Clay Risen worries that the lack of movement in the toxic assets market reflects badly on the government's plan. The thinking goes, if people think the plan will work, why wouldn't they want to get in on the ground floor before those asset prices rise -- and if they're not doing that, maybe the plan won't work. But there are several compelling reasons why they might wait for the program to actually begin. One is likely continued skepticism that the government will follow through with this plan, and another is that the the concerns the government has about the private sector's unwillingness to accept risk are accurate. The article that Clay links to lists several other reasons why investors might want to wait for the government to take the plunge before they do, first among them uncertainty but also concerns about the value of the underlying assets and questions about the scale of the plan, as well as its liquidity problem vs. solvency problem assumptions. But I'm not convinced that the market's unwillingness to respond to a program that hasn't yet begun means that program will fail -- more likely the slow change reflects a lack of confidence that can only be ameliorated by the careful execution of the new strategy. As well, the report doesn't square with other news indicating that the major banks are purchasing up the kinds of assets targeted by the plan in the hopes of catching the price up-swing and taking advantage of the government subsidized market. Admittedly, that situation isn't necessarily great, either, but it does indicate that at least some financial actors expect the government's plan to have a positive affect on troubled assets.
-- Tim Fernholz
