Watching this CDO/SIV/CP fiasco is kinda like seeing a mom stocking the cookie jars. Usually we think about someone getting their hand caught in the proverbial cookie jar, but that’s not what I am talking about. That will come later or maybe they won’t get caught at all. All these writedowns are tough to take, but they are better than the alternative. And it makes it clear to me that few, if any, of the market participants really care whether these products get traded right now - at least not at these prices.

To me, all this talk about trying to “free up the system” and “solving the liquidity crisis” is a bunch of crap. If these guys wanted to sell the stuff or really had no other choice, a market would evolve. Why? If you sell something now, you cannot benefit from it later. Just ask E-Trade. When, and if, the portfolio they sold to Citadel for 27 cents on the dollar gets collected at rates higher than that or if the economy and credit markets improve enough to sell the portfolio to someone else, Citadel will benefit, not E-Trade. Kudos to Ken.

On the other hand, all these bank assets getting written down have the potential for reversals at later dates. So, as long as no one is forced into making a sales transaction, the writedown route is much better. Instead, banks are doing whatever they can to avoid trading these assets and all consequences are far superior. If they didn’t have to deal with regulations on bank capital, there would be minimal issues with writing down far more than they have. When Citi got $7.5 billion from Abu Dhabi, they did what they had to do, at any cost, to avoid “freeing up the system.” In my view, Abu Dhabi didn’t invest in Citi - it invested in the future reversal of Citi’s writedowns. The same goes for any of these other transactions that help avoid “freeing up the system.” And the Fed is enabling that by providing liquidity through any means necessary to these banks so they can avoid having to actually sell anything.

Meanwhile, it’s time to stock the cookie jars with billions of c000,000,000kie$$$$$$. Because when it’s all over and the banks that didn’t sell can reach into the cookie jar and pull out the reversals, they will be able to create some pretty nice looking earnings. Then it will be up to investors to figure out how much came from our current mess. By then, much of this will be forgotten and they may not get caught with their hand in the cookie jar.