Tuesday, April 21, 2009

Geithner's Quandary

Treasury Secretary Timothy Geithner has managed to create the most ridiculous quagmire of uncertainty that we have ever seen. None of this should really be a surprise however, given that he was exposed as a tax cheat and accused our largest creditor of manipulating its currency-all prior to his confirmation by the Senate. The main issue facing Mr. Geithner at present however, is how to prevent the complete stratification of the United States Banking System into a midieval caste system, where a well-capitalized nobility siphons increasingly greater resources from an insolvent peasantry.

To date, several smaller banks have returned their "bailout" money to the Treasury, thanking Mr. Geithner on the way out the door. Recently however, the calls have been growing louder from a select few of the Nation's largest financial institutions that they be allowed to prepay this onerous "loan". These initial requests have been met by Treasury with a certain amount of trepidation, as allowing the prepayments to occur would immediately create a de facto Bank Peasantry. The problem is, as time goes by, one can easily listen to the words of any given Bank Executive and discern, to some general degree, the overall health of that Bank. As the executives of the truly healthy insitutions continue to be angered by the useless interest payments that their Banks must remit to the Federal Government, their public statements have become definitive, proud, and bordering upon boastful. From the weak institutions however, silence is the Modus Operandi.

The question for Mr. Geithner then is "How do I stop this?". Unfortunately, this process can not be stopped. The Market has decided that, if Mr. Geithner's choice is inaction and lack of disclosure, it will discern for itself who are the fittest of the group. We are in the midst of a deleveraging process that can not be stopped by any amount of Government interference or balance sheet realignment. The question is rather how long the entire process will take, and how acutely the pain will be felt at any given moment in time. It appears that the Federal Government has chosen the path of a lost decade, albeit one without intense pain.
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