CINQUE CENTO

Petulant is probably too soft a description of The Leader's attitude this afternoon. He didn't get his way and was damn mad. In not being able to bully a group of bond holders to give up their legal rights and accept a crappy deal by which a Chrysler bankruptcy would have been prevented The Leader fell back on claims of anti-Americanism, excoriating all involved and pointing out the hedge fund involvement in particular. The Leader always plays to the masses; it is generally agreed that hedge fund is a four-letter word...or at least fund is. So now we are facing a chapter 11 filing that will settle things in, according to The Leader and Mr. Nardelli, no more than 60 days. Good luck to them. During this period, the Treasury (that means YOU) will put up debtor in possession financing in the amount of $3.5 billion and make available to Chrysler $8 billion to run the company after the proceeding is over. From then on it's away to the races with Chrysler making and selling, "The kind of cars Americans want to buy," according to The Leader, noted expert on motor cars who just a few short weeks ago thought the damn things were invented by Americans. Hummmm. Buy a car made by the management team of the UAW and Our Hero? I'm not sure I want to go there. But wait! As part of this proposed industrial juggernaut rides in FIAT in what must be the greatest parody of all spaghetti westerns to save the day!

Now FIAT is an Italian car company with a long, long history filled with success and...well, lets just say there have been some downs as well. FIAT made cars for the people of Italy in the same sense that Volkswagen made cars for the people of Germany, just not as well. Fiat is supposed to provide "world-class technology" for this happy union and one supposes they have some of that inasmuch as they own Ferrari which also makes cars that go very fast, cost up to half a mil and use about 5 liters of fuel (high test) to get around the block. They also make Il Cinque Cento which in English means the 500 which goes very far on very little fuel which is why The Leader loves this company so. The problem is the 500 isn't very big; to call it a sub-compact is being generous. Now I hate motor cars and know nothing about them but my neighbor out here in the heartland--let's call him Bubba--tells me the reason the damn thing goes forever on nuthin' is not because of technology but because it's so damn small. Bubba says if the wife put wheels on her washing machine she could call it a 500 but probably couldn't sell it 'cause, "it don't have no Eye-tal-in styling." Makes sense to me.

Anyway, this bunch is supposed to sell a hell of a lot of cars that Americans have never bought before but which The Leader loves, and make a hell of a lot of money in two years...assuming they are out of bankruptcy by that time. It may work. I think I will still keep driving my Acura.

What really is getting to me though, is why FIAT stayed around for this deal. I have a suspicion that they think they can make money if it works and not lose anything if it doesn't. Brilliant, eh? But what troubles me is that I have another suspicion that FIAT may be influenced by the involvement of the government in this transaction making it look very much like a European venue with which they are very familiar. FIAT and the government of Italy have had a close and meaningful (corrupt) relationship for years and both parties have benefited. They could be in for a real awakening for in Europe and especially in Italy politicians are honest; once they're bought they stay bought and you know exactly what you are getting. This is not to suggest that any of The Leader's people are corrupt--at least not lately--but it is to suggest that this mob will turn on a dime whenever the political winds change or when the UAW tells them how high to jump. If this thing doesn't get reorganized in a relatively short period of time, the internal relationships between the parties are going to be interesting to watch. Buona fortuna, FIAT. Forza Italia! I am also going to be fascinated to see how much and what kind of pressure The Leader is going to put on those traitorous hedge fund and bond management guys to fold. Hell, we don't want grand designs ruined by these bums trying to fulfill their fiduciary duties by managing their clients' moneies in the best possible manner. Not in The Leader's America by God!

FED WATCHING

A unanimous report from Dr. Ben & Cie today in Washington today that varied little from the March statement. There policy is to continue to create all the money in the world to buy all the bonds in the world with the slight modification being that they may not do it quite as quickly as they had previously indicated. The stock market liked that and held on to its gains of the day but closed well off the highs. The market anticipates cheap money with a permanent bid in the market. The Administration must have liked that because the short term effect is to keep interest rates low (the whisper target is 3.00% for the 10 year note), which helps mortgages, credit cards (after they beat the crap out of the card companies), and the stock market. Bankers like it because their effective cost is a shade up from zero, and the media likes it because it is desperate to report a win for the administration.

Perhaps you ascertain a lack of enthusiasm in my reporting...good call. A scenario that troubles me: In theory I suppose, the Fed can never run out of money. My problem is two-fold. Politicians have begun to realize this and the natural reaction of any politician in finding an unlimited supply of money will be to spend it. The projected deficit for this fiscal year is 2 TRILLION dollars under economic assumptions that only The Leader and his associates believe (there is some question about that). 11-5 it winds up bigger than that. Fold # 2 is that in the history of the world power and influence has never gravitated to debtor countries; it moves towards the source of capital, or to put it another way, money talks, B.S. walks. At some point the Fed is going to be the ONLY purchaser of our debt, and that sports fans is when the music stops.

A couple of things will happen none of which are any good. The dollar is going to get hammered--I'm surprised it's held up so well so far. We are on a trend to debase our currency to a point never before seen. Good for export industries but we are a nation that consumes vast amounts of energy a great deal of which is imported. Our balance trade will never be in balance. Forget about The Leader's energy plan: fossil fuel will remain our primary source of energy for the foreseeable future--your lifetime--and there is NO provision in any plan I have seen to expand domestic sources of fossil fuel and not a word about the cleanest energy source of all, nuclear power. Fossil fuels are priced in dollars; it is no where written that they will always be priced in dollars. As the purchasing power of the dollars received by energy exporter decreases it is certain that a new basis for payment will arise. We can't print that, it ain't ours. We have to buy it or....yep, that's right, borrow it. And what happens when you can't print the stuff you have borrowed come repayment time? How fast can you think Third World?

Another thing that must happen eventually. Inflation. There's no getting around that and maybe at the end of the day that's what The Leader and his boys have in mind. If you can't repay it, inflate the hell out of it and reduce its value and keep on printing! Of course there may be some downside to that plan. How quickly can you think Reduction in Quality of Life and Rise in Cost of Living?

If my simpleton economic theory is correct, influence in the world is no doubt going to shift to a new breed of "have" nations while we become part of the "have nots." From our economic dominance came our overwhelming military dominance but this will surely slip in my scenario and be replaced, very probably under current conditions, by nations who hardly share our values. Are we prepared to live under a Pax Asia or worse?

