Thursday, September 18, 2008

Missing the Point

Some folks think they can take two insolvent institutions, combine them, and have a solvent institution. I don't understand why this myth persists; it is easily disprovable with simple arithmetic.

Nevertheless, Wall Street seems to think that mergers will restore confidence. For example, from Bloomberg:
``If we could get some deals done, that will add some confidence to the market,'' said Jack Ablin, who helps manage about $55 billion as chief investment officer of Harris Private Bank in Chicago. `` Banks are as cheap as they've been ever, relative to the rest of the market.''
Lots of folks STILL do not understand the problem. It is not whether things are cheap or expensive, it is whether they have a negative or positive net worth! Until confidence is restored in the balance sheets, there will be no confidence in the banks.

NB bankers: No confidence will be possible with as many Level 3 assets as currently exist. All other efforts will only result in temporary stock pops, because investors will ultimately return to wondering when the Level 3 time bomb explodes.

No comments: