Excellent article by Tim Duy, with this observation about the behavior of our leaders:
Leaving aside those challenges, another problem is the one to which Yves alludes to – the persistent belief that current asset prices are currently “wrong.” There appears to be little thought given to the likelihood that past prices were “wrong.” Instead, policymakers appear to believe that prices have intrinsic values. The trick is to get market participants to recognize those values. The belief (delusion) that the current price is simply wrong is not limited to Bernanke; it is pervasive among policymakers. James Kwak directs us to an interview with Treasury Secretary Timothy Geithner, commenting:
The idea that houses have a “basic inherent economic value” other than the prices they can fetch in the housing market is, I think, a fallacy. And so the idea that therefore houses will naturally return to some “basic inherent economic value” that is higher than current market prices is, I think, wishful thinking of the kind that has hampered responses to this crisis from the beginning. They could; but they could just as well not.
[...] namely the refusal to accept the reality that the bad assets are actually bad (discussed yesterday here). If the bad assets traded for what buyers are willing to pay today, some banks would have [...]