PPIP's SQUEAK

Gillian Tett in Today's FT on Geithner's Public Private Investment Partnership:

"[T]he PPIP has already served one extremely valuable function by highlighting the sheer insanity that has bedevilled the financial world in relation to asset prices.

Most notably, if large American banks had previously marked their assets at a realistic market-based price, they would not be so scared of engaging in auctions with PPIP now. Better still, they might have spotted earlier the degree to which their assets were deteriorating – and taken action to address it.

But precisely because the supposedly “free market” western financial system has become stuffed with complex assets that were rarely traded – even during the credit boom – banks have been able to use fantasy prices for their assets for years. Hence their continued horror at the idea of open trading.

That is the real scandal that bedevils the PPIP idea. That in turn points to a wider lesson for the future: namely that to avoid a similar credit disaster, it is crucial that financiers are forced to place as much financial activity as possible on transparent trading arenas. Better still, they need to do that well before a bubble bursts – or there is any need to start fighting over whether a PPIP can truly fly."