HIDDEN VALUE

Dear Value Seeker,

As I sit down today, President-elect Obama is making his way to Capitol Hill. (He’ll be President Obama by the time you read this.)

Obama campaigned on a message of change. His inauguration speech today in expected to focus on hope.

Unfortunately, hopes for banks are fading fast.

“Financial stocks clobbered,” reads a MarketWatch headline today.

Chaos in Britain’s financial system, along with more weak earnings from regional banks, dragged financial markets lower again today.

Neel Kashkari, who is running the Treasury’s TARP program, has written to 20 banks in receipt of handouts demanding monthly reports on business and consumer loans. Kashkari wants an “insight” into how the banks are spending taxpayers’ money.

What a good idea! Shame we had to throw $350 billion down the toilet before he thought of it…

Not that it

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For Europe, this is more than just a banking crisis. Unlike in the US, it could develop into a monetary regime crisis. A systemic banking crisis is one of those few conceivable shocks with the potential to destroy Europe's monetary union.

Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system. Such recapitalization - via the use of public resources - can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks' balance sheet; government injection of cash; government credit lines extended to the banks; government ...