[quote=arraya]In a very real sense confidence IS liquidity. The Fed has taken 2 trillion of questionable assets and has pledged to up to 8 trillion. There are 2 lawsuits against the Fed now to disclose the assets. One from Bloomberg and one from, interestingly, Fox news. The Fed is stating that disclosure would cause lack of confidence. Actually they are citing a trade secret statute in their reason for not disclosing. Like it is the formula for Coke or something.
Ironically, the only thing that will bring back confidence is transparency which they refuse to give. You have to ask yourself WHY are Bloomberg and Fox are so nervous about those assets? Until everything is thrown on the table and all losing bets are accounted for it’s a losing game and no confidence will return to the credit market, IMO
The structured finance market is dead and they are gambling with our money that it will come back when it is obvious it will not. What percentage of GDP was that? Those assets are losing value daily and foreign investors know this.
Adhering to an economy that relies on bubbles, over consumption and failed structured finance to survive wont and will only end in complete ruin. There is no plan b.
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I must admit that I’m conflicted on this issue. On the one hand I’m in favor of transparency – it’s tax dollars, ultimately, at risk, after all. But… I have friends that work in the MBS and structured finance markets, who understand the innards of lots of these securities and they can’t make heads or tails of the current prices. That is, the values based on cash flows under Armageddon scenarios are much higher than the quotes. But there’s zero long-term liquidity (that is, liquidity for anything more than a quick trade) out there and a lack of folks who understand these securities. So, the prices languish. And these friends are Original Bears. They saw the debacle coming and now they think we’re on the other side of mark-to-model. That is, the values 18 months ago were silly on the upside and now they’re just as silly on the downside. So, when you say that these assets are “losing value daily” do you mean they’re losing MARKET value or losing INTRINSIC value? There’s a rather large difference. My sources say the market values decline but the intrinsic values are well above the market values.
Anyhow, I don’t have a good answer for you. I want transparency but there are a lot of otherwise good assets and institutions out there that trade as if they are otherwise. The worm has turned and the Officialdom is in a pickle.
I can understand the desire to keep these things confidential. The Officialdom is trying to stave off a run on the whole financial system, which benefits no one. But whether they’re handling this aspect of the crisis properly will only be known in hindsight. I’m sympathetic to their plight… but I’d rather see the holdings, even if the values have to be explained away via footnotes.