Can my very pessimistic trend be reversed? One of the reasons the Fed seemed to be saying they wish to go a bit more slowly is that there may be a bit of insecurity as to how well can they control this thing. If things are looking to get ugly, can they turn on a dime? And if they do what will be the result. Certainly, today's concern is deflation but history has show that inflation can rise its ugly head in the blink of an eye and stagflation in the current scenario is also a distinct possibility. But keep in mind, this is ONLY a scenario. I'm sure many of you have one as well. As for me TIPS are looking even better and better...does anyone know how to short the Curve?


Well, our boy Ken survived an apparently very close vote at the B of A board meeting today as did the present board. Just what it was he survived they will not say, but he aint goin' home jest yet. And now, an apology. I made a grievous error yesterday in stating that PIMCO had voted 22,000,000 shares against Ken. PIMCO did not, CALPERS did. It is a mistake I never should have made and hope never to make again. MEA CULPA.

QUEL SURPRISE!

That's French folks. Know what it means? Stunner of all stunners, it appears--at least according to the Wall Street Journal--that Bank of America and Citigroup might need more capital. Then again, if one speaks with the people who are running the institutions, maybe they don't. And whilst we try to unwind this little conundrum, didn't the Administration, taking a page from "A Walk in the Sun," which is of course familiar to our loyal readers, announce some time ago that, "Nobody dies?" Well, if you have in effect guaranteed the largest banks around, why the hell to they have to go through this exercise of raising more capital in what might be categorized as perhaps not the best of times for such an exercise? Seems like a waste of time to me; hell, just let them earn their way out of it (if they can) just like banks have always done.

Then of course is the irksome question of what kind of capital are we talking about. In theory, capital in regard to a bank as with most other organization is there to protect the institution from losses and by the standards of the Basel Accord all the banks who were subjected to the stress test have adequate capital. Ah ha, say some, there is capital and then there is CAPITAL. It would appear for example the the $45 billion Uncle has in Citigroup aint the kind of Capital one wants because it is in the form of preferred shares not common shares or to make it real simple, the kind of capital against which losses can be directly charged. If your reaction to the thought that $45 billion is no good is, "Huh" you and I are on the same page. Now this piece of regulatory genius comes from the same folks that were all for mark to market treatment for everything, but if you eliminate the mark to market "risk" and get back to cash accrual, doesn't a good deal of the concern for what kind of capital one has go away (as if it should have been there in the first place)? This of course begs the question as to whether "Capital" is relevant in a banking context, but you've heard enough from me on that subject. Nevertheless Mr. Pandit, Citi's CEO has announced his intention of converting the government's preferred shares into common equity thereby making Our Hero The Head Hummer at the joint that never sleeps. The fact that it completely and totally screws the equity holders and everybody else who stuck with this thing until the next generation at least is apparently of no interest to anyone. It can well be said that Citi was nationalized months ago but the finality of this action is still a bit off-putting. Worse yet, is the thought of the government getting control of a pot of money this big. Yikes! In one swell foop, The Leader has found himself the biggest pot of gold around which he can redistribute in the name of the exercise of a management function. Of course Mr. Pandit will pander to the thought in order to keep his job, and one wonders why as he has more money that he could possibly ever spend in a life-time unless he marries my wife. Then too, the Chairman, Mr. Parsons, has caused to be appointed four new directors to the Board who know something about banks and banking...in fact they know A LOT about banks and banking. Michael O'Neill is one of the best I have ever known. There may be hope.

And as for our North carolina good ol' boys...Damn, our boy Ken just found out those damn Yankees at PIMCO ar 'bout to vote 22,000,000 shares 'gainst hisself and all o' the 18 of his boys on the board. Actually, you have to feel sorry for poor ol' Ken. Seems as though he got handled by Paulson and Bernanke and Our Hero---yes, dear reader he was there as well--and as a result all sorts of folks are calling for him to be thrown in the hoosegow for misleading his shareholders. I haven't a clue as to the true story but I can sympathize with him as many years ago I was asked by a group of regulators to extend credit to a certain Latin American Country with all of my management missing in action. It is a very lonely feeling. Anyway, there has been speculation that B of A would find it easier to raise capital than Citi. With a new Chairman and CEO and an entire new board if PIMCO finds the support it needs? I don't think so unless markets have changed more than I realize since I put down my green eye shade. So one might ask, "What is to be accomplished by all this at this time?" Beats the hell out of me again. I'm not much help am I? Maybe we will have some answers tomorrow. If you have any ideas, clue me in.

WITH FRIENDS LIKE THIS...

Fascinating story in the Times today, front page, left lead, above the fold on Our Hero and his connections on Wall Street. Like much of the top stories of the past few years in what used to be a great newspaper it is long on hard speculation and gossip and soft on real facts. Anyway, to boil down the 10 columns, Our Hero has been, and remains awfully close to the people he was trying to regulate to the point that he was once offered the job of the successor to Sandy Weil as the CEO of Citigroup while sitting as the President of the New York Fed.

There are the standard clips to Provide "balance;" testimonials to the fact that Mr. Geithner would never place personal relationships or the thought of personal reward before his duty as a public servant. Nor is there any real hint as to what might have motivated Mr. Geithner to take some of the positions he has taken over the past five years from which he might have personally benefitted. On the contrary, at about 400 Large a year, Our Hero seems to have severely underpaid given the company with whom he broke bread.

But this wasn't a puff piece, far from it. Nor was it intended to inspire confidence in the director of the finances of the western world. This was a hit job...an elegant hit job but a hit job none-the-less. So the question is, as my friend Guido would put it, who let out the contract on Our Hero? An even more interesting question would be why, and the final piece would be why the Times Mob would allow themselves to be used as the contractor and who is the button man in the organization?

The Times and Democratic politics are pretty much joined at the hip. Disagreements with the policies of this Administration are hardly drawn in bright, vivid colors but in shades and degrees of gray. Then why, one may ask, would they choose to place the supposed architect of the Administration in such a tenuous position as to suggest...nay...imply that he might be severely conflicted as a result of his relationships and past actions? The Times has for quite some time been suspect as the harbinger of policy shifts and pronouncements for their political favorites, not only through their editorial pages but through their news reporting as well (these days, admittedly, the distinction may be without a difference). Is this a warning to Our Hero that his actions are being watched verrrry carefully and a scenario being created for his ultimate demise, or is it just The Times sending a message on it's own that you are not doing what WE want you to do and you better start listening to us and in particular our op ed page guys and girls a lot more closely. Either way, the ante in this game has just gone up for Our Hero in a most unpleasant way. I must admit, however, that the reporting delivered more tid bits from inside the New York Fed than have been revealed in years. I'd certainly like to be in a couple of senior officers' luncheons over the next few days.

