Suspension of Mark to maket Means...

[Sammy Jankis]

Suspension of mark to market means

"We're screwing you so bad, american public, that we're not even going to make it calculable, to avoid the outrage".



QFT.

 

[Topspin]

it means avoid bank stocks like the plague

 

[Bonestorm]

it means avoid bank stocks like the plague

It won't matter. The shareholders will be bailed out and we'll all be left holding the bag.

 

[Topspin]

not so dungshit, shareholders in finance companies have been shit on like they are the villians. It's the CEO's and boards who raid them of the billions that are making out.
Please Obama regulate the fuck out of Wall Street.

 

[Bonestorm]

not so dungshit, shareholders in finance companies have been shit on like they are the villians. It's the CEO's and boards who raid them of the billions that are making out.
Please Obama regulate the fuck out of Wall Street.

They haven't really been shit on. They own stock in insolvent companies and the stock isn't worthless as it should be. Instead, the government is going to give the financials shitloads of money in exchange for worthless "assets" under the fiction that the assets are actually worth something. The mark to market suspension just serves to set the stage. In the end, the shareholders make out like bandits.

 

[Topspin]

that money would have been 1,000 times better spent splitting it between 50% rebates to earners under $250,000 and new banks that would lend gov controlled.

 

[Cancel 2016.2]

They haven't really been shit on. They own stock in insolvent companies and the stock isn't worthless as it should be. Instead, the government is going to give the financials shitloads of money in exchange for worthless "assets" under the fiction that the assets are actually worth something. The mark to market suspension just serves to set the stage. In the end, the shareholders make out like bandits.

I disagree. The stockholders have lost almost all of their investment. To say they haven't taken the brunt of this is ridiculous.

As for the mark to market... this is the exact environment to demonstrate the flaws in mark to market.

If Bank A and Bank B both own asset C, Bank B comes under financial stress and firesales its assets to raise capital... what is the real value of the asset they sold? The firesale price? Should Bank A suffer just because Bank B ran into problems?

Firesales create a downward spiral. Especially in Banks that rely on their assets to maintain capitalization.

I believe a temporary suspension should have been done 6 months ago. But doing it today is better than nothing. That said, IF they suspend mark to market, the Banks MUST show complete transparency in regards to their assets. Otherwise you end up with the same downward spiral in that investors would not know the true holdings risk.

As for the fed taking over distressed assets... to act like they have no value is simply ridiculous. All of those distressed loans will not default. So long as the government doesn't overpay for the assets, they will have the ability to get a return. But again, IF the banks participate in such a plan then future gains in the valuations of the banks need to be shared with the tax payers to help offset the portion of the loans that do go bad.

 

[Bonestorm]

I disagree. The stockholders have lost almost all of their investment. To say they haven't taken the brunt of this is ridiculous.

As for the mark to market... this is the exact environment to demonstrate the flaws in mark to market.

If Bank A and Bank B both own asset C, Bank B comes under financial stress and firesales its assets to raise capital... what is the real value of the asset they sold? The firesale price? Should Bank A suffer just because Bank B ran into problems?

Firesales create a downward spiral. Especially in Banks that rely on their assets to maintain capitalization.

I believe a temporary suspension should have been done 6 months ago. But doing it today is better than nothing. That said, IF they suspend mark to market, the Banks MUST show complete transparency in regards to their assets. Otherwise you end up with the same downward spiral in that investors would not know the true holdings risk.

As for the fed taking over distressed assets... to act like they have no value is simply ridiculous. All of those distressed loans will not default. So long as the government doesn't overpay for the assets, they will have the ability to get a return. But again, IF the banks participate in such a plan then future gains in the valuations of the banks need to be shared with the tax payers to help offset the portion of the loans that do go bad.

1) In a utopian capitalist paradise the shareholders would have nothing, the companies would be insolvent and the bankruptcy courts would be very very busy. The mere fact that the shareholders currently own stock that is worth anything is something for which they should thank their fellow citizens on the street. And it's only going to get better for the shareholders and worse for the rest of us.

2) That analysis pretends that there isn't a market for the stuff right now and also pretends that the firesale price isn't the right price. There is a market. It just isn't what the banks want it to be at. Right now people are buying these very assets at roughly 36 cents on the dollar. The assets aren't worth much more than that and sure as shit aren't worth double that.

