Good morning.

The futures are pointing up slightly, the Nikkei and Hang Seng went up about 2% over night.

Overall, the market is still badly damaged by the Geithner pratfall and inability/unwillingness to step up and deal with the situation.

It boils down to this:

1. There is no market for these toxic securities cause no one knows how to price them while “mark to market” is in force.

2. The banks then sit there holding these things on their books that they can’t move or sell, even at a loss, again cause there is no market cause no one knows how to price them. They await clarification from the Fed’s and all they get is silence. In the meantime they are bleeding to death with the capital losses and lack of business activity.

3. On the other hand, the Treasury and Fed’s sit back and await the banks to deal with this situation. The Treasury or the Fed’s are afraid to try to alter the mark to market pricing mechanism cause that would change the status quo and the don;t understand the situation well enough to come up with something else that will work. So the Treasury and Fed’s sit back, wait for the banks to figure out some way to deal with it, and in the mean time they keep pumping hundreds of billions into the banks to buy time to keep the financial system from collapsing.

4. In the meantime, real estate prices keep plummeting and the stock market keeps tanking cause of all the uncertainty and inability of the Treasury and Fed’s to deal effectively with this situation. Geithner’s attitude seems to be “I just got here, don’t look at me.” The market recognizes that he is in over his head.

Unless Geithner gets his act together, I think you are going to see several more very large banks go under and the financial system will be badly damaged for along time to come. With all this messing around by Geithner now, you can pretty much kiss off the hopes of a recovery starting in the later part of this year. Given conditions now, I’m looking for a long and extended bad recession.