In a related financial event today (understatement) the new CEO of GM announced the long-awaited restructuring plan that ills Pontiac as a brand and, if agreed, turns over ownership of the company to the UAW and the government. The equity guys and the bond holders get it in the neck but as Maria Caruso Cabrera said on CNBC today that EVERYONE knew the union would come out in first place, so shed no tears gang, the fix was in. Smart lady. Now it is going to be interesting to see if the bond holder fold and take at best 10 cents on the dollar for a company who's future chance of success is somewhere between unknown and who cares. Actually, it will be important to witness how brutal the Administration plans to be in forcing this "solution" down the throats of the Bond guys in relation to their possible tactics with the banks. Bets anyone.

Sorry, it's a slow day when one has to get John LeCarre-like and talk about non-deals, but that's life in the mid west.

MUCH ADO......

There was once a memo written by a bright, young vice president in the bank where once I worked concerning a dinner held with the bank's management and the management of a very important borrowing client. It went exactly like this (the names have been changed to protect the innocent):

"John Smith, Chairman, Joseph Jones, President, Harry James, Senior Vice President and the undersigned had dinner last evening with Peter Black, Chairman, Mitchell Green, Chief Financial Officer, Casey Jones, Treasurer and Barry Light, Director of Banking relationships, all of Widgett Corporation. Nothing of importance was discussed."

Our Chairman instructed that the memo be removed from the files and almost removed the author from the institution. He left on his own some months later.

To a breathless gathering of media and analysts, details of the "stress test" were today revealed at the New York Fed. Nothing of importance was discussed.

Have a nice weekend. Spring has come to the Mid West. THAT is important.

BACK TO THE FUTURE

Well, tomorrow is the BIG day. The "Stress Test" (there's Al Gore 
again..."Lock Box") is going to be explained. Of course we are going 
to have to wait until May 4 to really find out who will be the winners 
and losers in this but the markets is already showing signs of being 
more than nervous about the entire concept.

Last week, Robert Merton commented on events leading up to and the 
cause of, the latest hiccup in our financial system. Paraphrasing of 
course, and among other things was, "...of course the mathematics 
contained in the models was correct but perhaps we should explore 
whether the models were in fact flawed." Geoutttatown, or as we used 
to say when I was a kid, "No *&^% Dick Tracy." Now Prof. Merton is 
not to be ignored, after all he has about a $25,000,000 endowed chair 
at Harvard, a Nobel Prize and has, as a director and principal, been 
in the midst of two of the more spectacular financial failures in the 
past 10 years one of which almost ended the world as we know it. So 
one must speculate that with this sort of authority raising issues of 
the appropriateness of financial models, how is it that Our Hero is 
about to undertake rescue of the nation's financial system on a model 
which, to my knowledge has never been seen much less independently 
tested. Or to put it another way, isn't this just about the point 
where the excrement hit the revolving blades. It reminds me of 
Lindsey Nelson in the replay of the Notre Dame football games back in 
the last century; "...and now we move to further action in the fourth 
quarter.'' For God sakes, Lindsey, the game was played yesterday, WE 
KNOW WHAT THE HELL HAPPENED!!!!

I suppose all of this has occurred to Our Hero, but he seems to have 
minimized the chance that one of his quants might have had a bad day 
in the algorithm-creation phase of this exercise (or a bad minute for 
that matter) and he is determined to press on believing in his ability 
to convince many and explain away all doubts. He's had a hell of a 
run so far in doing that hasn't he? Once this part of his master plan 
is completed the elimination of bad assets from bank balance sheets 
will begin through the "public-private partnership" he so breathlessly 
touts and about which so many of the proposed players are heard 
muttering, "aint no way I'm getting into bed with this mob" believing 
it seems for some incomprehensible reason that they may not be 
completely men of their word. Oh, suspicious souls.

While all of this has been going on the Germans have merrily announced 
the creation and proposed funding of their "good bank, bad bank" idea 
with some strangely familiar sounds to it. It seems that what is 
being thought about across the pond is pretty much leaving the "bad" 
assets with the banks themselves but giving the institutions in some 
cases up to twenty years to write them off all the while funding the 
banks to hold the assets. Brilliant those Germans...except that is 
exactly what the Chileans did twenty-five years ago, the Brazilians 
twenty years ago, the Mexicans fifteen years ago and...oh hell, 
there's no point to carry on except to say that this "novel" approach 
is precisely what bankers and regulators have been doing since Joe 
lent Harry the first unit of exchange back at the beginning of time. 
For you see, if you provide liquidity to banks, time will heal...AND 
IT PROBABLY THE ONLY THING THAT WILL HEAL!! There is another thing 
that we should keep in mind. There are very few truly new ideas; I 
used to tell folks who worked for me the only truly new idea in the 
past 2000 years was the Sermon on the Mount. Everything else is a 
variation on a theme. I still believe that. The problem is that 
hubris and a lack of personal and institutional memory prevent the 
application of perfectly good OLD concepts with a modern variant to 
solve problems we have seen a hundred times before. It is not 
surprising that it appears the Germans are prepared to apply 
successful past concepts to present day problems. Not lacking in 
Hubris, Europeans are nevertheless far more aware of history that we 
Americans. They may have this one right. Anyway, we will have an 
opportunity to comment on what is to be revealed tomorrow. I have 
another one of my bad feelings about what that may be.

A sidebar. The pols are still howling that Banks aren't lending. 
Look at the Fed statistics; there's a whole lot of lending going on. 
It is a lot more selective and a great deal of it has been the draw- 
down of committed lines to large corporates, but the banks are 
lending. What has happened is that everyone else---WHO BEFORE this 
debacle provided about 80% OF THE CREDIT IN THE COUNTRY, have 
stopped. And therein dear reader is the problem.

CAN I MARRY YOU?

It was quite a show from the get-go. Our Hero appeared before The Congressional Oversight Panel ("COP") up on the Hill today armed with pages of testimony on various bail-outs and fix-it projects. He was rolling right along in bureaucratic other-speak when the Chairperson of the gathering, Elizabeth Warren of the Harvard Law School told him to shut up. Well, she wasn't that blunt but she did tell him to finish up because she was a lot more interested in his answers to the questions that were about to be posed Twice. If available, Ms. Warren I will marry you. There's a couple of problems but we can work them out. If only more things in D.C. were run like this. Of course, Our Hero proceeded to give few satisfactory answers to anything and in fact did admit that he had no idea how to extract the government from its position in AIG much to the feigned surprise of all on the panel. One could actually say that Mr. Geithner had a very shaky grasp of all he discussed leading to the assumption that he may not really be Da Man after all. Methinks we might have an order-taker on our hands and not the executive chef of the repast. Unfortunately, the head cook, whomsoever that may be, appears to be unable to boil water at this stage. Tough cooking the meal when you haven't a clue as to the menu. Anyway, let us continue with our Fed-spec.

