What's a Toxic Asset Worth?

Well, everyone knows by now what the equity markets thought of Geithner's bank rescue plan yesterday. Long on generalities, short on specifics seems to have been the consensus. Investor doubt surrounds failure to address 3 major issues: 1) will some banks be forced to fail? 2) How will illiquid assets be removed from bank balance sheets? 3) How do we stop the decline in housing prices? One of the key issues relating to toxic assets seems to be how to value them. Oaktree's Howard Marks is one veteran of distressed debt investing who appears to be in no hurry to wade into the sub-prime swamp. The main hangup seems to be what these assets are really and truly worth. In response to Geithner's plan, GlobalRiskJobs favorite Andy Kessler weighs in with a radical plan of his own in today's WSJ. Kessler stresses valuation as well, saying banks can sell toxic assets today; they just don't like the price. Geithner faces a dilemma in trying to find a "market price" that could very well push banks to insolvency. Kessler also says we need to learn from Japan's experience and stay away from creating "Zombie Banks", something that PIMCO's Koyo Ozeki would appear to agree with in this piece about using Japan's lost decade to put the current crisis in perspective.

A tour of some of the news for a Wednesday morning....

• An interesting take on banker pay from Bloomberg's Matthew Lynn
• Geithner pledges $2T to help banks.
• Senate approves stimulus package.
• The prospect of Pan-European supervision is back in the headlines, and the FSA is ready to debate.
• More on HBOS former Risk Chief Moore's allegations about his firing. And Bloomberg reports that James Crosby, deputy chairman of Britain's FSA, resigned after claims he fired Moore when he HBOS Plc's CEO.
• Who needs A-Rod and Roger on The Hill when you've got Jamie, Ken and Vik? A preview of bank exec testimony in what's sure to be an entertaining session on Capitol Hill.
• Mortgage servicers are under increasing stress.
• WSJ's Holman Jenkins says the markets wonder if Geithner understands Regulatory Forbearance.