Saturday, January 31, 2009

The devil is in the derivatives...

(If true this is extremely bad news. Frankly it means that not only are the major banks insolvent they are hopelessly insolvent. My fear all along was that the cancer was much bigger than the patient. The devil is in the derivatives, don't believe the narrative DTCC pablum, don't for a moment think that the problem is anywhere near contained. The original solution put out as a trial balloon was for the aggregator bank to take only those assets that have been written down and for guarantees to cover those assets that are completely marked-to-fantasy. Treasury has been resistant to buy too many assets due to cost, Bair wants to bring more assets into the bad bank. Methinks Treasury has the inside track on the real deal. Reading the tea leaves it would appear that not only are the major banks insolvent, they are damn insolvent. If its' any consolation we kept the best of the worst, so folks such as the UK, Japan and Germany are well ... completely screwed. Would think even money that UK does a bank holiday in 2009. Deleveraging 2.0 is next on the agenda ... trades of a lifetime on the horizon. - AM)

Reporting by Tim Ahmann and John Poirier
Fri Jan 30, 2009 5:49pm EST

WASHINGTON (Reuters) - Policy-makers have yet to reach a consensus on how a U.S. government-run bad bank would work and the idea may not move forward, CNBC television reported on Friday, citing unnamed sources.

"The government-run bad bank idea that was being floated ... apparently has hit a snag, it might not happen," a CNBC anchor said recapping an earlier report. "Charlie (Gasparino) says the government has no consensus right now on how the bad bank would work, the issue is pricing."

"Making that thing work right now from what I understand is proving to be very difficult," CNBC's Gasparino said in his report.

Gasparino said the Treasury Department has been talking with the chief executives at the biggest Wall Street banks on how to proceed and may shelve the idea of an aggregator bank and instead provide across-the-board guarantees for the troubled assets clogging up banks' balance sheets.

"The aggregator bank is been put on hold indefinitely," he said. "They may do a hybrid: aggregator bank-guarantees. This thing right now has hit a major snag."

Another issue plaguing the proceeding on how to purchase the assets from the banks is the lack of senior staffing under Treasury Secretary Timothy Geithner

Geithner was meeting on Friday with Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp Chairman Sheila Bair and Comptroller of the Currency John Dugan, with the Treasury saying it was "to discuss financial and regulatory reform.(They may end up serving bankster pudding at a Swedish restaurant ... - AM)

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