Since suggested in this space some weeks ago, there seems to be a full consensus emerging that Mr Bernanke has indeed gone over to the dark side and taken the entire staff (at least the D.C. staff) into the collaboratory mode with this administration as opposed to the normal role of independence in a manner not heretofore seen in recent memory. "Why the concern," one might ask and a valid question it is. To begin, there are now no checks on what is clearly the most radically expansionist fiscal plan in the history of the world. Secondly, while one can argue that there may be an intellectual communion between the Fed and the Administration, one has to be concerned that in the duality of the Fed's mandate--monetary stability and economic stability--the latter has completely overwhelmed the former with adoption of the view that we can fix any inflationary problems that emerge at a later date with the tools available. Thirdly, one must also question how great is the concern on Mr. Bernake's part that the reported oft-mentioned promises to Mr Summers that he would become the next Fed Chair and his desire to prevent that from happening has influenced his actions.

So, what one may argue, if this is the right approach. Perhaps, but in the process if any of the foregoing is correct--or if all are correct--the confidence and trust in the institution as an independent contributor and, indeed arbiter, of economic policy in this country may be irretrievably lost; which, IMHO is an enormous and frightening event.

Another consideration. The Leader is constantly speaking of how this country must constantly seek international cooperation in all matters. Fair enough, but there will be many instances in the near and distant future, as in the past, where it will become necessary for the major central banks in the world to cooperate with one another. It is quite one thing for a central bank to cooperate with another of its ilk; it is quite another thing to cooperate with the arm of a political regime whose interests may not be the same or which may be in conflict with one's home country, or in the case of the EU, a group of countries. The history of the Bank of England up until very recent times is a prime example of such a relationship. This is a difficult thing for those who stand as casual observers to this interplay to understand, but it is very real and very important. Already, one can notice the friction that has been on clear display over the past few months (not just with the present administration) between the Federal Reserve and it's European counterparts even with Mr. Bernake at the helm. I shutter to think of Mr. Summers, whose personality is, shall we say, off-putting at times, being viewed in any light other than as
a politician.

Finally, Monetary policy is not, in my experience as an observer, something that often turns on a dime especially if the people involved in setting such policy may be forced to admit that hey were wrong at a previous moment. As I said at least a month ago, we have seen this movie before. It was called The Seventies. It was ugly. The remake is shaping up to be a real horror. Keep the kiddies at home if this doesn't get stopped.


In this posting on Central Banks there must unfortunately be A Last Post. Eddie George, former Governor of the Bank of England died the other day. I didn't know Mr. George well at all but the times we met I liked him. It was under his watch that the Old Lady became independent of the Treasury but also lost a good deal of its regulatory oversight to the newly created FSA. Mr. George opposed that. He was correct to do so. Flights of Angels Mr. George.

...AND WHEN I DIE I'LL BE A TAR HEEL DEAD! (Carolina Blue)

There was once this good ol' boy named Hugh, who owned him (well, he didn't rightly OWN it, he just thought he did) a bank down in Charlotte called North Carolina National Bank, or NCNB as the locals named it. 'Course that Really meant No Credit For Nobody as ol' Hugh was tighter than a frog's ass when it came to lendin' money. There was this other bank in town name Wachovia run by somebody damned if I can remember his name but he and Hugh didn't like each other on bit and they got into pissin' contests with one another over the damndest things including the size of their......buildings. Got so bad when one of 'em built a new building, didn't the other one put one up that was TWO FEET taller than the other! Wooo-ee! It was more fun than the Heels playin' the damned Dukies for a National Champeenship an' meaner too!

One thing they did agree on was that they didn't like Yankee bankers--no how no way--and bofe of 'em set out to beat those boys at their own game. Well, they started buyin' this bank here and that bank there, and woudacha know it but pretty damn soon they was as big as any Yankee around. After a while, Hugh got old and passed over his bank to Ken who was one of them dropeverythingandgogitwhateverthehell Hugh wants when Hugh was around. Ken was a big ol' boy whod jus' as soon knock you on your butt 'specially iffen you be a Yankee. By the time these two got done they'd bought damn near everything in sight including sumpin called Bank of America which was once Continental...aw that aint important, just you'll know they got BIG.

Now buying these thing meant that had to change a bit 'cause there was still this competition thing with Wachovia and the Damn Yankees, so they started doing a bunch of stuff they didn't do before...like lendin' money to the damndest people you ever saw! And they fancied themselves just the smoothest ol' country boys that ever come along so that when things were looking real cheap 'cause things weren't real good, Ol' Ken went out and bought some more stuff it seems he didn't know a damn thing about and bought 'em from Yankees to boot! Well, I betcha you can see where this thing is a'goin'. Things didn't work out so well for ol' Ken. In fact, about the onliest good thing that happened was that some bunch from California for damn sakes went an bought Wachovia so least he don't have them to woory 'bout no more. Got so bad that the damn D.C. revenuers came in, plopped down a bunch of taxpayer money and said, "Boy, y'all gonna do things our way for the for-see-a-ble future.

Well, ol' Ken let go with his earnins today. Big number. But the worstest thing was the Damn Yankees up in New Yawk jumped all over this good ol' boy sayin' terrible things like, "Ken who the hell think you woofin', boy?!!! Aint nuffin' here make us happy! This be about as real as what introduces Dolly Parton 'fore she comes 'round a corner. You best go 'way and try it agin'...or maybe you just best go way. " Knowin' Ken, I don't think he's gonna wanna do that. All that time on his hands, he may run into Hugh and I'll tell you what's the truth boy, that can't be good.


I simply couldn't pass up this tale told to me by an old friend, but we WILL get around to the Federal Reserve. In the mean time dar reader, you might look into the remarkable exchange between our friend Paul Volker and Fed Vice Chairman Donald Kohn at Vanderbilt University over the weekend. The old Tiger questioned Mr. Kohn's statement that the Fed was targeting a 2% per annum inflation figure as proper for the foreseeable future. I'm out of their weight class, but I'm just thinking about the administration's growth estimates of 4% (which few believe) and thinking 2% real growth aint gonna cut it much less the more accepted figure of 2% before inflation that most economists have dialed in. So I say to myself, "Self, whose in charge here?" Another question that needs to be asked and answered is who is going to be in charge? We shall explore that this week. The good thing is Tall Paul may be back in the game and as my Tar Heel fried might say, "Boy, I'm thinkin' goooood!"

