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The question that has been coming up again and again is why this has to be done by Friday, by early next week, why can't we take our time and do it right?
One answer Hank and Ben didn't volunteer was that the quarter ends on 9/30 and all of these mark to market values on MBS need to be pegged to the prices as of Tuesday. If as we have been told none of these things have been trading, and it is not possible to get reasonable quotes, what are they going to be marked to?
I suppose you could set the mark to market values by checking out the spreads on CDS. Maybe that wouldn't work real well because the things are thinly traded and widely used to hedge long bond positions. Nobody wants to sell any of the precious protection while the end of the financial system as we know it hangs in the balance.
It might have been simpler to have strangled the mark to market concept before it got out into GAAP and played its part in creating the crisis. That part of the system wasn't broke: there was no need to fix it. If Congress can't agree on a bailout I think the people at the Financial Accounting Standards Board should pull an all-nighter Monday night and change the rules back to what they were. Otherwise those who regulate banks and insurance companies are going to have to change their capital standards to work around the problem.
Even the talk and potential for action has been driving the ABX upward - a nice bailout plan, all signed, sealed and delivered would at least push it up long enough to get past Tuesday.
Another question that isn't getting answered is why this plan? Why not go back to the basics, fix the regulatory system and allow the market to correct itself over time?
There is one part of the regulatory system that doesn't need fixing because it doesn't exist. That would be the part where Credit Default Swaps are regulated, the selling of "naked swaps" is outlawed or severely reduced, where there is a central clearing house and transparecy about this 62 trillion dollar high stakes casino in the middle of the financial system.
Neither Paulson nor Bernanke dares to precipitate the great unwind that will end the CDS debacle. They are hoping to slowly ease the CDS market back to reality by exerting force on the underlying bonds, allowing all the players to unwind gradually without taking each other down in a massive counterparty crisis.
Have a nice day.
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