The Economy, stupid

[Balta1701]

 

Stewart again on Letterman last night.

[mr_genius]

judging from many of the other posts here, you're not the only one that goes to comedy central shows for guidance

 

Edited March 7, 2009 by mr_genius

[Balta1701]

Excellent lines:

You know, in every movie I've seen about the end of the world, civilization collapses because of something wicked cool happening - an asteroid hits, nuclear war, a supervirus, an ape revolution, whatever. If civilization collapses over credit default swaps I an going to be pissed.

[southsideirish71]

Forbes talked about this in an interview. Hell what could it hurt. While we are at it, lets suspend SOX as well.

 

Time to suspend Mark to Market.

[kapkomet]

Suspending mark to market only works if you suspend the idiots who set the "market" in the first place. That is where this whole thing blew up.

 

[southsider2k5]

Forbes talked about this in an interview. Hell what could it hurt. While we are at it, lets suspend SOX as well.

 

Time to suspend Mark to Market.

 

You'll see the financial bounce back quicker with this change than any other I have heard talked about so far.

[mr_genius]

So much for the "no Americans want these jobs"

 

700 show up for 1 janitor position

 

http://www.cantonrep.com/news/x1569321039/...est-job-Janitor

[jasonxctf]

So much for the "no Americans want these jobs"

 

700 show up for 1 janitor position

 

http://www.cantonrep.com/news/x1569321039/...est-job-Janitor

 

 

most janitors don't get $15-16/hr plus benefits.

[mr_genius]

most janitors don't get $15-16/hr plus benefits.

 

yea, $12 an hour would probably only have 400 applicants

[Balta1701]

You'll see the financial bounce back quicker with this change than any other I have heard talked about so far.

If any of the banks were actually accounting these mortgage-backed securities for the zero dollars they could get for them on the market right now, they'd already be insolvent. The only think keeping their books out of the red is that they're already doing that.

[southsider2k5]

If any of the banks were actually accounting these mortgage-backed securities for the zero dollars they could get for them on the market right now, they'd already be insolvent. The only think keeping their books out of the red is that they're already doing that.

 

Then they are in violation of the law, and I really doubt that is happening on a widespread basis. If that were actually happening, you wouldn't have this many banks in trouble in the first place.

[kapkomet]

Question for those of you playing at home: Do you fully understand the mark-to-market accounting rules?

 

Hint: The blogs and general commentary out there get it wrong.

 

[bmags]

Question for those of you playing at home: Do you fully understand the mark-to-market accounting rules?

 

Hint: The blogs and general commentary out there get it wrong.

 

If you want to write it out, I'd be anxious to read it.

[kapkomet]

If you want to write it out, I'd be anxious to read it.

Honestly, most of you would be bored to tears.

 

I will write something up probably on Wednesday... (maybe tomorrow). I need to get my 401K/2=201K switched over to an IRA so I can tap it for COBRA without incurring a penalty tomorrow. Gosh only knows how long that will take to get all sorted out with my bank. And I need to go to my old MBA univeristy to demand that I get hooked up at the place I did consulting for during the program. They are hiring like mad and I need to get out there.

 

Tuesday have two different appointments (not interviews, I wish I were that lucky).

 

 

[bmags]

Honestly, most of you would be bored to tears.

 

I will write something up probably on Wednesday... (maybe tomorrow). I need to get my 401K/2=201K switched over to an IRA so I can tap it for COBRA without incurring a penalty tomorrow. Gosh only knows how long that will take to get all sorted out with my bank. And I need to go to my old MBA univeristy to demand that I get hooked up at the place I did consulting for during the program. They are hiring like mad and I need to get out there.

 

Tuesday have two different appointments (not interviews, I wish I were that lucky).

 

I understand, every time I was faced with writing a long explanatory post for internet friends, I realize how easy it is to disappoint them with no real consequences.

[NorthSideSox72]

If any of the banks were actually accounting these mortgage-backed securities for the zero dollars they could get for them on the market right now, they'd already be insolvent. The only think keeping their books out of the red is that they're already doing that.

You are getting at part of the issue here. These MBS's, CDW Swaps etc., are single-create OTC instruments. They are one time contracts, not like a fungible or exchange-traded security. Therefore, establishing what the "market" will pay for it is all a big game. How do you mark to a theo market like that? The answer is, the accountants can value it however they'd like, and they did that, and now look where we are. There are tools available out there for valuation of OTC contracts like swaps, but they all have a different way of doing things. MTM only works with liquid, venue-traded, repeatable securities.

