Influx

While a surging Dow gives us the impression that all is well and things are slowly returning to normality, but a more sober reality lurks under the surface.

“A decade ago, during Japan’s banking crisis, officials eventually
managed to halt their woes by summoning senior bankers into a single
(smoke-filled) room and imposing a common system to measure the rot.

It
took them several attempts before they arrived at a credible number
(and it was dramatically bigger than the first guess). But once they
finally came up with a big sum, they recapitalised the banks – and
rebuilt investor faith.

However, the problem that now haunts
western leaders is that it looks extremely hard to replicate the same
smoke-filled room trick. After all, this is a global crisis involving
banks in numerous different legal and accounting regimes that answer to
different bosses.

Moreover, the bad loan total is a moving
target: as confidence crumbles in the banks, the economy is weakening –
creating more bad loans. Even if global leaders could organise a single
“count”, in other words, it would almost
certainly be out of date by
the time it was completed.”

Gillian Tett- Financial Times- April 1st, 2009

It appears the administration has started to win the communication war and achieved the goal of improving confidence. However, dealing with the reality of toxic assets might turn out to be tougher than anyone imagined. 

Posted by Ed Cotton