It is becoming clear that the US treasury plan to purchase "troubled assets" from financial institutions is a plan to buy those assets at in excess of the distressed valuations that apply in the books of some banks.
Indeed the plan appears to be to buy them at close to original value.
Reuters reported that US Federal Reserve chief Ben Bernanke told a US Congressional hearing overnight that, "I believe that under the Treasury program, auctions and other mechanisms could be devised that will give the market good information on what the hold-to-maturity price is for a large class of mortgage-related assets.
"If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.
"First, banks will have a basis for valuing those assets and will not have to use fire sale prices. Their capital will not be unreasonably marked down."
Bernanke went to explain that this step would reduce the uncertainty in financial markets and foster the return of liquidity.
On a very short term basis financial markets don't seem to buy this.
US$ Libor rates increased again overnight, just as bank bill rates widened once again in Australia yesterday.
Bank bill rates increased by about 10 basis points across the curve, retracting the one-day rally in rates on Monday. 30-day bill rates are now a quarter of a percentage point higher than they were in early September and 90-day rates are more like 30 bps wider.