..TWO FROM COLUMN "B"

Change of plans. We are not going to speak as advertised. Rather, let us take a quick look at the extraordinary statement put out by the Treasury today concerning our friends in Beijing. It was so extraordinary that Our Hero felt it necessary to call selected legislators up on the Hill to warn them that it was coming. What Treasury has decided--despite 2 years of The Leader's comments to the contrary and Our Hero's testimony of 2 months ago--is that the Chinese have not been manipulating their currency after all. Now one would think that a policy reversal such as this would cause a major ruffle in the halls of the popular press, but it seems to have snuck by--at this point at least--with barely an eyebrow raised. Remarkable.

Frankly, it was not an unexpected announcement but one might ask, for example, what did we get in return for giving the Chinese a Get Out of Jail card with not only ourselves but with the IMF who was about to "look into the matter"--no laughter please-- and our European allies with whom we are "entering a new era" of mutual trust and respect. As has been mentioned, uncomfortable is he with a demand note on his house and the prospect of raising God knows how much new debt to fund a massive deficit spending program. I suspect we received bupkus other than vague promises of cooperation in various areas. As with the results of the G20, we are getting rather good at that sort of thing. Make no mistake, this was not a decision reached independently of...ah...discussions with the subject in question. At some point the Chinese will raise the curtain a touch. I'm sure it is just too delicious for them to remain totally quiet. We shall wait and watch.

The other news of the day that gazumped yesterday's intentions was an extremely detailed earnings announcement from J.P Morgan. As suspected Morgan beat the street as did Goldman but with a broader achievement across the lines of their business. It appears to have been a rather good quarter and one should note the rather large addition to the loan loss reserve that resulted. This is of course good news/bad news; the troubles aren't over but this institution at least seems to be dealing aggressively with what is there. I think we will be seeing more of this sort of thing as the earning season progresses, but Our Hero, apparently, still intends to go forward with his plan for the sale of toxic assets perhaps as early as next week. How or why is beyond me, but the Treasury is still a very large creditor of all these banks (indeed, government guarantees or quasi-guarantees of bank debt allows for funding at very attractive levels) and I suspect will be used as a big stick in the negotiations. As we have noted, time tends to heal an awful lot of things if one just doesn't do anything stupid, and allowing banks to earn their way out of problems is a tried and true method of problem solving. We have done it before on multiple occasions. Sadly, I am not optimistic that this group will learn from the past, but hope springs eternal as the complexity and lack of disciplined thinking may doom the effort. Again, we shall wait and watch.

Finally, there seems to be a story a day concerning another rain-maker leaving an institution burdened with TARP money for greener (Yes, a pun) climes of a lesser regulated firm. Keep remembering gang, you pay peanuts, you get monkeys. In the end, it is always about people. This country has built a remarkable financial sector on the hard work , drive and, yes, greed of a number of individuals. Were there bad apples? Of course and I would be proud to pull the lever that opens the trap door. It would be a shame, however, if mindless politicians destroy all the good that has been built and allow it to migrate to far distant climes whose interests do not necessarily mesh with our. Like China, perhaps? Can't happen? Think again. We are about to enter one of the most dangerous and competitive periods we have faced, and...ah, the hell with it, I'm getting preachy. Back to business tomorrow and the Fed.

HOW'S THAT AGAIN?

The Treasury announced today that the results of the "stress test" on the largest banks in the United States would be released to the public sometime in May. Well, that's not exactly correct; SOMETHING relating to the results will be released in May but it appears that just what that may be has yet to be determined. The news was met with a yawn but as we said in A Walk in the Sun, nobody died. Oh, to be sure, one can assume that some banks were found to be in better shape capital wise than others, but just who those laggards were has not and may never be announced. Forgive me, but I'm having a hell of a time trying to figure out how, with the limited resources available to the Treasury, 15 or so financial institutions with assets totaling God knows what multiple of a Trillion dollars, operating in 172 countries could have been tested in approximately a two month period. Color me skeptical. The other thing I'm wrestling with is the nature of the test itself which, if reports be accurate, was primarily designed to determine the capital adequacy of the institutions in question. Loyal readers will recognize that when the words "capital" and "banks" are juxtaposed, I tend to have a sissy-fit, but for the sake of argument let us stipulate that there is value in this kind of exercise to anyone besides a regulator (although only God knows who that might be). If this be the case it immediately becomes apparent that some remarkable conclusions had needed to be reached in a rather short period of time, to wit the ENTIRE asset books of these institutions needed to be examined and VALUED to the agreement of the involved parties, otherwise the entire exercise is a complete nonsense. Yet this is what we are supposed to believe. Forgive me if I opt out.

Anyway, now that this determination has been made, the next step (other than the public being made aware of something) seems to be the requirement that all or most of the banks raise capital within a six month period or have capital provided to them by Our Hero and his mob. Remember this "confidence" thing that I have been talking about? Let us suppose that a majority of the banks approach the capital markets to raise common equity in the next few months. What happens to those who do not? Well, two things: either they are in a position to say, "We don't have to," or, "We choose not to." The first comment may pass muster, the second will be interpreted as, "Nobody will buy our stock," and essentially become the kiss of death. Of course that might even become the case quite early on if one of the institutions involved, for competitive purposes (THEY WOULDN'T DO THAT WOULD THEY!) leaks the perceived status of a competitor. That is one scenario. Another is the market, being aware of the possibility of a flood of bank equity issues decides picking and choosing is a mug's game and simply steps back or, which may be a bit more accurate, causes a rush to the market to be first in line thereby penalizing those who are unable or unlucky enough not to be able to move quickly. For the government to mandate an entire class of issuers to access a roiled market essentially at the same time may not be the cleverest idea ever devised.

And what of the poor souls who can't raise public capital at all? Two options are all that appear to be available. Either accept even greater government ownership and all that entails (you pay peanuts you get monkeys) or rapidly downsize through forced sales of--by definition--the most attractive and valuable--assets. Somehow, I simply don't believe any longer that it is the plan of Our Hero to allow this moment in time to go away without an enormous effort of the part of the government to restructure the entire industry with vast new amounts of government control and influence using this approach as an excuse ("We tried for a market approach but...").

