It’s a Stumper, All Right

From the Times coverage of the ongoing nationalization of Citibank:

Treasury officials, meanwhile, suggested using Citigroup as a test case for a public-private investment fund that would purchase troubled assets from banks. But neither policy makers nor Citigroup executives could settle on various issues, including how to value those illiquid securities — a thorny question that has perplexed both Washington and Wall Street from the start.

Too bad there’s  not some sort of, oh I don’t know, market or something where buyers and sellers of securities could get together to determine their value.

Really, this whole notion of “illiquid” securities is such horseshit. The only reason they’re “illiquid” is because the owners of the securities can’t bear to face what they’re really worth. Somebody would pay something for all those “toxic assets” today. Heck, I’ve got $20 in my back pocket that I’ll hand over right now for Citi’s entire portfolio of CDOs. Maybe someone else will pay $25 or even $30.

Oh, that’s a lot less than what Citi wants the securities to be worth? Too bad. The problem is not that the securities are illiquid, or can’t be properly valued. The problem is that assigning the true market value to those assets makes Citigroup — and a lot of other financial institutions — insolvent. Something that’s been obvious for some time.

4 comments for “It’s a Stumper, All Right

  1. March 2, 2009 at 12:53 am

    Regarding the argument about timing, the whole point of reserve requirements for banks is to ensure that, even under the bogus fractional-reserve system, they can meet their obligations to at least some depositors. Those securities should only count as reserves to the extent that they can be immediately converted into cash.

  2. drewo
    March 1, 2009 at 4:39 pm

    Hey, as long as it keeps me employed a few more weeks. Right now, 36% of me works for the government. That 36% is the lazy part of me.

    drew@citi.com

  3. LPiberty
    March 1, 2009 at 2:10 pm

    Right on.
    “The problem is that assigning the true market value to those assets makes Citigroup — and a lot of other financial institutions — insolvent.”

    What do you make of the argument about timing?

    How is the Beanie Babies market these days?

  4. February 28, 2009 at 9:31 pm

    Well put, Jim.

Comments are closed.