Transactions: Feb. 23, 2009

You know you've got a problem when you give a speech and not only does the market tank but interpretations of what you said explode and scatter across the landscape. The Geithner bank bailout speech was a classic late-capitalist, democratic, media moment, right down to the Dow tucked in the right-hand corner executing a red-arrowed swan dive soon after our fresh-from-the-oven Treasury secretary began swiveling his head and spitting out words as if his jaw was wired. Indeed, the first level of interpretation involved not what he said, but why the market swooned when he said whatever it was he said. He offered too few (too many) details. No: details OK, substance sucks. He wants to throw money at the banks. He wants perfect strangers tossing money at the banks. He rejects nationalization. He hints at nationalization. His bad-bank plan isn't a bad-bank plan. His plan is too complicated. His plan is too simple, soft, wimpy. He wore an I Love Sweden T-shirt beneath his body armor. He doesn't call Paul Krugman. And the best meta-interpretation of all: He was deliberately ambiguous in order to spawn multiple interpretations.

This, Timothy Geithner, is your life. About the only interpretation that generated consensus was that the Dow belly-flopping 382 points probably wasn't the result he, or the White House, hoped from his first big flag-bedecked Cash Room speech. This generated further mental gymnastics: That the administration is so farseeing, so long term, that it rises above the neurotic Hamlet-like musings of the stock market, which is, as a further interpretation posits, full of miscreants who have probably received taxpayer funds. We (a sort of cable TV "we") spit on the market, though, happily, the market rose when conferees agreed on the stim: We love Ham! Then down again. Creep. For all of this, a theme did emerge after some mental cud-chewing: insolvency. The banks -- big banks, greedy banks, TARP banks, bonus and Vegas junket banks -- were all insolvent and should be nationalized. Known fact. Geithner, in fact, cleverly signaled this when he announced banks would undergo stress tests to see if Treasury needed to deal with them more aggressively. Hmm. By week's end, there were reports of auditors in packs lugging ellipticals and EKG machines into the banks. This, my friends, is stimulus in action.

Now the meme (definition: a cultural item transmitted by repetition as a cell propagates a gene; or, reproducible blog-like semi-intellectual cliché) that the banks were generally and irremediably insolvent represents a pre-nationalization mental prep phase. The insolvency theme has been around for awhile, though traditionally carried by short-sellers focused on specific firms (Bear Stearns, Lehman Brothers); their default test of insolvency is the self-justifying market test. In other words, if Lehman dies, David Einhorn gets an A. The bank insolvency meme is usually declared with a Godlike certitude. Dead dead dead. Nationalize the zombies; reboot. That certitude is odd because no one seems to know what insolvency means in absolute terms, or can produce evidence beyond the fact that the stock market, which we spit upon, has driven bank stocks down down down. (Could this be caused by intimations of nationalization? Hmm.) This crisis hinges on valuation. And the fact that banks have been clutching their bespoke chests for more than a year before the feds ordered stress tests is a little weird. What is this stress test? How will these assets, which have wandered like King Lear on the heath in search of valuations, be pinned like a butterfly, a Pseudolucia zembla, to a reality cork board? Won't whatever valuations shimmer and emerge represent interpretations that have more to do with an anticipated economic future than a disreputable past?

The truth is, well, maybe it's time to move on little doggies. We need to say to those assets, "Assets, stop fidgeting and rest your butt on the chair we give you." We'll decide true value. And maybe some big zombies (names withheld to protect the solvent) will flunk the test; one would be surprised actually if that didn't occur, since you don't give an exam, dispatch auditors, and not flunk somebody. That's a Jack Welch rule. All this is not meant to question Treasury's undoubtedly well-meaning intent, whatever that is, though, no matter what happens, others inevitably will. But be forewarned: While the feds will attempt to cloak valuations in the mumbo jumbo of advanced quantitative regulatory ho-ha, distantly related to the ho-ha that brought us down, the fact is that underneath will lurk the iron fist of a pragmatically political subjective exercise. That at least, my friends, is my interpretation. Feel free to offer your own. Not that anyone who's not a zombie spitting memes can stop you.