I'm glad it's gone. Asking any company to value its assets based soley on what they could get for it RIGHT NOW in a firesale is silly. It's not a fair reflection of value. Would you value your home that way? Imagine an office builidng in a suburban setting in Michigan that's the security for a commercial loan...taking a RIGHT NOW firesale value presumes there are buyers willing to take that on RIGHT NOW in this climate. Companies that take the risk to buy distressed assets aren't even bidding on that stuff right now coming out of Michigan. So the bank has to value it at zero??? Zero is really a fair reflection of value?? I suppose it is if you believe that Russian guy that the US is about to completely implode and we'll all be subject to Mexico. Selfishly, this change give banks time to work stuff out (to reserve more against it over time) and sell stuff off over time instead of unloading it all on the government and the government unloading all only on huge institutions (like Goldman) who can handle that sort of volume. I'm hoping for a longer term of banks selling stuff off, culling through it.
as my boss told me, your home has no value until you can sell it. I think these assets are in the same boat, its the exact same problem what if the bank has to foreclose on that building?
I don't think it's that far fetched - value is inherently what somebody is willing to pay, that's what our system is based on. If nobody is willing to pay more than zero, then who are you to say that it is worth more than zero? if you think it is, then as a rational individual, wouldn't you buy it? (ceteris paribas & all that). I understand there are drawbacks but it's a pretty easy system to administer.
I just don't think it's a fair value. I wouldn't ask or want anyone to value assets that way. I don't believe things are worthless and without value because there's not a buyer RIGHT NOW.
1. this ignores everything we understand about value. 2. a foreclosure doesn't mean something is worthless. it means someone couldn't make their payments.
if you can't get the value for it, its pointless. that's the whole point of determining the solvency of a bank. if you can't sell it and the borrower can't make payments, its worthless.
i completely disagree. because you can't find a buyer TODAY doesn't make something worthless. do you revalue your home every single day based on whether or not someone is willing to close on it in the next 24 hours? that's silly. if you can never find a buyer, you're right...it's worthless. but pretending that because you couldn't sell it today (for whatever reason) that it is without value is nonsensical to me. we don't ask anyone to value anything that way, aside from those in a bankruptcy proceeding, perhaps.
while i am trying to find this gs report i will chime in with something... IF the govt actually had the balls to force an independent non-bs audit of these securities and find out how much interest income they would continue to produce under extreme stress (13+% unemployment and maybe another 20% drop in real estate prices) then you could actually find some sort of solid value for them. but...that will never happen...who wants to face reality when you can just print money!
You're making a bad comparison though - the market for illiquid assets and exotic financial insturments that nobody understands is WAY smaller than the market for homes or consumer goods, and way less efficient as information is way more imperfect, so if you can't find a buyer at any price, chances are greater that there is simply not one out there.
I would argue that because they're illiquid and exotic that M2M makes even less sense. Just from my own limited experience with this.
That's true - if you HAVE to sell it. But these companies don't have to sell these things, so why value them as though they did and screw up the rest of their business for no good reason? Then it has a building that it owns and can hold on to until the market gets better.
This is interesting. We're getting that super-rally I was talking about, but financials aren't participating at all. They opened with a pop and have been flat or down since while the rest of the market is on a run. That's not at all what I expected.
ding ding ding. And who will this fall on? The taxpayer. The bailout is turning into a golden parachute. lol.... maybe I should invest heavily in financials after all.
true but like I said, I'd rather have it be punitive - I think if you're going to allow public companies to take on risky investments (and let's be clear, risk is about uncertainty, and these are the epitome of uncertainty as nobody understands them) you do that in tandem with a regulatory regime that errs on the side of caution
But the punitive result of M2M has been on the taxpayers and the global economy - that wasn't the purpose of it so you have to re-evaluate the policy. The goal right now needs to be to get the current situation fixed - then you worry about creating a new regulatory structure to prevent this from happening again.
Any M2M changes are essentially more bailout for the troubled financials. One can hope this time round that the companies that accept the M2M changes are also made to accept executive compensation and bonus restraints. I have grown very tired of bailing out the financials and would not too opposed to SF's suggestions about getting medieval on their asses. Make them go through bankrupcy. Make the board and other investors feel that pain. Make the executive teams unemployed and their stock options worthless. Visualizing AIG's executive team in the welfare line brings a smile to my face.
visualizing all the other faces that would be there with them at that point makes my smile turn upside-down.
you act like the two are tied permanently together. I see nothing wrong with ousting the higher-ups from all of these companies. Make it a lesson for those who set their ambition just a little too high.
