Friday, April 10, 2009

Half of US Banks Bust?

Count Andy Beal among those skeptical about Geithner's PPIP. According to Beal
He says Treasury Secretary Timothy Geithner's new plan to guarantee loans to buyers of toxic assets won't lead to many sales because the problem isn't liquidity but price. They are not low enough. Half the country's banks--4,000 in all--would be bust, he says, if they marked their loans to what the loans would fetch in an auction. He says banks are fooling themselves by refusing to mark busted assets down.

"Banks are on a prayer mission that somehow prices will come back and they won't have to face reality," Beal says. And that reality, according to Beal, is going to get a lot worse. "Unemployment is going over 10%, commercial real estate hasn't even begun collapsing and corporate credit defaults are just getting started," he says. His prediction: depression, without bread lines this time, thanks to the government safety net, but with equal cost to society.
Whose judgment do you trust on whether this is a crisis of solvency or liquidity: a banker who noticed all the bad loans being made as this crisis developed, or a regulator who failed to diagnose the problem?

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