Dueling stories at the Wall Street Journal
today. In the first, a suggestion that it might be "healthy sign" that the Swiss bank UBS isn't willing to sell its mortgage portfolio at a price anyone else is willing to buy it at:
The world's bankers woke up yesterday to a new concern: Can they trust the bank next door?
Tensions were high in Asia, Europe and the U.S. as banks and brokers became increasingly wary of trading with one another....Among banks facing the most intense scrutiny: Swiss bank UBS AG, which saw the price of its American depositary receipts fall 11% yesterday.
....The Swiss bank, for example, has in recent weeks reached out to investors to discuss a possible sale of all or part of a large portfolio of mortgage investments, according to people close to the matter. So far, they haven't met with success, in part because UBS hasn't been willing to slash the price of the bonds to lure investors....The rejections could be a relatively healthy sign for UBS, suggesting that the big bank isn't yet desperate enough to dump the mortgage portfolio at fire-sale prices.
Italics mine. In the next story, a suggestion that the unwillingness of banks to face reality about the value of their mortgage portfolios is creating a "toxic cloud" over the entire market:
The Fed probably doesn't want to hear this, but there are echoes of Japan's 1990s financial crisis in some of its recent actions.
...."We haven't had a full gut-check of truth-telling; that's what's causing the market jitters," says Joshua Rosner, managing director at Graham Fisher & Co....As with Japan in the 1990s, delay in finding a true clearing price for mortgage-backed securities and similar assets could keep uncertainty hovering over the market like a toxic cloud. Banks will stay more interested in fending off potential disasters than in lending money and keeping the economy growing.
Italics mine again. So which is it? Should banks hold tight and wait for buyers to come to their senses? Or get on with the business of facing up to the near worthlessness of a big chunk of their assets? The fact that I don't know isn't especially scary. The fact that no one else seems to know either is.