purealpha Wrote: ------------------------------------------------------- > MattLikesAnalysis Wrote: > -------------------------------------------------- > ----- > > Any period with declining home values takes > over > > 10 years to recover in real terms from any > > experience we’ve had in the past and this > > “downturn” most resembles the GD no matter what > > any optimist will say. > > Off topic, I’ve been reading up on the GD and my > reading experience was one big deja vu moment (and > I’m not talking lap dances). We didn’t learn all > that much from the GD it seems. Home values > aren’t going to be “back to normal” anytime soon. we learnt a lot, my grandparents never used debt after their experiences in the 30’s. Its a lesson thats been lost on us and our parents. I think this is a generational ‘this time its different.’ moment for all of us.
The new FASB rules pretty much say, “Give the exam and grade it yourself.” However, the new rules are also mandating a lot of disclosures, which will provide more clarity as to the level of assets that will be held in the three levels under FAS 157. Investors can then see the level of “creativity” the financial preparers are employing. If I can see the type of assets and the level of assets in the three FAS 157 buckets, I have enough material to conclude on the valuation technique the companys’ are employing. Am actually happy with these disclosure rules. While impairments and unrealized losses may go down (a coverup in my view), the added disclosure required by the companys will expose them more than today.
Yeah, the issue is that if you take away Mark to Market, what do you replace it with. Sounds like Mark-to-whatever-I-feel-like, which I guess is the extension I the liar loan applications to the valuation process. The one lining here is that there must be some sets of disclosures, which would presumably include what the current market value is. Presumably investors are paid for bearing (il)liquidity risk, so illiquid assets should have some discount to compensate investors for the chance they can’t realize the hold-to-maturity value if they need to. The problem is that the illiquidity risk premium has shot through the roof, and is unlikely to come down until employment improves and some method of reducing foreclosures is created.
bchadwick Wrote: ------------------------------------------------------- > Yeah, the issue is that if you take away Mark to > Market, what do you replace it with. Sounds like > Mark-to-whatever-I-feel-like, which I guess is the > extension I the liar loan applications to the > valuation process. The one lining here is that > there must be some sets of disclosures, which > would presumably include what the current market > value is. > > Presumably investors are paid for bearing > (il)liquidity risk, so illiquid assets should have > some discount to compensate investors for the > chance they can’t realize the hold-to-maturity > value if they need to. The problem is that the > illiquidity risk premium has shot through the > roof, and is unlikely to come down until > employment improves and some method of reducing > foreclosures is created. In theory that works, but right now, illiquidity risk is the MAIN concern with investors. MTM surged illiquidity discount on securitized products, guess who pays for it? Not the bank that created them but the borrower of the original loan. thus making car loans, HEL, Mortgage loans, credit card loans, personal loans, business loans, way more expensive and to a point securitizing stopped working. This cascaded into every faucet of business and the global economy was so addicted to easy money they now can’t survive without access to money. Their are two solutions/outcomes in my opinion: 1) let the markets go to hell, securtization as a driving force in the economy is done with, stick it in the graveyard, banks will revert back to old banking techniques, they own the loan they create and see it through maturity, forcing extreme bankruptcies but when we come out of it we will have a clean slate …or 2) Patch work, force liquidity down the throats of banks and into the markets during this transition phase away from securitization, and securitization will come back in a less leveraged type environment. Do you stop cold turkey or do you ease out of the addiction? Typically #1 outcome will learn it’s outcome from the violent realization we were addicted to free money and everybody will be better off in 20 years, it’s just the next 5 everyone is concerned about… #2 causes concern of a relapse(I seriously doubt it) but can it be managed through tighter regulation? That has yet to be seen.