Whilst the future is still a bit cloudy, it appears that The Leader and his administration is bound and determined to take the country as rapidly as possible in the direction mandated by the more liberal wing of his party. Elections do have consequences and as he has said, "We won." Fair enough. This movement is going to cost a great deal of money, however, and I suspect not all of it will be allocated by a Congress that is just becoming aware of what may be the beginnings of a voter reaction to increased deficit spending. Compliant financial institutions are rather valuable in such a scenario. We have seen examples of such public and 'private" partnerships throughout the world. Why not here? I make no value judgment as to the intelligence of such an approach in our time. It just appears that this is the way it may play out. Who knows, The Leader may well make the trains run on time. More about this tomorrow and the role the Federal Reserve might play in this brave, old world.

THE BUNNY TRAIL

Back from a wonderful Easter weekend with all of the grandkids. If you think dealing with the financial crisis is hard, try dealing with 2 year old triplets produced by son #2 and bride. It's like herding cats. How those two do it I have no idea but The Leader and Our Hero should give them a call for some advice. It will undoubtedly be better than some they have been receiving.

When we last visited the state of play, Wells Fargo had just released spectacular earnings as predicted by your humble scribe (see: "He sprang to his saddle..." March 11) Today, Goldman Sachs "beat the street" with a reported net of $1.8 billion. That's a lot of money for a firm reportedly in dire straits just a few short months ago. I'm willing to admit Goldman is good...better that most probably...but I still find it difficult to figure out how they manage to pull off coups such as that today where they successfully issued 5 million shares of common at $123 a share which and then watch it crash to $113 at the close. The $1.8 billion came almost exclusively from trading, and fixed income trading if one believes the release (there is no reason not to) but that is a hell of a lot of profit from a business with razor thin margins. Before September last, Goldie was an investment bank with gearing applicable to their position in the business.; read HIGH. Today, they are a commercial bank with gearing supposedly governed by the Basel Rules and monitored by the Fed. Forgive me, I love the number, but $1.8 Bil out of one facet of the business leads me to believe that the balance sheet mid-month was a Tad bit larger than one might expect it to be for a good, commercial bank leverage-wise. But it is what it is and there is $6.5 Billion more in tier one capital and a real headache for Our Hero.

Goldman has wasted no time in letting it be known that Plan A is repay the TARP money as soon as possible so that they can get beck to paying themselves obscene amounts of money unhampered by the silly thoughts of The Leader and and those of the dimmest of legislators. With a new injection of capital and bright prospects for the future (at least in their minds) they seem to have a strong argument. Although one might think that the return of taxpayer's dollars, the evidence of the ability to attract permanent capital at remarkable levels and the hope of a bright tomorrow fulfills all that the Administration has been asking for, there seems to be more than a bit of hesitation of its part. Mind you, there is still the sticky question of how does one price the warrants that the Government holds and would be forced to cash if the TARP funds are to be repaid (raising the specter of how does one price Our Hero's plan in general), but surely this can be worked out? Could it be, one asks, that the Administration has a bit more on its mind than a mere "tiding over" of the financial sector until a better day, and that the implied control that TARP and Our Hero's plan is at least as important? The implications of this position, long whispered in the press and on the Street, are perhaps being focused far too quickly for the Administration's liking as a result of the surprising strength of a portion, at least, of the financial sector. A plethora of good results over the next few weeks in, once again, a wonderful banking environment may well focus this issue and none too soon.

A bit of a sad note. last week, the Wall Street Journal carried a story about the absence of Paul Volcker from the public view despite his highly publicized joining of the Administration's financial team, his appointment as Chair of an advisory commission and the very public promise by The Leader that Mr. Volcker would have an important role to play going forward. Now some of you might have gotten the impression that I am not entirely happy with some of the positions taken by this Administration but this was not one of them. Paul Volcker is one of the giants (no pun intended this time) in the financial sector and his presence and learned counsel is needed and would be most welcome. Unfortunately, he did nothing to dispel the implications in the article that he is being...ah, underutilized. This is more than unfortunate and one would hope would be reversed. If not, one can only come to the view that in the twilight of a distinguished career of public service, a very fine man was used quite shamelessly to lend credibility to an otherwise less than ready group. I hope I am wrong, but I fear that I am not.

STAGECOACH A'COMIN'

I didn't expect to post anything today but when one gets a chance to say, "i told you so," one should take it. Now one Robin does not a summer make, but back a bit I wrote that this is one of the greatest moments in time for banks and the prospects for bank earnings. Comes today blow-out numbers for Wells Fargo. Had to happen and there is going to be more of the same. This might suggest that all involved take a deep breath and step back a moment to survey the landscape. Time and earnings cure a lot of things. But of course we are surrounded by geniuses and geniuses must act, must they not? "To do nothing is not an option." "Never waste a crisis." I wish I were a genius. Life is so easy.

LESSONS FROM THE PAST

I remember the first day I stepped out on a banking platform, fresh from training and ready to excite the world. I was setting up my desk when approached by the number 2 credit officer in the department, a crusty old Irishman who was a legend in his time. He waived me into his office, pointed to a chair and said:

"So you're ready to go/"
"Yes sir."
"Credit trained?"
"Yes sir."
"Let me give you a word of advice."
"Sir?"
"You will never see a balance sheet walk into your office and pay off a loan. People pay off loans. It's always about the people. Got that?"
"Yes sir."
"One more thing."
"Sir?"
"if a guy wants to pay you back, take the money." I'm here if you need me. Good luck."

I have never forgotten that advice, so I'm amused watching a parade of financial executives showing up outside of Our Hero's office wanting to pay back TARP funds and he not wanting to take them. Somewhere, Ed is rolling over in his grave. As the kids would say, "Whatsupwiththis?

I suspect that a better understanding of the whys and wherefors will emerge in the coming days. I'm going to wait. This is one of those years in which the holiest days of two of he great religions converge and no one is around to read, listen or care. I am off with Trouble and Strife to meet up with our six grandkids this weekend and that's more important than anything. We will revisit this matter next week. A lovely Easter to all. Next year in Jerusalem.

SEMANA SANTA

When I was working the Latin beat, Holy Week was a time of no action whatsoever. Indeed, in proper Latin thinking there was a period needed to prepare for Semana Santa and then a period needed to properly reflect upon the holy events which had occurred so many years ago. To put it another way, three weeks were shot.

