It's Getting Better

The opinion that toxic assets must come off bank balance sheets is becoming more popular (remember you heard it hear first). G20 Officials agreed that steps must be taken to rid banks of their toxic assets.Canadian Finance Minister told Bloomberg News that until banks are cleansed and resume lending, other stimuli, such as lowering interest rates and cutting taxes will have little effect.

Finance officials from around the globe are beginning to realize that many bank assets are permanently impaired. Changing mark-to-market would be like putting a band aid on a bullet wound (and would also encourage bad behavior by making it easier to take risk). They also realize that investors will not board the cruise ship that is the banking system until the hulls are repaired. Pumps are not enough.


This does not mean that losses are behind the banks. I have stated many times that some banks have not marked many of their assets to market. The belief that banks have marked all their assets to "market" and will benefit when the are able or permitted to mark their assets up either do not understand nature of the toxic asset situation or have agendas.

I am not pulling the opinion that banks have not marked the majority of their assets to market. Bloomberg News' David Reilly reports: "Of the $8.46 trillion in assets held by the 12 largest banks in the KBW Bank Index, only 29 percent is marked to market prices, according to my analysis of company data."

Mr. Reilly continues: "Altering mark-to-market rules wouldn't staunch that flow of red ink. Worse, it would make investors even more distrustful of bank balance sheets."

Mr. Reilly also notes that banks are blaming mark-to-market to deflect attention from the real problem. reckless lending. Bond holders of large bank debt should be alright. Equity holders will probably take it on the chin as the losses are realized.