Monday, February 23, 2009

Self Fulfilling Prophecy

The Treasury, Government, and Barack Obama's own words have not quelled what the market feels is unavoidable, that is why rally attempts fail. Why have not the investment community listened to all of the talking heads on TV? Why don't they believe the Analysts who tell them that nationalization is not going to happen? Why are they not listening to the Bank Executives? Why is the market totally discounting what even the President is shouting at the top of his lungs? WHY?

Because the market is looking past the basic business models the banks have currently, and purely looking at the mathematical side of the equation. Most of the large banks just cant survive in their current state for the millions of reasons I have laid out in previous posts. The losses are incalculable, the equity is just not there on their books to cover for them. The banks refuse to mark down their Toxic Assets. They have far more other pressing problems stemming from a 30 year Credit Bubble, and they hide behind the fact that they have deposits to protect.

The collapse of many financials stock prices make it more difficult for banks to run their day to day activities. This has contributed to the loss of confidence. Its quite sad to keep hearing BOFA say that their business is great. We know the business is great. Banks have a great business model. They borrow short then lend long. They borrow money at nearly zero % then lend to us at 5-6-7%. Who cant make money in that environment? What the problem is, if they would have just stuck to that idea, they would not be in the mess they are in currently. The only ones who think BOFA is a buy here is the Corporate Communications Department at BOFA. Obviously they have not spoken to their largest shareholders who keep dumping.

Citigroup is in advanced talks with the Government in regards to an infusion of cash that would bring the Treasury's stake to 40%. Isn't this already nationalization?

Semantics!

Let me just say that I am not in favor of nationalization. Quite the contrary...This would be devastating not only to the Banking System, but would handcuff the U.S. Tax Payer for years, but this is the only real option on the table. All other attempts to stabilize the Banking System have failed miserably. How much more money, patience, and most importantly time have we wasted on these trivial proposals? They keep wasting time, and market is breaking technical barriers every day.

The market has already made up its mind on what the best course of action is, why has not the government?

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