We can't hide it much longer

Dow Jones Industrial Average

Notice the sharp drop just after 11:00. That was 4 minutes into Secretary Geithners' unveiling of the new "What the H*LL do we with these derivatives" plan.

The market is telling us, the Obama administration, Mr. Geithner and all who will listen, the lying and thievery are going to stop, and if you don't stop it, the market will.

No one trusts the banks. It's the big boys that are in trouble. They levered up and bonused like there was no tomorrow, because they knew there would not be one. There are hundreds of solvent banks with little or no exposure to derivatives. They are victims as much as anyone else. But the smaller, solvent banks haven't been major contributors to the political machines, and the big boys have. The foisting of losses, made on insane leveraging, onto the backs of taxpayers is more than obscene, and the market demands justice.

Last fall, we had to put up with Bush and Paulson threatening martial law if the first bailout was not passed. It passed - and the market immediately regurgitated fully one-third of its value.

Is this part deux?

The current mess cannot be attributed to Obama. Yet, that does not give license to continue the nonsense of hide the losses, and pass them to the taxpayers when we lie to congress. Mr. Geithner was part and parcel of the group that advocated for the first bailout. He, along with many esteemed others, told us the first bailout would solve the liquidity problem. It solved the liquidity problem all right, now the banks have enough liquidity to bonus each other again. They just don't have enough to cover the bottomless pit of asset deflation created by derivative losses.

Mortgage rates will have to be decoupled from the 10 year Treasury note, and set artificially at a rate lower than the low in 2006. Why? Resets of prime ARM loans will continue to grow until the first quarter of 2011, when they reach a peak. Unless we want more than half of those loans defaulting, some mechanism must be manufactured to give homeowners reason to keep paying their mortgage. As things are going now, the rate of people walking away is growing exponentially.

Bad news - All of those ARM's scheduled for reset over the next two years were securitized and packaged into a CDO, CLO or CMO.

Any one want a friendly wager on how many of those will get more than ten cents on the dollar two years from now?