Markets crave numbers. They can price and reprice anything, even worthless securities, as long as they have a number attached to them.
What markets can't handle are assets with no number. When those assets are really big, markets wobble. That's what's happened on the world stock exchanges in the aftermath of Tuesday's unveiling of an unfinished bank rescue plan.
The lack of clarity caused the Dow to fall 382 points Tuesday and left world markets with no clear direction Wednesday. Japan's Nikkei fell 0.3 percent. Europe's major exchanges hovered around 0. The Dow around midday was trying to climb back to the 8000 level.
First, assess the problem
Until these markets can begin to discover how big banks' problems are, no other number really matters. Not the $800 billion stimulus that Congress's conferees are now hammering out. Not the up to $1 trillion in federal lending that Geithner proposed to get consumer credit moving again.
Without some way to value toxic assets, investors won't buy bank stocks, confidence in banks will remain shaky, and credit won't flow properly.
In announcing an outline of the bank rescue, Treasury Secretary Timothy Geithner revealed the government was planning on a public-private investment fund with initial federal funding of around $500 billion. The goal is to create a market for the toxic assets but how to bring in private investors was unclear. "We are exploring a range of different structures for this program," Mr. Geithner said.
Why the delay?
Why is the Obama administration still finding its way on a problem it has known about since November? There are three possibilities.
First, valuing these assets is hard. They're complex and it takes time. Of course, price discovery is what markets do and they're far better at it than government regulators are.