With The Leader wandering around Europe accomplishing Sweet Fanny Adam it appears but looking terribly good doing it, the Congress gone and Our Hero trying to figure out why he said he was in the business of canning bank CEOs and entire boards of directors while trying to convince the same to agree to his plan, nothing much has been happening. Perfect timing for an Emerging Market kind of country. To fill the vacuum, the IMF jumped in today with their analysis of the size of the toxic asset pool held by banks. Now keep in mind this is the mob that were proclaimed to be part of the solution at last week's gathering in London. A true John McEnroe moment: "YOU CANNOT BE SERIOUS!!!" Yep, they are.

I'm getting one of my very uncomfortable feelings again that all isn't going quite right and this is sort of the calm before another storm. Bank earnings are going to be released quite soon as is--reportedly at least--some information regarding the "Stress Test" (there's the Ghost of Al Gore again). One would hope that there is some correlation between the two events because if, as I suspect, the earnings on an operating basis are going to be quite good and the stress test reports don't jive I think somebody might stand up with a, " Hello, hold on" type of moment which will set off a real scramble as to the efficacy of Our Hero's plan. Who's cooking the books in this deal might become a real issue.

In the midst of all of this, The New York Times ran an interesting piece on the FDIC who, from almost total (and somewhat deserved obscurity), has emerged as a central player despite there being nothing really know about their existence. As reported, Ms. Bair & Co. has placed herself in the Queen Seat of guarantor of all that is supposed occur if Our Hero has his way. As we discussed a free days ago, the FDIC has a budget but no real capital. The wonderful thing about it acting in this manner, however, is that no appropriations are needed in a guarantor role as the FDIC and the FDIC alone determines what it's liability might be. 6-5 and even that the determination will be "none." Forgive me, but do I hear the sound of a CDS creator in the background? The great facilitator, the FDIC...and all on unappropriated taxpayer's money. The Art of the Deal as The Donald would say. By all means do the deal. By the by, the word on the street is that The Donald may be in real trouble again. Now isn't that funny? One more tomorrow.

WHAT HAPPENED?

Nothing, actually. One interesting moment that transpired was when The Leader told the President of Brazil, Lula, that he was the best looking guy in the place. Memo to historians: another first. President Obama is the first visually impaired President in history. Then again, if he was right even I have a shot.

Gordon Brown. One wonders what the British people must think of this. If Blair was Dubya's poodle what the hell is poor Gordon? My God, that was embarrassing.

Of course, the GRAY LADY is sort of treating this thing like a 20-strong Neville Chamberlain event; Peace and Unity in our times and all that rubbish. Good. Hopefully that view will keep their mind off things for a while.

Anyway, politicians did what politicians do best; enter into an agreement to spend 1,000,000,000,000 dollars of somebody's else's money on an ill-defined mission to produce ill-defined results in an ill-defined time frame. The best part is the enlistment of the International Monetary Fund and The International Bank for Reconstruction and Development--quick, what's that?--that's right the World Bank--to get it done in part at least. For the better part of the last ten years these have been two players in search of a mission so this direction comes non-too-soon. No one really minds the World Bank but for a national leader to ask for assistance and the accompanying conditionality from the IMF, is in some parts of the world, an invitation to have your government overthrown. Therefore, there can be the expectation that not a lot of damage is going to be done soon, but there comes the realization that it is simply easier that the leaders of the G20 find it far simpler and preferable to turn over their constituents wealth to one of the greatest bureaucracies of the modern world and to get seriously involved themselves in the very real problems of the developing world. Sad. And the staff is all tax free in Washington...as Our Hero can attest. Remember that little interlude?

Unbridled joy at the announcement that THE ENTIRE WORLD has agreed to new, progressive, all-encompassing, robust and comprehensive regulation of the financial community WORLD WIDE! Ah, hold on.

Any idea what it's going to look like?
Well, no, actually, but it's going to be comprehensive and we will never experience another period such as the one we have just experienced.
Well, whose going to write it, then?
Don't know that yet, but the French are very keen.
The French? Aren't they a bit airy-fairy so they can interpret stuff any way they want?
Well yes, but we can work with them.
Really? Ever try to work with the French on regulations?
No.
This EU mob been trying to do that for 20 years haven't they?
Yes
Any luck?
Well, not much, actually.

Perhaps I was wrong. Maybe a great deal happened

A final note: read Krugman in the Times today. I think he read the blog. Poor bugger got it wrong again. Mr. Krugman seem not to understand the differences between Bills, Notes and Bonds and that they are specific instruments that should be referenced specifically. Nor does he understand the Chinese and their art of negotiation. Makes one wonder if he uses chop sticks at Sunday night dinner.

Have a good weekend.

SAY WHAT?

Ok, where were we? Oh yes, we were just speculating on how long in will take the administration to ram Our Hero's plan down the throats of a bunch of cowed banks when all of a sudden, HEEEEEEERRREE COMES FASB! By a 3-2 vote, FASB agreed to a somewhat different approach to the accounting treatment banks could employ on troubled assets, recognizing for the first time, in public at least, that there might be a problem out there with the market to which things were supposed to be marked. I have read the release a couple of times and frankly it just goes to prove than accountants are simply actuaries with a sense of humor...albeit a dim one. For the life of me, I can't translate the statement into any known spoken language but that is ok. You see, the important thing is that it purports to condone a different treatment and thus ends the insanity under which we have been laboring for the past two years. The other thing it does, if the industry is prepared to stand up on its hind legs, is to kill Our Hero's plan stone, cold dead.

You see further see, if financial institutions are now given some latitude as to the manner at at what level they can value their portfolios and more importantly eliminate or greatly slow the velocity of asset degradation on their balance sheets leading to additional capital impairment, they are going to be even less willing to participate in any action at fire sale prices that eliminates any up-side recovery. Not surprisingly, the FDIC leapt in the conversation this morning with the statement that it might be willing to allow participating institutions to share in any profits obtained by the managing institutions. Lord. Cannot some Knight rid me of the meddlesome woman? Besides being irksome the statement may reveal, however, that the administration is not prepared to give up without a fight as non-participation will certainly reduce the leverage Treasury has over the financial industry. One for the good guys.

There is a troublesome part to the announcement. FASB is prepared to announce the new approach to be retroactive to the close of the 4th quarter of 2008. We all need but look at the events of the last few years to realize that bankers may not be the sharpest set of knives in the drawer at least in the realm of strategic thinking. Many in this mob have an attention span slightly less as long as that of my dog (she's a very smart dog) and possess a trader's mentality which often leads them to do something incredibly stupid if given the opportunity. I have a real fear that a few of these bozos may well seize upon this outbreak of sanity and attempt to MARK-UP in value assets on their balance sheets and book the transactions as a profit. To do this would create a $*&^-storm that would dwarf all others up to this point and wreck whatever benefit might be achieved in the future. Take what you have been given: we are going back to the future where banking once again is a subjective industry, where time and sound credit can cure most ills and where the maniacal cries for nationalization and over-regulation will slowly fade. What we need is time and an upward sloping yield curve. Forever has it been such.

