Tuesday, September 23, 2008

Bernanke's magical price-fixing solution

Central Planning chairman Ben Bernanke has discovered an efficient new way to set prices in the securities market: by government edict.

Quote from, "Avoiding fire sale price is key to Paulson plan: Bernanke":

"Federal Reserve Board chairman Ben Bernanke said that criticism of the $700 billion plan proposed by Treasury Secretary Henry Paulson overlooked a key ingredient: it is designed to avoid forcing banks to sell or value their mortgage assets at a "fire-sale" price.

In a harsher tone than he has ever used in testimony, Bernanke spelled out the benefits that would accrue when the government can buy these mortgage assets at close to "hold to maturity" prices instead of the fire-sale price. Banks would have a basis for valuing the assets and won't have to use fire-sale prices and their capital won't be unreasonably marked down, he said."

No, we get it, Ben. The point you think we've "overlooked", this plan's attempt to insulate banks from the reality of market prices, is in fact, what we've focused so intently on.

Why? Because the market is supposed to set prices, even if you and your banker friends don't happen to like the bid currently offered for those supposedly wonderful mortgage-backed assets.

Sorry to have to tell you this, but sometimes your assets are not worth as much as you might hope. I know it's hard to imagine, but that's how it works.

The banks already have "a basis for valuing the assets". It's called market price. Jerk.