Friday, January 30, 2009

Julian Robertson for the Bad Bank Plan

Hedge fund legend Julian Robertson, chairman of Tiger Management, and David Roche, of Independent Strategy, discuss the best ways to fix the banking mess on CNBC. Finally some smart people on Wall Street. Obama and his administration along with other government officials need to quit discussing the plans and get on with them. The only way to solve this problem is to get the toxic assets off the balance sheet at market prices. In theory, as the market opens up the prices would move towards a more real level then the current overly depressed levels. Other buyers would join in with the government. These banks wouldn't be forced to sell, but it would give them a way to clear these assets from their balance sheets so that they could move forward.

The main confusion I have is on the mark to market issue. Its very unclear in my mind what banks have marked down and how hard they would get hit if they sold at these levels. In general though, the plan will have issues if banks are forced to sell at prices lower then the economics generated by the toxic loans. Would you sell your house for less then the rent it generates just because you found one party willing to buy it? If the government really wanted to solve this crisis, they'd just go ahead and pay up and get this over with. In general though, Robertson and Roche are correct that this is the only way. Obama get it done already!

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