Geithner spooks Wall Street

Yesterday’s event reminded me of the days I had terrible grades at school and did everything in my power to hide them from my parents. No one wants to stare at bad news, let alone accept them when they start becoming a reality. In his public statements, Timothy Geithner failed to please Wall Street and the major indices took it in the chin in a big way (almost 5% loss for the day!) The big reason for that is that we haven’t seen the end of the financial crisis and most importantly, Wall Street doesn’t want us to see it. What Geithner did yesterday was to “prepare the patient.” I have said earlier that major banks are facing trillions of dollars in losses due to the ever-eroding real estate market, and when the US Treasury begins x-raying what goes into their financial statements they’ll find that these are no longer solvent. This is in part why Geithner’s plan is obscure enough so as to not spook folks like us, but before all is found out, said and done, the government will have to find $3 to $4 trillion to nationalize Citigroup, Bank of America and JP Morgan Chase, among the main “suspects.” Getting rid of these “toxic assets” before hand would be more elegant, but at which price? Should it be at 50% discount or as low as 10 cent to the dollar if we want some brave investors to stick their neck out and make some profit for their courage? The hole is so big that no one wants to come close to it, but if we want to get over the crisis, we’ll first need to accept that reality, like the alcoholic needs to recognize he has problem before treatment can begin.