Banks don’t want to sell toxic assets because the price offered would have left them swimming without their pants on
No sooner had Tim Geithner announced the results of his rubber-band Stress Tests on the top 19 US banks – that they had all passed except six – than the FDIC had to postpone Geithner’s P-PIP, his Public-Private Investment Plan, designed to buy toxic assets out of the banks, because, well, you see the banks wouldn’t sell their toxic assets to the P-PIPs.
Why on earth not? They need the money, don’t they? Errr, yes and no: yes, they’d love the money, just as much as a pub that’s run out of beer listens out for the drayman; but, no, they don’t want to sell because the price offered by the private people in the P-PIPs, that’s the realists, would have left them swimming without their pants on.
The losses that they would have had to take on these proposed sales would have meant that, you’ve guessed it, they wouldn’t pass the Geithner Stress Tests. So they decided to go on swimming in the hope that no one would notice that they had lost their pants already, it’s just that Geithner hadn’t realised that the elastic in their waist-bands had already gone ping.
Nor incidentally, had the great Warren Buffett, an advisor to this Administration. No sooner had he declared at Berkshire Hathaway’s AGM in Omaha that his investee bank, Wells Fargo, was safe and sound and doing just great and didn’t need any more capital, than whoops! – it didn’t pass Tim’s Stress Test.
The sight of Warren Buffett scrambling back onto the beach hitching his pants back up over his arse was not a sight we thought we would ever see on a family-designated recreation area.
Whereas Geithner at least struggles to save the American taxpayer from a Gordon Brown-style Put Option on the UK taxpayer, good old Gordon keeps on selling the pass and has now agreed to insure the UK’s banks from their self-inflected wounds, which means the UK banks can carry on pretending that they are wonderful and have no problems, other than the fact that they have no cash to lend their customers.
Whereas Geithner was trying to offer cash but the banks would have had to write off capital, Brown has saved their capital but provided no cash. As with all things concerning the man named after the colour brown though, the bill as usual is in the post.
The banks on both sides of the Atlantic are still up to their necks in the brown stuff all right, and there’s another load or two or three coming down the pike at them: commercial property loans, buy-out loans, mortgage defaults, credit card losses, auto loans, you name it.
And while we’re on auto loans, Tim’s rubber band did go ping when he took a look at GMAC: what’s the value of a bank whose collateral consists entirely of bankrupt stock? Take your Chevvie to the levy, but the warranty’s run dry. And don’t forget: ‘Things in your rear-view mirror may be closer than you think’, so better step on the gas and, like the Sheikh of Araby, get out of bank stocks.
So another bad week for Tim-Nice-But-Dim ended at Peking University. When he told an invited audience that their US dollar investments were safe and sound, the inscrutable ones just laughed their socks off, spontaneously! Now, no one has ever achieved that before.