Your whole analysis rests on the fictitious assumption that the assets are worth something significant to begin with. They aren't. If they were worth much people would buy them. Paying more than market rates is over-paying.

And this is all in an effort to keep the shareholders afloat. Why should the government take on the risk of these shitty assets while the people that took on the risk in the first place get to pawn them off for double the market price? If the firms need money the government should simply purchase stock. Of course, that would cram down existing shareholders, but they're the ones that fucked up in the first place. And maybe the government shouldn't be in the banking business, but where I'm sitting it doesn't look like the bankers have been doing a bang up job.

 

[Cancel 2016.2]

1) In a utopian capitalist paradise the shareholders would have nothing, the companies would be insolvent and the bankruptcy courts would be very very busy. The mere fact that the shareholders currently own stock that is worth anything is something for which they should thank their fellow citizens on the street. And it's only going to get better for the shareholders and worse for the rest of us.

2) That analysis pretends that there isn't a market for the stuff right now and also pretends that the firesale price isn't the right price. There is a market. It just isn't what the banks want it to be at. Right now people are buying these very assets at roughly 36 cents on the dollar. The assets aren't worth much more than that and sure as shit aren't worth double that.

Your whole analysis rests on the fictitious assumption that the assets are worth something significant to begin with. They aren't. If they were worth much people would buy them. Paying more than market rates is over-paying.

And this is all in an effort to keep the shareholders afloat. Why should the government take on the risk of these shitty assets while the people that took on the risk in the first place get to pawn them off for double the market price? If the firms need money the government should simply purchase stock. Of course, that would cram down existing shareholders, but they're the ones that fucked up in the first place. And maybe the government shouldn't be in the banking business, but where I'm sitting it doesn't look like the bankers have been doing a bang up job.

1) Your lack of comprehension with regards to an illiquid market is enough to forgive the ignorance of the above.

2) Do you really believe that 50-75% of those loans are going to go bad? Because that is how those assets are pricing right now, yet the current default rate is 8%. If you aren't smart enough to see the disparity, then just say so and we can be done.

3) In an illiquid environment, assets are going to be significantly undervalued. Because intelligent investors understand how this type of downward spiral works.

Take a more personal example. Say you and ten neighbors all own your homes and all are worth approximately $300k with the average loan about $250k. If two of your neighbors get into trouble and are forced to sell their homes in an illiquid housing market for say $200k....

did your home truly go down in value by $100k?

Should you and the other eight really be forced to come up with additional equity because your neighbors couldn't manage their loans?

What if an additional two could not come up with the additional equity and they in turn are forced to sell their homes and now they can only get $175k... now you and the other six have to come up with more equity... but again another two cannot.... the spiral keeps going.

 

[Bonestorm]

I guess we can agree to disagree as to whether the problem is liquidity or solvency.

Nevertheless, to the extent there is risk associated with these assets (which we can all agree on) why should the government buy them and exclusively take on that risk as opposed to simply buying stock and getting both the risk of these assets together with the benefit of the portions of the business that actually make money?



Edit: Suspension of mark-to-market is only going to make the solvency problem worse.

 

[Cancel 2016.2]

I guess we can agree to disagree as to whether the problem is liquidity or solvency.

Nevertheless, to the extent there is risk associated with these assets (which we can all agree on) why should the government buy them and exclusively take on that risk as opposed to simply buying stock and getting both the risk of these assets together with the benefit of the portions of the business that actually make money?


Edit: Suspension of mark-to-market is only going to make the solvency problem worse.

The reason is this... we don't want the government to nationalize the banking system. If they buy assets at 50 cents on the dollar that have a default rate of 8%, they are going to recover the taxpayers money so long as that default rate stays above 50%. Also, as I mentioned, the government should get warrants on the stock of any financial company that sells the loans. That way they can take part in the equity rise as well.

What does buying the stock do? It doesn't clean up the balance sheets and thus the banks are going to tend to keep the cash to protect against future bad loans.

 

[Sammy Jankis]

I disagree. The stockholders have lost almost all of their investment. To say they haven't taken the brunt of this is ridiculous.

As for the mark to market... this is the exact environment to demonstrate the flaws in mark to market.

If Bank A and Bank B both own asset C, Bank B comes under financial stress and firesales its assets to raise capital... what is the real value of the asset they sold? The firesale price? Should Bank A suffer just because Bank B ran into problems?

