Saturday, March 14, 2009

Waiting for Godot, I mean Geithner

Every time Tim Geithner, the Treasury Secretary, speaks, he has a consistent message. The plan to fix the financial crisis will be "announced soon, in the next couple weeks." His actions remind of the play Waiting for Godot, by Samuel Beckett, in which the character Godot never shows.

Hopefully, Mr. Geithner is now better advised than his last press conference on February 10, 2009. In that session, he underwhelmed the world, which led the Dow to decline 381.99 in one day.

Here's what I hope Secretary Geithner says, when he does show up:

  • The problem is confidence which is directly correlated with current value of toxic assets held by financial companies.

  • The government going to enable better valuing of toxic assets by:
    1. Helping people avoid mortgage defaults.
    2. Pricing toxic assets based on expected cash flow.
    3. Creating a market where mortgage backed securities can be traded.
    After all, about 90% of people are still current on their mortgage payments. To me, that means that mortgage backed securities should be priced at 90% of normal value, on average. However, currently, these securities are at 20% of normal value, which prices in a significantly higher level of defaults. By taking the steps above, I believe the government can create more realistic pricing which would stabilize the financial system and bring confidence back to the economy.

    Until then, I continue to be Waiting for Geithner.

    For more on Reflections and Musings , check back every Saturday for a new segment.

    This is not financial or economic policy advice. Please consult a professional advisor.

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