Economy On Clock As Geithner Fumbles
It appears investors are fairly under whelmed by the new plan to bailout banks. And one of Geithner’s most outspoken critics is Fast Money friend Joe LaVorgna, chief US economist Deutsche Bank.
As we told you yesterday, investors had hoped Treasury Secretary Geithher would provide specifics about how the Treasury planned to mop up bad bank assets and revive consumer lending.
But instead investors listened to the plan and found themselves frustrated. "It's not big enough. There were few details," says LaVorgna.
What was missing?
There were few details on a proposed stress test that banks must pass before receiving any more aid. There was also no talk of doing away with mark-to-market accounting, something the Street was very much hoping to hear.
But, perhaps the thing the market disliked most of all -- was a proposal to set up a public-private investment fund, in partnership with the FDIC and the Federal Reserve. Investors agree that the move is designed to entice hedge funds to buy toxic assets – but little else is known.
In other words it’s still not clear how the government will value toxic assets or how they will get them off the balance sheet.
"Investors want clarity, simplicity, and resolution. This plan is seen as convoluted, obfuscating, and clouded," says James Ellman, President of Seacliff Capital in San Francisco.
And according to LaVorgna time is of the essence. “The issue comes back to banks being capital constrained,” he says. “It’s very difficult for banks trading in the single digits to raise capital. And if the economy is as weak as I think it is, it’s going to be hard for those banks to get by.”
What’s the bottom line? The longer we wait the worse the problems get. I’d rather just see us bite the bullet and nationalize the banks, says LaVorgna.
And if you’re looking for a trade, LaVorgna recommends caution. I’d be very defensive because I think bankruptcies will pick up.
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