Good For The Gander, Not The Goose

Today is day of celebration in the market as investors take comfort in the government's latest Plan. It should be a day of outrage toward government bureaucrats and politicians that have now blessed the very actions that they demonized over the past two years and crippled the world's financial industry.

Bank earnings, capital ratios, and stability have been destroyed by mindless adherence to Mark-To-Market accounting. Despite the pleas that there was not a functioning marketplace and that the cashflow value of the securities, when held to maturity, was greater than their distress value, regulators turned a deaf ear.

Now with the financial industry in disarray, the government is performing a rescue. They are rescuing an industry that would not need rescuing had there been leniency early on. Banks asked for permission to mark illiquid assets at a value determined by likely cashflows since they would hold till maturity or until prices recovered. What is the government's plan? Buy the securities and hold till maturity or until prices rebound! The government doesn't mark-to-market because they set the rules. Banks had to reduce leverage and maintain capital ratios throughout this debacle. The Feds have embraced leverage that would make a hedge fund manager quake in his boots, but that's OK. Capital ratios also are of no importance since they are the saviors from our government.

Some serious thought and forbearance from regulators could have allowed the banks to accomplish the same thing that the Geithner Plan is attempting, but two years ago with much less pain and anguish. A half a decade ago Wall Street bankers ran into trouble and ample embarrassment when they peddled securities by "putting some lipstick on that pig." Now our government has dressed up our gander in top hat and tails two years late. It's not time to celebrate, it's time for outrage.