I understand where you are coming from…and agree that some form of action is required (whether it is changing the rules or not…is debatable) but heres what the situation sounds like to me: The banks have taken advantage of the system as far as they could. The moment it turns to their disadvantage, they want to walk away.
Syd_RE Wrote: ------------------------------------------------------- > I understand where you are coming from…and agree > that some form of action is required (whether it > is changing the rules or not…is debatable) > > but heres what the situation sounds like to me: > > The banks have taken advantage of the system as > far as they could. The moment it turns to their > disadvantage, they want to walk away. I am not arguing banks are blameless, I always support more change to strengthen the rules. However, sticking to obviously wrong rules isn’t the way to run capital markets. Personally, I work in the ABCP conduit market. My business, while not as glamorous as underwriting bonds and sucking in millions of fees, is a relationship one. If I get into bed with a company it’s for 1+ years and I damn well better be comfortable with my modeling, structure, and servicer/seller. I like the fact that I have accountability.
Why aren’t more people stepping up to buy these great bargains? I assure you there is plenty of cash. I have the cash?!? How come when I look at the bonds available to me I find zero bargains except the muni resets which are likely to be gone tomorrow (already 1 has been called away).
virginCFAhooker Wrote: ------------------------------------------------------- > Why aren’t more people stepping up to buy these > great bargains? I assure you there is plenty of > cash. I have the cash?!? How come when I look at > the bonds available to me I find zero bargains > except the muni resets which are likely to be gone > tomorrow (already 1 has been called away). I give up. you’re hopeless and, thankfully, in the minority.
http://www.nypost.com/seven/03232008/business/bear_may_have_lived_103101.htm Interesting to see that Bear may have been fine, had there not been a run on the bank. Kinda shoots down the idea that everything they had was “worthless” eh? M2m should go the way of the dodo bird.
A noble effort, SPierce. But there are some people who actually believe in efficient markets and that technicals don’t matter. Let’s hope that if they manage to get through CFA I, II, and III, that one day they try for CFA Level IV: The real world financial markets.
There are plenty of smart guys around with huge cash piles that wouldn’t touch BSC. Only the Fed spending someone else’s money would step in. Meanwhile, Warren Buffett (who practically owns moodys and wells fargo) is sitting on $50+ billion & has access to the smartest minds on the street … wouldn’t touch them with a 10 foot pole. Bill Gross, sitting on $50 billion… wouldn’t touch them. Meanwhile, JPM ponies up $250 million in “on the fly print your own stock” and gets a $20 billlion non-recourse cash loan from the fed to handle the toxic waste. Value investors who specialize in knowing value won’t touch them… who will? Only the Fed. Makes me proud.
virginCFAhooker Wrote: ------------------------------------------------------- > There are plenty of smart guys around with huge > cash piles that wouldn’t touch BSC. Only the Fed > spending someone else’s money would step in. > Meanwhile, Warren Buffett (who practically owns > moodys and wells fargo) is sitting on $50+ billion > & has access to the smartest minds on the street > … wouldn’t touch them with a 10 foot pole. Bill > Gross, sitting on $50 billion… wouldn’t touch > them. Meanwhile, JPM ponies up $250 million in > “on the fly print your own stock” and gets a $20 > billlion non-recourse cash loan from the fed to > handle the toxic waste. Value investors who > specialize in knowing value won’t touch them… > who will? Only the Fed. Makes me proud. That’s because they aren’t in the banking business. Go reread that link I posted.
Gideon… not sure if you were talking about me, and if so, still not sure if it was an insult or a complement. That being said, I passed all the CFA tests and am doing exceptionally well in the real world financial markets. So if it was an insult (still not sure it was) then I am hurling it back at you with verbal harrumph. For the record, I always like what Spierce writes even when he’s dead wrong… like he is now.
Actually, Bill Miller of Legg Mason, another CFA charterholder and noted smart value investor, bought 5% of BSC into the slide but before the crash. But that’s beside the point, which I won’t belabor any further.
