We’re in another downward spiral. The TED spread, which measures the difference between three-month Treasurys and the three-month Libor rate is back over 200 basis points and U.S. bank stock indeces are plummetted. The KBW Bank Index is off 7.85% to 37.43 at 10:19 a.m. ET.
This is all following last week’s decision by Sec. Henry Paulson to ditch asset purchasing as part of TARP. Investors had been expecting the Treasury to take toxic assets off bank balance sheets. That’s not happening anymore.
Now there are even some market observers wondering if the Fed could become insolvent.
What is striking to me is the distinct lack of appreciation for the proper value of assets today. When you look at certain asset classes, you see that their intrinsic value is in no way being reflected by their current price. Good is getting dumped with the bad. Low prices are being buckshot across all markets. The old adage of keeping your head and investing with prudence is just being ignored today.
This is a bad scene. It means when you approach an investor with a sound idea and a sound business plan, he looks at it and says, “so when will this go bankrupt.” Someone commented on Calculated Risk that people need to “eat, need electricity, and have to drive to work or the unemployment office,” so his investment strategy will stick to that axiom. There are a lot of things people “need to do.” I just hope investors can realize all of them — and do so quickly before the TED spread spikes above 400 again.
Quote from the Washington Post:
“Paulson also said last week that he would not be using any of the bailout money to buy up troubled assets from the books of banks, so hope has dissipated that the market for complex mortgage securities will start functioning soon. Investors had hoped that government purchases would jump-start that market by establishing new prices that could open the door for the return of regular buying and selling.”
So why did they call it TARP, I wonder?
And now Paulson is going to leave the rest of the money for the new administration? In the meantime, CitiGroup, owned primarily by a rich Saudi prince, has lost most of its stock value and the financial system is in relapse. The Bush administration lobbed in another 140 billion for financial institutions, under the radar, based on an arbitrary change in accounting for “loss carry forwards.”
Let’s hope Obama names a Treasury Secretary soon! And let’s hope the name brings back some market confidence!