intended to
help the economy by making loans more readily available.
Why is this?
Right now, many
banks are reluctant to write off their bad debts, and absorb huge
losses, unless they can first raise enough capital to cushion the blow.
But they cannot attract that capital without first purging their
balance sheets of the toxic assets.Japan’s [“zombie banks”]
experience proved the dangers of that downward swirl; the economy
stagnated, new lending ground to a halt and the country’s diplomatic
clout shrank with its balance sheets.
But I thought Treasury Secretary Hank Paulson and friendsalready gave banks some
beads “capital”. So wha happent? Did a man like Paulson, who shamelessly called out forbig bottoms in the past, suddenly become shy? Why didn’t he dangle his jewelry for these clamoring banks, and persuade them to flash their toxic assets before they
received any fancy throws?
In aWSJ opinion column titled “Bad News is Better than No News”, L. Gordon Crovitz explains:
[W]e should cheer a growing consensus that it’s time to addressthe information gaps that caused the financial mess.
The best-known unknown is the continuing mystery of the true value of
the bad mortgage-backed and other assets held by banks whose collapse
sparked the credit crisis. Addressing this basic issue was the original
purpose last fall of the $700 billion government bailout program, but
the Troubled Asset Relief Program didn’t live up to its name, leaving
the size of toxic debts unquantified.
B is to go back to Plan A. Regulators urge using new bailout funds to
return to the original goal of discovering the true value of these
securities. “A continuing barrier to private investment in
financial institutions is the large quantity of troubled, hard-to-value
assets that remain on institutions’ balance sheets,” Federal Reserve
Chairman Ben Bernanke said in a London speech earlier this month. “The
presence of these assets significantly increases uncertainty about the
underlying value of these institutions and may inhibit both new private
investment and new lending.”
Again, it’s high time
these banks underwent a penetrating, simultaneous group exam. They need
to go outside on a crowded public street and lift up their costumes,
and let everyone inspect their toxic assets. Show us what you have, all
at once! Yes, it’s embarrassing, but you alreadygot drunk—so spare us your inhibited reluctance! Here’s a sweetener: if you show us your dirty portfolio, all of it, you can have anObama coconut. That seems more than fair to me.
Otherwise, we’re all in for a painfully long Capitalist Carnival hangover.