"A recovery of the equity market, driven largely by a receding of fear, may well be a seminal turning point of the crisis.
It is the rate of decline of product, labour and financial markets that generates much of the uncertainty that, in turn, fuels fear.
The key issue is when. Certainly by any historical measure, world stock prices are cheap... The pace of economic deterioration cannot persist indefinitely. ... The current pace of deterioration is bound to slow and with it there should come a lessening of the level of fear. ...As the level of fear recedes, stock market values will rise. Even if we recover only half of the $35,000bn global equity losses, the quantity of newly created equity value and the additional debt it can support are important sources of funding for banks. As almost everyone is beginning to recognise, restoring a viable degree of financial intermediation is the key to recovery".
I note that in the galaxy of Transylvania there is a tendency to think that the financial and banking crisis can be solved just propping up the value of assets, including toxic ones, by thinking positive and being more optimist. Then self-fulfilling prophecies should do the rest...
On the other hand, the recently announced US Treasury Geithner Plan II is simply the follow-up to the Rocky Horror PIPP Show against the US taxpayers.
The basic idea is to help, artificially and by means of a subsidy, to keep prices of the troubled securities, or toxic assets, higher than they would be otherwise.
Treasury argues that these prices are artificially depressed because of illiquidity due to simple pessimistic and fear factors...Yet banks are sinking faster than the Governments are bailing them out.