Now in this regard, loyal readers will remember what I said a few days ago about the Fed's actions as of late. Gentle Ben, having taken the central bank over to the dark side of the political swamp, is busily gearing to replace the Chinese on the long end of the Curve. To the extent this occurs, one result could be the artificially lowering of medium to long term rates and the flattening of the curve--not a good thing for Mrs. Banker's little boys and girls. The IQ results we find in the scores of commercial and investment bankers occasionally bubble up in the personnel folders of Central Bankers as well. But, for the time being, we have a shot to get out of this mess in the old fashioned way; managing risk and earning money. Let's hope we don't screw it up.

One further point. I have never thought that the Senate of the United States was as collectively dumb as the House, but I may have been wrong. In a move so colossally stupid so as to defy explanation, the Senate voted today to require the Federal Reserve to release the identities of all institutions to whom they have provided assistance. If unchanged, the language could include borrowings from the discount window. Never has the Fed made that information public and it's release could damage the reputation of any institution to whom the facility was made available and discourage many institutions from using the facility thereby exacerbating an already touchy situation. Keep thinking confidence and trust gang. That's what this business is all about.

Tomorrow the G20. Initially, it appears little harm was done...yet. But the IMF? Tune in

I'D RATHER BE LUCKY

Having promised to do the really hard part which is to key the discussion on Our Hero's financial stabilization plan, I got side-tracked in talking about the Detroit debacle when low and behold, here comes not only the Wall Street Journal AND the New York Times to help me out in the form of a leading article and a learned piece from a Nobel laureate. Patience is indeed a virtue and good things come to he who waits. The Times is usually easy to dismiss so let us begin with Prof. Joseph Stiglitz.

I don't get it about these Nobel guys. How the dickens can you be that smart in one area and be so woefully uninformed is seemingly all others, especially when your success and fame has been a result of painstaking research. Yet, both Stiglitz and the new rock star of the op-ed page, Paul Krugman. I think they get in each other' head. Today, Stiglitz, parroting Krugman proclaims that nationalization of banks would be preferable to Our Hero's plan because the FDIC has taken control of failing banks before. "It has even nationalized large institutions like Continental Illinois...and Washington Mutual." Memo to Messrs. Stiglitz and Krugman: you haven't a clue. The FDIC has NO BOD EE to handle anything like the institutions in question. Dirty little secret: when the FDIC wants to get into a bank THEY HIRE AN OUTSIDE FIRM TO DO IT FOR THEM. THEY OUTSOURCE THEIR WORK JUST LIKE THE MILITARY WITH BLACKWATER. Got it guys? Con Ill and WaMu were a walk in the park...especially Con Ill. Con Ill failed because, limited by Illinois banking laws they were highly dependent on short term funding and failed when they lost their liquidity as a result of correspondent banks (many Japanese) pulling their lines. Lost liquidity. Now where have we heard that before? Restore the liquidity, allow some time and bingo, a new bank!

Aside from his preferred solution, Prof Stiglitz is not a bad read in as much it points out quite clearly that one of the terrible features of Our Hero's plan is that if it doesn't work the taxpayer foots almost all the bill. Then again, in for a Penny in for a Pound is what I say. Then again, there are a lot of Pounds...

The Journal has an extremely interesting take on the evolving tale. As I understand the plan in its present form, the Treasury is proposing to assist in the creation of a pool of "toxic assets" selected by participating institutions to be made available for sale by way of auction to selected "fund managers" chosen by Treasury under a set of guidelines proposed by Treasury. These guidelines go to the size and experience of the managers based on the amount of similar assets in their portfolios. From the get-go this is certain to severely limit the number of firms who could qualify as managers. Treasury, in what it refers to as a "partnership" with the managers would share in an equal amount of "equity" with the managers and make available debt geared to approximately 7x the equity to the managers to enable them to purchase the assets from the banks. This debt would be of a non-recourse basis: i.e. the Treasury--you Mr. & Mrs. taxpayer--will get it repaid ONLY from the assets purchased; the manager is not on the hook in any way save for its equity contribution. It appears that Our Hero has read somewhere that Wall Street is governed by fear and greed and this structure is designed in his mind to appeal to the greed part. Big pay-off if things go right for little risk. He is probably correct. From the standpoint of the participating institutions, if all this works they get this bad stuff off their books, are able to recapitalize and head off into the sunlight ready to make available massive amounts of new credit which will reinvigorate the economy, which will...well, you get the idea. A triumph of the market.

Of course, there is always some smart-ass that starts asking questions. If the object is to create a market for these thing as Treasury so states, why restrict the pool of potential purchasers to a hand-picked few, asks the WSJ? Wouldn't one wish to have as many potential purchasers as possible out there to obtain as much competition as possible on the bid side? I fair question I think. Oh, isn't this Washington and doesn't politics rule Washington and if so wouldn't politics play a (big) role in the choice of a limited number of managers--or to put it another was, it's the transparency thing. If you answered that question in the negative, stop reading. You're hopeless. Another thing also comes to mind: How are these assets to be priced and who gets involved? One assumes that we are in the midst of the famous stress test after which the Treasury and the Fed will know precisely what these institutions have and the value of the same (the Fed is added because you always need some poor slob to blame if things go wrong). And to add to the list of sure things, the Cubs will win the World Series.

You see, the institutions have already had their brains beaten in by being forced to mark these assets down with the resulting loss in capital. Having taken the medicine, if there is a chance that they might recoup some of those losses as the assets mature and pay off they are going to be loath to surrender the upside. Consequently, their offer price might result in a considerable spread from the managers' bid...remember, these guys are not the Little Sisters of the Poor. What happens? Well, in a real market, one side would say, "Nothing done," and move on. But is there a real market? I think not. What troubles me and I am sure more than a few of the participating banks is that this will be a government mandated and managed transaction. To work, there must be a bid and I can easily see The Leader with his crack team beside him announcing to the American People, "It is not our intention to run the banks, but bold new steps must be taken and in that spirit, Messrs Jones, Smith and Brown have resigned as CEOs and I have asked My Secretary of the Treasury..." There will be an offer that the managers can lift gang, bank on it. More on this tomorrow and oh, hey, isn't this G20 thing a kick!