In a piece designed to contrast money center banks with regional banks, Institutional risk offers their opinion on the Fed’s thinking:

“No wonder that Fed Chairman Bernanke and Treasury Secretary Tim Geithner persist in their idiotic position that toxic subprime assets have true “values” of 80% of par. As we told the clients of IRA’s institutional advisory service earlier this week:

“Based on our projections and channel checks, we think that maybe the Fed staff got it wrong and put down the likely loss rate instead of the fanciful LT recovery rate embraced by Bernanke, Geithner and Summers. Truth is, the LT recovery or “Loss Given Default” (LGD) rate experience of 20-30% (which are the LT LGD rates used by Moody’s, S&P for internal loss rate projections) are holding true in this cycle as in previous economic downturns and may actually be optimistic compared with the actual realized loss.”

With most of the RES and CRE collateral we see in the channel trading in the 30s, it is only a matter of time before the markets force Bernanke, Geithner and Summers to abandon their desire to subsidize the large, insolvent banks and finally embrace liquidation. “


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