Cambridge
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Post by Cambridge on Oct 1, 2008 8:28:37 GMT -5
Mark to market rules abandoned yesterday...very interesting
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Post by strummer8526 on Oct 1, 2008 9:20:33 GMT -5
Ocean Avenue is in shambles as people don't have the money to go on vacation. My buddy on Arlington Road is starting to think the only solution may be blowing something up.
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EasyEd
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Post by EasyEd on Oct 1, 2008 9:32:41 GMT -5
Ocean Avenue is in shambles as people don't have the money to go on vacation. My buddy on Arlington Road is starting to think the only solution may be blowing something up. Maybe William Ayers can help.
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Filo
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Post by Filo on Oct 1, 2008 9:54:20 GMT -5
Starting to hear some scary things out there, like Massachusetts being unable to borrow money short-term. The credit crunch is getting serious, methinks.
Love the present solution though -- as I understand it, Bush is just try to get the Senate to pass the same exact plan that was rejected. Brilliant. What leadership we are getting in times of crisis.
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SirSaxa
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Post by SirSaxa on Oct 1, 2008 11:03:55 GMT -5
Senate to vote today to get the bill back on track. I will predict the Senate passes it and in another day or two the House will vote again and pass it also.
As for Pelosi... I will readily acknowledge that her comments before the House vote were very poorly timed and inappropriate (though not inaccurate) considering this was a bi-partisan effort to support the Administration's bill. There was no reason for her to make them at that time.
But, that is not even close to an adequate excuse for the 12 Republicans who supposedly switched their votes at the last minute. Really, the US and Global economies are going down in flames but you said some unpleasant things so we aren't going to support the bill -- for our own Republican Administration -- to deal with the crisis.
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Cambridge
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Post by Cambridge on Oct 1, 2008 13:01:55 GMT -5
I'm telling you, while I only have a limited working knowledge of finance, those who are much more involved, like my father-in-law, say that the Mark to Market rule change is arguably a much bigger deal than the bailout. It will allow financial institutions to record the value of assets at a reasonable projected price...not what it would fetch on the market right now. That might sound like some Enron-voodoo, but in this case, with subprime mortgages, there are actual houses on the ground. While there is no market for those homes right now, those homes have a value. Under the mark to market system, the bank would have to list them as "$0" if there is no market (ie nobody is buying homes) rather than an approximate value based on the location, materials, etc. (what a reasonable person would value the home at if people were buying homes) voices.washingtonpost.com/livecoverage/2008/09/the_end_of_mark-to-market_acco.html?hpid=topnewsblogs.barrons.com/stockstowatchtoday/2008/09/www.nytimes.com/2008/10/01/business/01audit.html?_r=1&ref=business&oref=slogin
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SirSaxa
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Post by SirSaxa on Oct 1, 2008 13:20:57 GMT -5
I'm telling you, while I only have a limited working knowledge of finance, those who are much more involved, like my father-in-law, say that the Mark to Market rule change is arguably a much bigger deal than the bailout. It will allow financial institutions to record the value of assets at a reasonable projected price...not what it would fetch on the market right now. That might sound like some Enron-voodoo, but in this case, with subprime mortgages, there are actual houses on the ground. While there is no market for those homes right now, those homes have a value. Under the mark to market system, the bank would have to list them as "$0" if there is no market (ie nobody is buying homes) rather than an approximate value based on the location, materials, etc. (what a reasonable person would value the home at if people were buying homes) voices.washingtonpost.com/livecoverage/2008/09/the_end_of_mark-to-market_acco.html?hpid=topnewsblogs.barrons.com/stockstowatchtoday/2008/09/www.nytimes.com/2008/10/01/business/01audit.html?_r=1&ref=business&oref=sloginCAmbridge, Your Father-in-law has a point. Let's say you needed money right away... I mean RIGHT away. And the only way you had to get that money was to sell your house. But no one gives you a month or two or six to sell the house, you have to sell it right now, this week. Maybe even today. How much do you think you might get for your house if you need to sell it instantly, vs. if you had months or even a year to find a buyer? That is essentially what the mark to market rule is doing at the moment. Mind you, in general, mark to market would seem to make sense because it forces companies to keep their assets and balance sheet current. But in the current crisis, there is "virtually" no market for all the mortgage backed assets. Therefore, banks have been writing them down like crazy.... taking paper losses, and -- in some cases -- being forced out of business. The problem with the sudden switch on the Mark to market policy, is that now everyone already knows these financial institutions have this toxic paper in their portfolio. Suddenly telling everyone "gee, it's really ok... its worth a whole lot more than I said it was yesterday" is not going to persuade anyone that anything has really changed vis a vis the financial viability of the firm. So... yes, probably it is a good idea. Along with a few other market changes, like re-instating the uptick rule for short sales. I agree with your FinLaw, but had that rule been changed six months ago instead of in the midst of a crisis, it would have had a greater impact.... at least, that's how I see it going forward. That is not to say I think it is a bad idea. The other drawback is changing accounting rules in midstream? It is just like changing the rules of a game in the middle of it. Somebody is winning and someone else is losing. Suddenly the rules change. The teams that have been playing successfully by the old rules get penalized, and confidence in the overall system is lost. But in a crisis of this magnitude, perhaps it is worth taking that risk and those who lose out? Well, they haven't lost as badly as the folks at Lehman Brothers -- a company that could have survived had these changes and bailouts happened a weak earlier.
