Michael Shulman

Geithner's Plan Fits Perfectly with New Mark to Market

The net impact of Geithner plus a new MtoM accounting standard will be increased, and, for some banks, unwanted transparency. Banks will have to distinguish what is written down due to impairment and what is being held due to illiquidity. Once the auctions begin, banks unwilling to participate and keeping assets in the illiquid category will be seen as having marks too high -- and privtae investors will react accordingly. The banks that take the hit, either mark their assets down to where they belong and/or sell them at auction will be the first in line to receive private capital. I am no fan of Geithner's plan but in combination with the new MtoM rules, and stress testing, banks will begin to fall into various categories of "investor worthiness" -- private investor, that is.