 

[kapkomet]

You are getting at part of the issue here. These MBS's, CDW Swaps etc., are single-create OTC instruments. They are one time contracts, not like a fungible or exchange-traded security. Therefore, establishing what the "market" will pay for it is all a big game. How do you mark to a theo market like that? The answer is, the accountants can value it however they'd like, and they did that, and now look where we are. There are tools available out there for valuation of OTC contracts like swaps, but they all have a different way of doing things. MTM only works with liquid, venue-traded, repeatable securities.

That's part of it.

 

I think the makers of the market is why we have the nuclear holocost right now.

 

[Balta1701]

That's part of it.

 

I think the makers of the market is why we have the nuclear holocost right now.

So, just to see if I get what you're saying, you're saying that the problem is not that these assets which are returning $.05 on the dollar are worthless, the problem is that people are under-valuing them? (Assuming you meant Markers nad not makers. I'd agree it's the Makers of the market, not the markers of the market).

 

Who are you, Timothy Geithner? Ben Bernanke?

 

The argument I'd make is that right now, no one wants anything to do with these assets. Given that we're actually seeing the returns people are getting on them and the AAA rated stuff is coming back with a return of $.05 on the dollar, no one is going to want anything to do with them, so they should be worthless. The only reason they're not worthless is that there's a crazy bearded man out there who's realized that if they're actually accounted for as worthless then there's nothing left to do but have the government seize the banks, and so he's used his considerable power to give somewhere over $2 trillion in loans to the same banks using those worthless securities as collateral, thus, they have value greater than zero only because the Federal Reserve has gotten in to the game.

 

This is of course why every one of these Geithner/Paulson TARP type bailout proposals keeps failing to gain traction. They're all based on the idea that these assets are worth more than the market would pay for them right now and we only need to wait things out until the next housing bubble starts for everyone to realize it. But, no one except the people running the Fed and the Treasury think that's actually going to happen.

[NorthSideSox72]

So, just to see if I get what you're saying, you're saying that the problem is not that these assets which are returning $.05 on the dollar are worthless, the problem is that people are under-valuing them? (Assuming you meant Markers nad not makers. I'd agree it's the Makers of the market, not the markers of the market).

 

Who are you, Timothy Geithner? Ben Bernanke?

 

The argument I'd make is that right now, no one wants anything to do with these assets. Given that we're actually seeing the returns people are getting on them and the AAA rated stuff is coming back with a return of $.05 on the dollar, no one is going to want anything to do with them, so they should be worthless. The only reason they're not worthless is that there's a crazy bearded man out there who's realized that if they're actually accounted for as worthless then there's nothing left to do but have the government seize the banks, and so he's used his considerable power to give somewhere over $2 trillion in loans to the same banks using those worthless securities as collateral, thus, they have value greater than zero only because the Federal Reserve has gotten in to the game.

 

This is of course why every one of these Geithner/Paulson TARP type bailout proposals keeps failing to gain traction. They're all based on the idea that these assets are worth more than the market would pay for them right now and we only need to wait things out until the next housing bubble starts for everyone to realize it. But, no one except the people running the Fed and the Treasury think that's actually going to happen.

 

They are not all worthless. In fact most have at least some value.

 

 

 

[Balta1701]

They are not all worthless. In fact most have at least some value.

The problem is...if they actually were treated as having a reasonable amount of value given the implosion of an $8 trillion housing bubble, that's enough to make the banks insolvent. Which is why no one wants to buy them in the first place. If they were actually treated as having a reasonable amount of value given the returns they're generating, the big banks go down.

[kapkomet]

Balta, either your missing a piece of the puzzle or I'm missing your point, because if these assets are worth more then "nothing" then why would the banks go insolvent? They have already written down the value because of mark to market accounting rules. But not entirely... that's the catch here, which is very complicated to explain. Hell, most accountants get this wrong, IMO. CPA's don't even understand it, so how in the hell can anyone else?

 

I need to go get my 201K taken care of... and a couple of other errands.

[Balta1701]

Balta, either your missing a piece of the puzzle or I'm missing your point, because if these assets are worth more then "nothing" then why would the banks go insolvent? They have already written down the value because of mark to market accounting rules. But not entirely... that's the catch here, which is very complicated to explain.

 

I need to go get my 201K taken care of... and a couple of other errands.

Because the assets are worth far less to everyone except the Federal Reserve than what they've been written down to, and there are other assets that probably haven't been written down yet at all (credit card debt, commercial real estate holdings). That's why I'm saying that the problem isn't mark-to-market. The balance sheets of BOFA, C, etc., have so much of this bad debt on them that if they wrote them down all the way to where they need to be, the banks would be closed. It's only these accounting games where they can dump piles of the stuff on to the Fed/Treasury and delay the write-downs in the hope that things recover that has kept them from going in to the red.

