Well, well. Our Incredibly Shrinking Secretary of the Treasury has been posted off to far distant lands to organize a "future fix" for what we are now experiencing. One might remember the last time Our Tim was given such a task--to fix the Asian crisis--by his then boss, The Greatest Secretary of the Treasury Since Alexander Hamilton, he managed to mis-diagnosis the disease, confuse the treatment, nearly wreck what reputation the IMF still had and...oh well that's ancient history. To the task at hand.
Yesterday, Warren Buffet whilst dismissing four major initiatives of the Obama administration and at the same time reaffirming his support for the President ("I support the troops, not the war..."), Entered into the mark to market debate in a generally unreported moment. Mr. Buffet, who has VERY substantial interests in a number of financial institutions, noted that in his opinion the regulatory effect that mark to market has in the present circumstances is, "Not helpful." Mr. Buffet was careful in not dismissing the concept but only the effect.
I've never quite understood the notion that something is a really great idea except for the fact that bad things happen. Sort of like, "it's a great drug, it just kills people," eh? But given Mr. Buffet's greatly deserved reputation, I'm sure there will be some traction here.
The other major news event of yesterday was Mr. Pandit's announcement that CITI Group is quite profitable on an operating basis causing the stock market to have a banner day led upward by the financials. Given the shape of the yield curve why anyone should have been surprised that with a positive carry of over 600 basis points it might be possible to make money as a bank is perhaps the more surprising news, but the exploration of Genius of the Street is another story. "Gee," said the talking heads this morning, "if we can only get a handle on the toxic assets..."The "Heads" continue to associate the toxic assets with capital adequacy, but as I posited in yesterday's post, this is false issue.
If the results indicated by CITI are at all reflective of the industry, and I believe that they are, we have a far different situation than most people realize. Instead of an industry flat on it's back, unable to function and incapable of making a profit, what we may well have is an industry that has received a hell of a body blow but exhibits many of the signs of having absorbed that blow and rising up to once again do battle. Like individual boxers, not all will survive, but many will and as we have already discussed, others will not be allowed to stay down. ..they are too important to the game. What all need is time IF...and this is a big IF...one believes in the viability of the individual institutions in the manner as CITI apparently demonstrated yesterday. Therefore, the most important element going forward is, AS WE HAVE DONE IN THE PAST ON MULTIPLE OCCASIONS IN LIKE SITUATIONS BOTH HERE AND INTERNATIONALLY, create the environment through which the financial institutions are afforded the time to work and earn their way out of the problems they face. First and foremost is the need to curtail this constant Sword of Damocles in the nature of the constant concern over capital adequacy, this constantly moving target which every three months destroys the very real gains that appear to be accruing to the industry as a result of the brutal restructuring that it has undergone. IN ADDITION, THERE MUST BE A CONCERTED EFFORT TO INSURE THAT SUCH EVENTS AS WITNESSED OVER THE PAST YEAR DO NOT OCCUR AGAIN otherwise all will be for naught. If Sec. Geithner can make progress towards this goal, good on him. I suspect, however, that the timing is very wrong for such an initiative and he would be far better served in attempting to set straight our situation first. I plan on providing him with a few suggestions in the coming days. Advice would be welcome.
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