Buffett owns lots of banks. He knows the financials VERY well. He owns 20% of little ratings agency called Moody’s. He almost bailed out LTCM. He holds $44 billion in cash with the express purpose of buying assets of any kind at fire sale prices. BSC, at $250 million, was not cheap enough for him.
Oh, man. I cannot believe we are having this discussion. You don’t think that BSC’s employees collectively or just the top 10 could have scraped together $250M to save their firm? It was a fire sale where only one firm was allowed to bid. And punch up a one year chart of MCO when you have a chance.
virginCFAhooker Wrote: ------------------------------------------------------- > Buffett owns lots of banks. He knows the > financials VERY well. He owns 20% of little > ratings agency called Moody’s. He almost bailed > out LTCM. He holds $44 billion in cash with the > express purpose of buying assets of any kind at > fire sale prices. BSC, at $250 million, was not > cheap enough for him. Are you serious? As Gideon said, nobody else was allowed in. JPM was tapped on Friday and the price was set on Sunday. $250MM is a bargain, everybody knows it, and that’s why JPM has been up significantly. The fact Dimon got the Fed to give a 30bn guaranteed liquidity line was the icing on the cake. He bent them over the barrel and they took it because they didn’t want a panic in the market.
Soo…yeah, now JPM raised the bid by 5x. http://www.nytimes.com/2008/03/24/business/24deal.html?hp=&adxnnl=1&pagewanted=2&adxnnlx=1206349290-kBSufuKnsf2CaC4oIiF3xw Now why would they suddenly do that if it was only worth $2? They are still getting a huge steal.
virginCFAhooker Wrote: ------------------------------------------------------- > Why aren’t more people stepping up to buy these > great bargains? I assure you there is plenty of > cash. I have the cash?!? How come when I look at > the bonds available to me I find zero bargains > except the muni resets which are likely to be gone > tomorrow (already 1 has been called away). If something is trading .85@.95 and will most likely be .80@.95 or worse after you trade, wouldd you buy?
Syd_RE Wrote: ------------------------------------------------------- > I don’t think we heard anyone complaining about > M2M when they were writing assets up! Why the > complaints now? How should a bank acount for: 1) an american call trading below intrinsic value? 2) an Out of the money call option which was purchased at an I.V. of 25 and is currently trading at 100?
Good points spierce, thanks for putting that in perspective. It sounds like some middle ground between M2M and historical cost accounting would be in order? I can see M2M being the right method during rational times, but there should be some form of rational value modeling being incorporated during times like these.
Son of Man Wrote: ------------------------------------------------------- I can see M2M being the right method > during rational times, but there should be some > form of rational value modeling being incorporated > during times like these. That really doesn’t make any sense. Neither does some blend of historical cost accounting and FV accounting. Having read through this thread, both sides are making good arguments and, imho, the issue is enigmatic in that we can’t know for sure what the source of the current issue is. I know each side thinks it knows, but this is really a chicken and the egg discussion, which has no clear victor. Having spent some time in the controllers’ division for a Canadian IB, I can tell you that the group was simply not equipped to properly deal with the valuation adjustments required for some of these products (and from the fallout in the market today, it would seem that many of the traders structuring these products weren’t equipped either). To add insult to injury, when issues over questionable valuations were brought to the table, there was little political will brought on behalf of Finance and Accounting as they were ultimately deemed to be too removed from the market and therefore did not have an appreciation for the subtleties over how these products worked and as such their opinions were discounted. On top of that, these products were very profitable at the time and therefore there was an implicit need to have a very solid case as to why the P&L should be stripped off these products, or even worse, why a valuation adjustment anywhere near the size of what is being seen today should be justified. IMO, the truth probably lies somewhere in between both sides. True that some of these products are being sold at unreasonably low valuations due to the quality of collateral, but I think this applies to only to the AAA or AA- portion of the market. Also, I have to agree that a ‘cleansing of the system’ is not what anyone needs, regardless of my personal disdain for the complete lack of accountability in what is supposed to be the cornerstone of capitalism in modern global economies. My view is that, if allowed to fail, these products and the resultant run on the banking system could have potentially led to a global economic depression, which would have taken decades to recover from. But that’s my .02.