Stock Market

Originally Posted by wiphan

This is the problem. Let's use a real life example. You own your home and you are subject to Mark to market. You paid $300k for your house and it is worth $300k. Now you are subject to revaluing your home daily. If it goes down you have to pay the bank more $. Now your neighbor lost his job, and had to sell his house. Now the market is down a little and he has to sell his house quick, since he doesn't owe very much he sells his house at a discount for $200k. Now if you use mark to market your home is worth $200k now and you have to come up with $100k to pay the bank. Now is your home worth $200k? no, but since your neighbor sold his home for $200k your home is now worth that according to mark to market. Well you don't have the $ to pay the $100k so you have to sell your home. Your neighbor just sold for $200k so now you have to sell even though nothing changed on your end and most likely you will sell your home for $200k or less thus creating the same problem for the rest of your neighbors. Once one of you sells your home each neighbor has an issue. This is what is happening in the banking world. Say BOA sells a large portfolio of mortgages for a discount 20 cents on the dollar. Now Chase's assets are worth 20 cents on the dollar even if the asset and portfolio is performing fine. It has nothing to do with the performance of the asset. I hope that helps explain it.

There are plenty of good viable paying assets that have been devalued due to mark to market rules. It is not just the bad loans (ie-subprime, pay option arms, etc) that are being devalued. It is everything. The banks need to keep more assets in reserves even though the assets are paying fine and producing income. Many of the banks are still profitable. Unlike the auto makers who have a real profit problem, this is just an accounting issue that could be fixed....

Well damn.
I would have bought them.

I never really understood how people could say their
home was worth X amount, unless there is a buyer
willing to buy it at X amount. In my simplistic way
of thinking, something is worth what people are willing
to pay for it. And if there are no buyers at certain moment
in time, then it is worth nothing at that moment in time.
Even though it may be worth a lot more
at another moment in time.

To all those holding on to Grandma's favorite
quilt I apoligize. I know it is worth something to
her.

[Payson Dave]

so you are saying that if it's not for sale it has no value???

Originally Posted by Payson Dave

so you are saying that if it's not for sale it has no value???

No I am saying if no one is willing to buy it at certain moment in time,
it has no value at that moment in time. Does not matter if it is for sale.

forgive me I am a physics person.

[Danzig]

Originally Posted by Payson Dave

so you are saying that if it's not for sale it has no value???

i think if it's not sold, it's all only a perceived value. something is only worth as much as someone is willing to give you for it, not what you gave for it.

[wiphan]

Originally Posted by pgardn

Well damn.
I would have bought them.

I never really understood how people could say their
home was worth X amount, unless there is a buyer
willing to buy it at X amount. In my simplistic way
of thinking, something is worth what people are willing
to pay for it. And if there are no buyers at certain moment
in time, then it is worth nothing at that moment in time.
Even though it may be worth a lot more
at another moment in time.

To all those holding on to Grandma's favorite
quilt I apoligize. I know it is worth something to
her.

I agree but what if you don't have to sell? Say your the bank that did things the right way, made the right loans and the performance of your asset is great. According to mark to market you need to devalue your asset even though you don't want to sell, don't need to sell it, and the performance of the asset is fine. Ultimately you are forced because you don't have the cash any more to back it due to devaluation and since your competitors had to sell their assets at a discount with little demand then it is devalued further and sold at a bigger discount and the cycle continues......

Originally Posted by wiphan

I agree but what if you don't have to sell? Say your the bank that did things the right way, made the right loans and the performance of your asset is great. According to mark to market you need to devalue your asset even though you don't want to sell, don't need to sell it, and the performance of the asset is fine. Ultimately you are forced because you don't have the cash any more to back it due to devaluation and since your competitors had to sell their assets at a discount with little demand then it is devalued further and sold at a bigger discount and the cycle continues......

A mess.

We need to just barter.
I will give you 100 cantaloupes for
5 chickens.

[hi_im_god]

Originally Posted by wiphan

I agree but what if you don't have to sell? Say your the bank that did things the right way, made the right loans and the performance of your asset is great. According to mark to market you need to devalue your asset even though you don't want to sell, don't need to sell it, and the performance of the asset is fine. Ultimately you are forced because you don't have the cash any more to back it due to devaluation and since your competitors had to sell their assets at a discount with little demand then it is devalued further and sold at a bigger discount and the cycle continues......

your explanations helped a bit. if you assume the problem is temporary illiquidity i understand you can solve it by accounting slight of hand.

but what if the illiquidity is more than a short term issue? what if the financial instruments held are so complicated, involving multiple insurance contracts on multiple mortgage pools where you don't really know if anyone has the money to cover losses on the motgages or, if they do, what amount? what if the problem of valuing the assets is a gordian knot and that's why the market treats them like plutonium?

before now the housing crisis has been generated by bad loans to people that shouldn't have been able to purchase a home. we're just now starting into the 2nd phase where people that had good loans they could afford will face forclosure due to job losses.

what if, instead of coming out of the recession towards the end of the year, we're accelerating deeper into it? how long does the slight of hand work? in that scenario does changing accounting rules work or is it just another way to kick the problem down the road another 6 months?

what if housing keeps going down?

this, by the way, is why i think fears of hyper-inflation are so laughable. the house is on fire and people are worried about water damage when the fire department arrives.

[wiphan]

The only way to solve housing and help slow or stop foreclosures is thru Job growth. If people have jobs, they will pay for and buy homes. If not then we have an issue. I would give tax credits to businesses who hire new employees. Solving the mark to market problems will free up liquidity and allow banks to lend $ to businesses to grow and hire new workers. If we continue down the path we are right now I believe we will fall deeper into recession...


Financials Rallying , Can the dow gain for 3 straight days? Thankfully I put my $ were my mouth was and threw money at some of the financial stocks earlier in the week. Up almost 20% on the day...

steady she goes so far