The market fell hard yesterday, supposedly because details from Treasury Secretary Geithner about the next bank rescue plan were sketchy. In a more rational world, the market would plunge because of the details rather than the lack of them. After all, what could be scarier or more depressing to investors than word that The Government is about to blow another trillion or two in yet another futile attempt to jump-start the banking system? We don’t envy them the task of convincing investors in the U.S. and abroad that the green-and-white confetti held in the vaults of U.S. banks and the Federal Reserve is actually worth something.

This is notwithstanding reassurances from Helicopter Ben that 95% of the Fed’s nearly $2 trillion balance sheet is “gold-plated secure.” You can’t make stuff like that up – he actually said “gold-plated secure.” We don’t blame the guy for sounding like a dolt every time he opens his mouth -- it is his job, after all, to pretend that the central bank is in control of the situation even though everyone senses strongly otherwise. Under the circumstances, how could he not look like a fool?  But perhaps Bernanke was just being sly and meant “gold-plated” literally? Which is to say, the alleged assets on the Fed’s balance sheet are about as “golden” as a flea-market necklace.

Unclogging the System

If Bernanke’s latest attempt at spin control laid an egg, there were at least a few brave souls on Wall Street who seem capable of facing up to the problem. “We still have no way to value the assets” clogging up banks’ balance sheets, said Richard Peterson, director of risk strategies at Standard & Poor’s in New York.  No argument on that one.  However, what Peterson neglected to say was that a market for distressed assets cannot develop as long as The Government continues to intrude with an endless succession of shoot-from-the-hip rescue packages. Why not simply cut to the chase and announce what everyone already knows – i.e., that the banks have effectively been nationalized? We don’t want to be holding any dollar assets on that day, but it would at least clear the air. It might also bring President Obama a crucial step closer to breaking ranks with the feather merchants who are still running the banking system. If he is half the populist we think he is, he has the potential to put the country on the right track once his $820 billion stimulus has failed and he has learned from it.

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Rick's Picks publishes a daily trading newsletter for gold, stock, commodity, and mini-index traders 240 times per year. Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Wednesday, 11 February 2009 | Digg This Article