Silver Bullet

The President needs to shoot a silver bullet into this economy now!

Since the start of the current economic crisis, I've been yelling at the TV, the radio, my PC, and anyone within hearing range that the primary toxin has not been the "toxic assets" per se, but the device that turned them into that, namely "mark to market " write-downs that have been required by the S.E.C.


Despite all the capital and all the jawboning that the Feds have been laying on the Financial Market, nothing has worked because those methods haven't addressed the major root cause of the questionable assets toxicity....the requirement to mark any suspect asset down to it's current market value, which in today's market is zero, hence the violent cascade of most of the financial and insurance institutions asset valuations down to zero, and their subsequent collapse.


The NY Post's open letter to Pres. Bush to require Sec. Cox to end this regulatory insanity should quickly become a chant by all news media and citizens.

With the economy in free fall since the Lehman Brothers bankruptcy froze credit markets, Washington can't afford a long post-Thanksgiving nap.

President Bush needs to tackle more problems before he rides out of town, and one of the most urgent issues - breaking the downward equity spiral hammering financial companies - can be fixed without putting another penny of taxpayer funds at risk.

The president should immediately instruct SEC Commissioner Chris Cox to challenge the applicability of CDS pricing and other volatile mark-to-market methodologies for rating agencies and capital regulators.

Pension funding uses a smoothing process so that crashing markets don't trap companies in irrational responses. In contrast, the regulatory-capital process is forcing financial companies to sell equity into a falling market, a recipe for volatility and overshoot.

Bond-rating agencies are using the mark-to-market writedowns, questionable CDS prices and lower stock prices as a negative signal on a company's creditworthiness. The result is a self-fulfilling equity spiral pushing companies into bankruptcy, as artificial CDS prices trigger capital calls and bond-rating downgrades that force endless equity declines.

As the economy sinks, a targeted strike against the contrived spiral in financial stocks would go a long way to helping save companies, and taxpayers, billions of dollars.