An Interesting Perspective on the Big Sh%$Pile

The New York Times has an article on how difficult it would be value the bad financial instruments that banks are holding, and they relate the story of a bond:

But getting this right will not be easy. The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.

The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.

(emphasis mine)

Let me make an observation here, if the financial institute thinks that this is worth 97¢, and S&P thinks that it is worth 87¢, then this is a top tranch of bonds. It's the best of the best, and it most recently traded at a 62% loss.

The banks are completely insolvent, and paying them off is much more expensive than declaring them insolvent, stripping out these assets, and then holding them like the Swedes did.

What's more, if we go with Timothy "Eddie Haskell" Geithner's "Bad Bank", the same people will remain in charge, and because they were bailed out, they, and their successors will leaarn nothing, and so we will seem the same errors, over, and over, and over again.

Seize the banks as insolvent. Break them up into tiny pieces which are small enough to fail, and fire the upper management and stiff the shareholders.

Either that, or we can, as Ripley said in Aliens, "We take off and nuke the entire site from orbit. It's the only way to be sure," as