Firesales create a downward spiral. Especially in Banks that rely on their assets to maintain capitalization.

I believe a temporary suspension should have been done 6 months ago. But doing it today is better than nothing. That said, IF they suspend mark to market, the Banks MUST show complete transparency in regards to their assets. Otherwise you end up with the same downward spiral in that investors would not know the true holdings risk.

As for the fed taking over distressed assets... to act like they have no value is simply ridiculous. All of those distressed loans will not default. So long as the government doesn't overpay for the assets, they will have the ability to get a return. But again, IF the banks participate in such a plan then future gains in the valuations of the banks need to be shared with the tax payers to help offset the portion of the loans that do go bad.

You can disagree all you want. It doesn't change the fact that the shareholders of banks ARE being protected from the realities they were appraised of in fine print. They should be shit on. Then they might learn to protect their money from scamsters. Instead, they are being protected, and the same shmucks who created the fiasco are being consulted to continue on in the same stupidity.

 

[Bonestorm]

The reason is this... we don't want the government to nationalize the banking system. If they buy assets at 50 cents on the dollar that have a default rate of 8%, they are going to recover the taxpayers money so long as that default rate stays above 50%. Also, as I mentioned, the government should get warrants on the stock of any financial company that sells the loans. That way they can take part in the equity rise as well.

What does buying the stock do? It doesn't clean up the balance sheets and thus the banks are going to tend to keep the cash to protect against future bad loans.

1) They're not going to get warrants. That's the problem.

2) New capital will allow for cleaning up the balance sheets instead of the lying horseshit fiction we've got going on now and that will get worse with the suspension of mark-to-market.

As much as it pains me to say it, AHZ has pretty much nailed it on this one.

 

[Damocles]

1) They're not going to get warrants. That's the problem.

2) New capital will allow for cleaning up the balance sheets instead of the lying horseshit fiction we've got going on now and that will get worse with the suspension of mark-to-market.

As much as it pains me to say it, AHZ has pretty much nailed it on this one.

Even a broken clock is right twice per day.

 

[Sammy Jankis]

Even a broken clock is right twice per day.

But im right 24/7. So splain that, ricky.

 

[Damocles]

But im right 24/7. So splain that, ricky.

Yeah, about 7 out of 24 times you are right, that's about the right ratio...

 

[Sammy Jankis]

Yeah, about 7 out of 24 times you are right, that's about the right ratio...

Actually. Even in the reality of your joke, the correct fraction is 24/7, that's over 300% right. Thanks for the compliment.

 

[Cancel 2016.2]

1) They're not going to get warrants. That's the problem.

2) New capital will allow for cleaning up the balance sheets instead of the lying horseshit fiction we've got going on now and that will get worse with the suspension of mark-to-market.

As much as it pains me to say it, AHZ has pretty much nailed it on this one.

1) Why are they not going to get warrants? It is the taxpayers money. They can set the requirements for the money. The banks can either accept those requirements or they can go it alone.

2) Yes, the new capital can make the balance sheets look better, but all that does is aid the stockholders. It doesn't do anything about the bad debt on the books and the banks will continue to be very tight with the money as they will attempt to protect against future losses. This strategy doesn't appear to do anything to increase the velocity of the money.

The fact that you are agreeing with AHZ should tell you something.

 

[Damocles]

Actually. Even in the reality of your joke, the correct fraction is 24/7, that's over 300% right. Thanks for the compliment.

7 out of 24 is not over 300%, it is in fact 29%. See?... Your regular pattern reasserts itself. I can't help it if you don't understand how to properly write ratios.

 

[Bonestorm]

1) Why are they not going to get warrants? It is the taxpayers money. They can set the requirements for the money. The banks can either accept those requirements or they can go it alone.

2) Yes, the new capital can make the balance sheets look better, but all that does is aid the stockholders. It doesn't do anything about the bad debt on the books and the banks will continue to be very tight with the money as they will attempt to protect against future losses. This strategy doesn't appear to do anything to increase the velocity of the money.

The fact that you are agreeing with AHZ should tell you something.

1) They can do lots of things they aren't going to do.

2) New capital will devalue existing shares. Surely I don't have to explain this to you. And no, the bad debt is not going to go away automatically, but until the holders of the debt get realistic as to its value (i.e. practically worthless) the solvency problem will persist. The holders can't get real about the value because to do so would be admitting to insolvency.