 

Edit: Just look at the signals from the market if you don't believe me. If these assets were worth so much more than the nearly-zero returns they're generating currently, then people would be trying to scoop them up at bargain rates. They're not. If these assets were worth so much, then someone other than the federal reserve would be interested in buying them at the discount rate. If these assets were in the long run going to be worth more rather than less, then why is Citibank's stock worth what I pay for lunch over 2 days despite having $50 billion in guarantees from the Treasury? It's because no one else out there wants this stuff, and no one believes it's worth enough for these banks to be viable unless they can dump even more on to the government.

[southsider2k5]

Because the assets are worth far less to everyone except the Federal Reserve than what they've been written down to, and there are other assets that probably haven't been written down yet at all (credit card debt, commercial real estate holdings). That's why I'm saying that the problem isn't mark-to-market. The balance sheets of BOFA, C, etc., have so much of this bad debt on them that if they wrote them down all the way to where they need to be, the banks would be closed. It's only these accounting games where they can dump piles of the stuff on to the Fed/Treasury and delay the write-downs in the hope that things recover that has kept them from going in to the red.

 

Edit: Just look at the signals from the market if you don't believe me. If these assets were worth so much more than the nearly-zero returns they're generating currently, then people would be trying to scoop them up at bargain rates. They're not. If these assets were worth so much, then someone other than the federal reserve would be interested in buying them at the discount rate. If these assets were in the long run going to be worth more rather than less, then why is Citibank's stock worth what I pay for lunch over 2 days despite having $50 billion in guarantees from the Treasury? It's because no one else out there wants this stuff, and no one believes it's worth enough for these banks to be viable unless they can dump even more on to the government.

 

No one is buying this s*** because they have no confidence in the system. The response by both administrations has been a clusterf*** of enormus proportions that has show no one enough confidence in the system to where they feel that a bottom has been put in in asset valuations. This doesn't just mean the stock market, but all of the assets backing all of these securities. Why would you buy something that you are pretty convinced will be worth less tomorrow than it is today? The answer is, you don't. You wait until you are pretty convinced that the bottom has been put in, even if this means missing the absolute lows of valuations. This is the exact type of reason I keep going back to the market being scared of the current President. He has yet to be able to convince the people who employ people in this country that their business will be safe and sound tomorrow. I heard Mort Zuckerman on Meet the Press say it best yesterday. To paraphrase he said the President while popular, isn't very inspirational.

[Balta1701]

No one is buying this s*** because they have no confidence in the system. The response by both administrations has been a clusterf*** of enormus proportions that has show no one enough confidence in the system to where they feel that a bottom has been put in in asset valuations. This doesn't just mean the stock market, but all of the assets backing all of these securities. Why would you buy something that you are pretty convinced will be worth less tomorrow than it is today? The answer is, you don't. You wait until you are pretty convinced that the bottom has been put in, even if this means missing the absolute lows of valuations. This is the exact type of reason I keep going back to the market being scared of the current President. He has yet to be able to convince the people who employ people in this country that their business will be safe and sound tomorrow. I heard Mort Zuckerman on Meet the Press say it best yesterday. To paraphrase he said the President while popular, isn't very inspirational.

I'm pretty sure this is my point exactly. The problem is that these assets are worth significantly less in the long term than what the Banks are accounting them as worth today, and everyone knows it. Hence, repealing Mark to Market, allowing the banks to pretend they're somehow worth even more, isn't going to make a bit of difference except perhaps to kill off any bank that's run by anyone stupider than the people running C and BOFA.

[southsider2k5]

I'm pretty sure this is my point exactly. The problem is that these assets are worth significantly less in the long term than what the Banks are accounting them as worth today, and everyone knows it. Hence, repealing Mark to Market, allowing the banks to pretend they're somehow worth even more, isn't going to make a bit of difference except perhaps to kill off any bank that's run by anyone stupider than the people running C and BOFA.

 

It makes a big difference, because it is the write downs that are killing the banks right now. If they weren't writing down assets, we wouldn't have a probelm. Even if they aren't what you judge them to be, they are murdering the capital ratios of banks and making money just disappear from the system. Speaking as someone who actually deals with securities valuations on an everyday basis, its also worth noting that just because there isn't someone who is willing to pay a price for something, doesn't mean that is not what they are worth. Exchanges give valuations to all kinds of things all of the time which aren't based on trades. Heck I would estimate something like 95% of all exchanged based options contracts are settled on a nominal value, and not a traded actual value at the end of the day. Valuing these securities at something other than a traded price is the overwealming common practice.