The laundromat is open for business!

It’s an interesting commentary on America’s moral turpitude when the United States Treasury announces that it is going to launder tainted money. An individual can go to jail for laundering drug money; Treasury gets a free pass for laundering Wall Street’s toxic assets. The difference between the two types of assets is negligible.

Yes, taxpayer money is on the cusp of taking $30 billion in “distressed” assets off the banks books. These are the “soured mortgage-related assets” scammed from an unsuspecting public through subprime mortgages, interest only loans, and teaser ARMs. (This assumes they can squeeze an additional $10 billion from private investors.)

The AP article dutifully repeats the official line that these toxic assets “have made banks reluctant to lend freely to businesses and consumers.” The truth is that when people lose their jobs and when the businesses they no longer frequent are in danger of going under, nobody is crowding bank lobbies looking for loans. The problem isn’t with the supply, it’s with the demand, and even scouring the banks’ books of all their toxic assets will do nothing to increase this demand.

The original plan had been to buy $1 trillion in toxic assets. However, according to the AP, “The program has been scaled back partly because many banks’ financial situations have improved in recent weeks, reducing their need to sell the troubled assets.”

What the article fails to mention is that this “improvement” is the result of an accounting gimmick and not an actual improvement in the banks’ financial picture. Instead of marking these assets to their market value—what people would actually pay for them—the banks are now marking them to “model”—what the banks think their worth regardless of what the market is willing to offer.

The market is offering 10 to 20 cents on the dollar, while the banks want 60 cents on the dollar.

Experts doubt Treasury's laundromat will make any real difference in the banks’ overall financial health. It seems $40 billion could be compared to the amount of cotton it would take to Kotex a gnat’s ass in relation to the world's total cotton production. “The real hit lies in the trillions of dollars in residential home loans and commercial loans banks hold in whole-loan form on their balance sheets,” said Daniel Alpert, managing director of the investment bank Westwood Capital LLC.

So even after Geithner hands them more of our tax dollars, the banks will remain as insolvent as ever, though they will manage to maintain the illusion of a Never-Never Land solvency until the public finally realizes that the cupboard is bare.