A couple of weeks ago, economist Lena Komileva told me that the only thing that would really get credit markets functioning smoothly again was for the big banks to admit that the mortgage securities they owned were worth an awful lot less than previously reported. That would start a mass downward revaluation of asset-backed securities, return believability (and thus trust) to markets, and pave the way for recovery.
Komileva did think the writedowns would hammer stock prices first. But on Monday, after Citigroup announced a $5.9 billion asset writedown and UBS $3.4 billion, shares in both banks rose. Investors appear to have jumped right ahead to the happy ending. As the W$J put it:
Rather than disrupting financial markets, the revisions seemed to bolster investor confidence that banks are taking their lumps and losses are mainly in the rearview mirror.
While I support the general sentiment, I find it mighty hard to believe that there aren’t more lumps and losses to come