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Post by sleepyjackson21 on Oct 1, 2008 13:25:05 GMT -5
If you look at the default rates for mortgages and look at where some of these toxic assets are being valued, you could come to the conclusion that they are actually undervalued. If you held onto all these mortgages till maturity you could conceivably make money. Right now there is no market because every major bank has the exact same position, which is they are long these toxic assets. When everybody wants to sell and nobody wants to buy, you have a one sided market and the price obviously plummets. John Thain made the decision that in order to save Merrill, he had to sell these toxic assets no matter the cost. He dumped them for 22 cents on the dollar. Dick Fuld of Lehman made the opposite decision. He didn't dump them and felt that they were worth more than where they were being marked. Classic traders mistake. Intrinsic value and where something actually trades are two different things. Things can be out of wack for a long long time. His firm paid the ultimate price.
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Post by PushyGuyFanClub on Oct 1, 2008 20:29:53 GMT -5
The mark-to-market rule system is quite complex. But you don't need to have too much sympathy for these folks. They effing loved mtm when they got to mark up their assets and book enormous profit and book value gains. But when the music stops, all of a sudden we have a big problem.
The fact is, market value does matter. If you need to sell something, you need to know what it's worth. So mtm values of securities should be presented alongside your acquisition cost as well as your rational estimate of future value based on something like a dcf using a 10% discount rate (just to standardize). The question is when do you book losses or gains? There is such a thing as a permanent impairment or a permanent gain. Even if you're not selling, there needs to be a workable defintion of permanent...but that will be quite tricky.
But this crisis is not about accounting rules. To focus on that is short-sighted. Rather, we're a horribly flawed society. That doesn't mean we don't have successes or things to be proud of, but we are prone -- every last one of us -- to making remarkable mistakes
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SirSaxa
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Post by SirSaxa on Oct 1, 2008 21:12:36 GMT -5
Senate passes Bail Out bill, with $100 billion additional costs included.
Next up, the House votes -- probably tomorrow.
Thank goodness we added another $100 billion so the House Republicans can vote for it this time.
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Post by PushyGuyFanClub on Oct 1, 2008 21:16:03 GMT -5
Nothing fires up House Republicans like provisions protecting mental health treatments. God bless riders.
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Bando
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Post by Bando on Oct 1, 2008 22:05:04 GMT -5
Nothing fires up House Republicans like provisions protecting mental health treatments. God bless riders. "Then it is unanimous, we are going to approve the bill to evacuate the town of Springfield in the great state of --" "Wait a minute, I want to tack on a rider to that bill: $30 million of taxpayer money to support the perverted arts." "All in favor of the amended Springfield-slash-pervert bill?" [Boos] "Bill defeated." I've said it before and I'll say it again: democracy simply doesn't work.
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Boz
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Post by Boz on Oct 2, 2008 8:35:25 GMT -5
I've said it before and I'll say it again: democracy simply doesn't work. And yet you hate Dick Cheney. Go figure. ;D ;D
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