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Wednesday, September 24, 2008

Mark-to-Market? You 'em down pard.

We don't want no stink'in Zombies

Here is a mix of horse racing history and fundamental economics. In the old days when someone would give somebody a tout on a horse they would finish their discourse with "jot 'em down pard" meaning "write that horse down, bet it and cash." Well this is what mark-to-market compels financial institutions to do ... not to bet and cash but rather to tell the public what your assets are worth. Tell us, "jot 'em down pard." What is the matter with this? I dunno because a fundamental of economics is that something is worth what someone will give you for it. If that is zero, well, "jot 'em down pard." Better to face this reality now and fix it (are you listening Social Security and Medicare?) than to continue to play Candyland accounting where banks can make up numbers for assets values and float for years and years with crummy balance sheets (the bad assets don't go away just because the Mayor of Candyland says so). Financial markets will float in limbo, banks will slowly recover over a half a decade and more but yet never restore the vibrant credit market activity nor economic growth path that we all seek. This is what happened in Japan in their lost 16 years from 1989-2005 and has been labelled "the zombie bank" phenomenon. Just like the kids in the current Verizon commercial from "the dead zone." If that is what you want your bank officer to look like in the future, so you can see the end of eternity in the back of his eye balls, go ahead and play a-tiskit-a-tasket with asset valuation. If not, then "jot 'em down pard."

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