|
PureBytes Links
Trading Reference Links
|
Valid points but the argument is that the market is not fairly valuing
the assets at this time since the market has failed and is
illiquid. Assets have different values in an organized sale, an
auction, and a panic. Carrying them on the books at some arbitrary
inflated value based on an over priced market at the time of acquisition
is just as invalid as marking to market in today's environment.
Perhaps a new mark to market rule that used a 50 or 200 day moving
average would be more realistic. Thereby taking note of the market
but ignoring the high daily beta that sometimes rattles things.
A 2nd not about the overall "fix"... We have taken over 3.6
trillion of fannie/freddie debt, spent 250 billion or so on fed bank
takeouts, and now are talking about $700 billion for the latest action to
remove credit/debt swaps from the market and balance sheets. This
is already over 4.5 trillion dollars. As recent discussion about
the $85 billion bailout for AIG demonstrated 85B/200million tax payers =
$425.00 per adult in the USA. That can round off to about $500 per
$trillion. multiply that by the $5 trillion or so the gov't will no
doubt assume in debt to deal with the current problems before its all
done and you have $2,500 per adult in the country. Liquidity could be
added to the markets by pumping it into the economy from the consumer
side by giving $2,500 in spendable script to each adult in the US.
By doing it as spendable script it would not get stashed away as savings
or to pay old bills but would only be useful to spend. Thus
consumers would spend, those who are tight on mortgage payment money
would have a supplement to carry them along, etc. Defaults would
decline strongly, the economy would soar with businesses (and only
domestic business at that) would gain sales and liquidity, housing
markets would have time to stabilize with the shut off of more defaults
for quite some time and all could bet back to a more normal environment
where long term fixes could be designed to correct the structural
problems in the system and could then have the time to be implemented and
work slowly.
Yes, its purely inflationary or a redistribution of wealth or a
combination of both. But then so are the other fixes being
contemplated right now. This one targets main street instead
of wall street and keeps the gov't layouts directed purely domestically
and instantly builds confidence with each and every US adult as it puts
spendable money in their pockets.
Boater805
At 09:34 AM 9/30/2008, you wrote:
I agree -
suspending mark-to-market is crazy as is lending to the troubled
institutions instead of buying their assets. I am surprised that
analyst's don't evaluate the impact these alternatives have on the
balance sheet. Selling insurance to those without any cash is also nuts.
Where is the basic understanding of this issue? This is all about
restoring confidence and weakening the balance sheet or increasing
expenses is not the answer.
Jim
- ----- Original Message -----
- From: Code 2
- To: Pete Holt
- Sent: Tuesday, September 30, 2008 8:05 AM
- Subject: Re: [RT] Paulson Plan
- I agree with John Mauldin's comments on asset valuation; however
his
- suggestion to suspend mark-to-market accounting is wrong.
- It does not help investors, depositors or regulators to allow
- financial institutions to overvalue their assets and therefore
- overstate their capital reserves. And to make matters worse,
- re-jigging reported asset values only when it is convenient to
prevent
- an institution from failing is just insanity.
- Here's an example. I buy a house for $1 million and finance it with
a
- $900,000 loan. Let's say its value goes up to $1.2 million, so I
- report that value on my credit application to the bank and borrow
an
- additional $180,000. A year later, the value of my house declines
to
- $600,000. Mark-to-market accounting says I must report a deficit
of
- ($600,000 - $900,000 - $180,000) $480,000. Suspending
mark-to-market
- accounting says I continue to report $120,000 of equity. Which
paints
- the true picture? Oh, and following the suspension of
mark-to-market
- accounting, with my $120,000 of "equity," I convince you,
an investor,
- to put up $60,000 for an equity interest in my house.
- An interesting benefit of Goldman Sachs and Morgan Stanley's
recent
- switch to bank holding companies was that certain assets no longer
get
- marked to market. They avoid reporting the decline in value of
- billions of dollars of certain assets.
- From: Pete Holt
<peteholt@xxxxxxx>
- To:
realtraders@xxxxxxxxxxxxxxx
- Date: Monday, September 29, 2008, 9:36:52 PM
- Subject: [RT] Paulson Plan
- This (from John Mauldin's Outside the Box) would seem to be the
key
- deficiency in the Paulson Plan. Don't see how this can be fixed
in
- the short run.
- There is one practical problem that will plague the Paulson Plan
and
- any plan that involves the government purchasing distressed
assets
- from financial institutions. These assets are NOT(!!!)
accurately
- valued on the books of financial institutions.5 Accordingly,
these
- institutions are not in a position to sell them to the government
at
- current fair market value. Any sales at current market value
would
- inflict huge losses on these institutions. The alternative is for
the
- government to grossly overpay for these assets, which would
constitute
- a disguised capital infusion into these firms that would
short-change
- the American taxpayer. This flaw in the plan is why members of
- Congress from both sides of the aisle insisted on some kind of
- profit-sharing structure that would compensate taxpayers in the
event
- the government pays above-market prices for assets. HCM fears
that
- very little of the $700 billion is going to be spent in the near
- future because of the reluctance of banks to part with assets at
- anywhere near their current value, and the government's reluctance
to
- overpay for these assets.
- 5 Although in fairness all the blame for this can't be placed on
these
- institutions. There is currently no market for many of these
assets
- and placing a value on them would be an arbitrary exercise. This
is
- why mark-to-market accounting should be suspended for an
indefinite
- period of time.
No virus found in this incoming message.
Checked by AVG -
http://www.avg.com
Version: 8.0.173 / Virus Database: 270.7.5/1698 - Release Date: 9/29/2008
7:25 PM
__._,_.___
![]()
__,_._,___
|