Secret Memo Uncovered

WTF? NEWS

Published Irregularly Weather or Not We Feel Like ItAny Damned Time We Please

Important Dislaimer: In case any reader doesn't quite get it, this is parody protected under the first amendment of the Constitution of United Statements of America. If you don't like the law then feel free to go try and change it. If you are interested in further information on freedom of the press we suggest you start with John Milton's masterful essay "Areopagitica" (1644) http://www.uoregon.edu/~rbear/areopagitica.htm

Breaking Story:  Exasperated Stickman Loses Cool;  Tells Geitner in V-Memo "Just Write Down What I Tell You  and Say It.  I Can't Stand Watching This  Anymore"

Howard Beale Is Alive and Well

WTF? News has received from an anonymous source the remnants of  highly confidential  encrypted voice memo from  Double Secret Financial Operative Agent Stickman to Secretary Geitner.  The recording  was retrieved from a  zip drive left taped under the Secretary's favorite table  at an undisclosed D.C. IHOP restaurant.  The zip drive was intended to self-destruct Mission Impossible-style within 10 seconds of playback.  Geitner apparently left the zip drive unplayed under the table inadvertently.  Here is  a carefully reconstructed transcription of the  voice memo; the anonymous source known only as "Deep Pocket"  is recovering from second degree facial burns as the  the zip drive triggered a heating mechanism planted in a bottle of maple syrup  that exploded after the source listened to the memo on his laptop. The IHOP was evacuated without incident.

To:  DOT Secretary Geitner

From: Agent Stickman

Re:  Bailout

Tim,  I really am getting quite [inaudible-  frustrated?] in my inability to get through to you that you are starting to make former DOT Secetary Paulson look formidable. Going forward please just write down what I say very carfully and just say it.  Your credibility is sinking faster than the Titanic; Leo DeCaprio's death scene brings young girls to tears, unfortunately your performance only  brings tears to the world central bankers. Here's the drill:

(1)My God!  Don't give the entire banking system a  stress test unless you are fully prepared to find out that all of the patients are already dead which would not be a good thing for the market to hear right now even if its true.  If you listen to Nouriel Roubini who has been batting a thousand you are a good $2.5 trillion short  on top of the $8 trillion you and Hank seem to have thrown around during the prior administration.  That adds up to a (inaudible:  boatload?]  of mullah which if the Chinese balk we are toast.

(2) Change the message framing:  "Our primary  messaging strategy should  be as follows:

 "We intend to eliminate the information discount that has been embedded in asset prices due  to  a lack of information and a complete lack of market-based  liquidity.  We are currently unable to reconstruct cash flow models that underlie the so-called 'toxic securities' " but we will institute formally the guidance for alternative valuation methodologies already recommended by the SEC, FASB and the Federal Reserve for valuing hard to value assets in a non-existent market. Any party (auditors, repo lenders, new management) forcing a writedown based on mark to market will be subject to personal civil and criminal penalties (kind of like Sarbanes Oxley).  It's not that complicated. We don't have the information  so we can't price the assets. Doesn't mean they're good or they're bad.  We just don't know.  It is what it is. 

(3) Most importantly you  formally declare that the "market is dysfunctional therefore mark to market (FAS 157) is completely inappropriate."  You instruct all market participants to follow the new rules for cash flow vaulations. Like nature abhors a vaccuum, markets abhor uncertainty.  They like rules even if they are stupid at  least they can be evaluated and be adhered to .  We then change the rules when we have enough information and actually know what we are talking about.

There will be a s---storm about Fas 157 but that will last baout 20 minutes.  The market place has already barfed all over Tarp 1 , Tarp 2, Bank Recapitalization etc. ad nauseum.  Rather than buying assets under the TARP crapola or trying to bring in private investors who will charge us an arm and a leg  (why pay Blackstone, Blackrock, Cerberus et al returns in the mid to hi thirties  that are  only being artificially  by offerring  non-recourse below market rate financing of up to 75%). Better to do nothing and say nothing until we have the information when we can  make an informed decision  as to the best course of action. It's a whole lot better than saying something and then having to admit you are wrong or didn't know what you were talking about for the umpteenth time.  In the meanwhile we insist that all federally insured financial institutions  extend maturities on all performing loans on a rolling 90 day basis provided borrowers are making scheduled payments (other than principal payments at maturity which will be extended).  These loans should be extend on the same tems, conditions and pricing.  This buys us 90 days to get some information and if we need to do this again we revisit in 90 days.

(4) Here's the zinger

[transciption ends]