Dear Commander-in-Chief Obama,

This will be my last telegraph from the "kessel", like the one that is around Stalingrad, but instead of a city, I am talking of an entire nation and it's FUTURE.

Please take a moment to light a cigar, pour some wine, or whatever it is that helps make the living room more comfortable, my message will be mostly calm and not tainted with euphoric calls for riots this time. I am sober today and I think I am not hearing voices in my head right now as I typed this.

As we fire our last few artillery rounds, it becomes clear that the only remaining road left out of this trap is to:

1. Run a stress test on EVERY bank. That stress test will yield an asset value for which the bank equity is zero. We shall refer to that as the "breakeven" price.

1b. If the bank is inadequately capitalized (for example - STT is at 1.19% capital ratio, may I remind you of Freddie Mac who was at 2% capital ratio when they became a Federal Institution :) then ...

2. Empower the treasury to start an auction of the mortgages and other investments at that breakeven price. Every $ above that price goes to the equity holder of the bank and at the end of that you have a healthy bank, owned by the original private institution.

3. If no buyer was found at the "breakeven" price, I implore you to sell it at the highest bid.

4. Then recapitalize the bank and have it run as a government institution. I am not sugar coating here - it means the taxpayers pony up the amount required to just settle the trade and move on. Pay your bills, sir. It's a good thing.

Either way, you have resolved the so-called depression and we are ready to move out of the siege.

I have plenty of money to deploy as a private investor, sir. And I know that you are VERY MUCH aware that there is a capital formation starting as of November last year, PRIVATE CAPITAL, that is ready to deploy for EXACTLY that purpose. Pardon me for being blunt there, it's not exactly a secret out here.

However I cannot invest in ANY non-bank sector at this point because I know I will lose them all as the siege moves to its final conclusion - the annihilation of everything else that the banks have taken hostage along with them.

The private capital you are aware of, will also go away and close the last gap we have for saving ourselves. Where will they go, sir? Trust me, nothing good.

There are many excellent investments out there Herr Obama, but we do not want our heads blown off by snipers that are really just INSOLVENT BANKS.

In closing, for failing to heed my last non-vodka laced letter, by April this year, you may have to salute back to your followers this way:


















Sincerely,

About-to-be POW, Your humble servant MTGSPY.

PS: Please keep Gitmo open. I have early arthritic tendencies and I hate chancing Siberia. Global warming has not exactly been very apparent out there since February (!!) of 1943.

http://en.wikipedia.org/wiki/Battle_of_Stalingrad


PSS: Did I see rescue????!!!! Are we going to really avoid the Gulag this time?

http://www.nytimes.com/2009/02/12/business/12stress.html?_r=1

Update, Valentine's day - 2:

It appears that the entire left flank has been, err, liquidated.

Banks are not worth $40, 30, or $20, or even $10, or $5. It's zero sir. I know it cuz I was there marking it up myself. This is NOT a secret. Please, I don't want to go to Siberia, please. Force the equity in the banks to pay for all the losses and nationalize them and the overall market will be just fine. Otherwise, off to the east we go.

Also, please stop chatting about loan mod over the phone. The static crackles from 1-800-hopele$$ usually lead the snipers to our foxholes.

Not looking good ........