MattLikesAnalysis Wrote: ------------------------------------------------------- > spierce Wrote: > > So you’re telling me that if you had two > companies > > where the only difference was that one had a > > liquid market and another had an illiquid > market, > > otherwise any future cashflows were *identical* > > the and the ROE would be *identical*, and the > > illiquidity was a temporary issue, you’d value > the > > illiquid one less and then sell it at that > lesser > > amount? > > > > This is the key to the problem, just because > you > > CAN value it at a depressed, irrational, > illiquid, > > and unrealistic, amount, should you? What is > your > > long-term goal? Do you HAVE to sell (thus > > depressing the price more), or should you even > > sell? > > i don’t understand your argument. what assets have > a long time-frame and are currently illiquid? i > can assume what you’re talking of is mortgage > backed securities. in that case, the decline in PV > of CFs is realistic unless you’re in the camp who > believes gdp will double in the next 20 years, > which was the assumption of most individuals > pre-crash. or i can assume you’re talking about > CDSs protecting LT debt. in that case, it will not > experience temporary liquidity, it will be this > illiquid for a very long time and they are > illiquid in their design. How many securitization deals are being done in the market right now? How many are trading on the secondary market and at what prices? More or less, *ALL* securitization deals are illiquid, some are less liquid than others, but the whole market is seized up and all prices are down. GDP will probably double in 20 years just due to inflation.
sid3699 Wrote: ------------------------------------------------------- > The new FASB rules pretty much say, “Give the exam > and grade it yourself.” > > However, the new rules are also mandating a lot of > disclosures, which will provide more clarity as to > the level of assets that will be held in the three > levels under FAS 157. > > Investors can then see the level of “creativity” > the financial preparers are employing. > > If I can see the type of assets and the level of > assets in the three FAS 157 buckets, I have enough > material to conclude on the valuation technique > the companys’ are employing. > > Am actually happy with these disclosure rules. > While impairments and unrealized losses may go > down (a coverup in my view), the added disclosure > required by the companys will expose them more > than today. You make a good point. I think it’s pretty clear that M2M just doesn’t work like it should - yes it’s a great theoretical concept, but the reality is that we don’t live in an economists wet dream. Alllowing companies to value assets using alternative methodlogies when markets are inactive is also not going to work UNLESS we have very very clear disclosure about the model and methodology used to value the assets. (And I mean way more than we get at the moment). If the model which the company uses is junk or flawed then it will become apparent through analysts or some other source (and the regulators should have a greater role here too I think).
spierce Wrote: > GDP will probably double in 20 years just due to > inflation. did you mention this as a serious point? b/c as a guy who actually understands markets, why would I care about a nominal gain that has no real effect? this statment has made me disregard everything else you’ve said. disgusting. as for the securitization deals, the govies want them gone and if they have their way, they will be less liquid in the future than they are now. you still haven’t address my point being that if the government didn’t own EVERY bank through CDS gifts through AIG and actual nationalization, there would be a real fire sale and prices would be even lower. many of the securitized investments would likely be worth zero, so to value them at face value is dumb because it doesn’t reflect the risk inherent in the security. i’d rather the sihtstorm come down today than 2 years from now, delaying recovery. wipe the slate clean, lets start again. all this loss delay is just an attempt to fool the public to buy dying assets. if they can sell enough to ignoramouses, then maybe the last guy to buy before an uptick can make some dough, otherwise, everyone loses dough. don’t fall for the trap. they’re laying many.
MattLikesAnalysis Wrote: ------------------------------------------------------- > spierce Wrote: > > GDP will probably double in 20 years just due > to > > inflation. > > > did you mention this as a serious point? b/c as a > guy who actually understands markets, why would I > care about a nominal gain that has no real effect? > this statment has made me disregard everything > else you’ve said. disgusting. > > as for the securitization deals, the govies want > them gone and if they have their way, they will be > less liquid in the future than they are now. you > still haven’t address my point being that if the > government didn’t own EVERY bank through CDS gifts > through AIG and actual nationalization, there > would be a real fire sale and prices would be even > lower. many of the securitized investments would > likely be worth zero, so to value them at face > value is dumb because it doesn’t reflect the risk > inherent in the security. i’d rather the sihtstorm > come down today than 2 years from now, delaying > recovery. wipe the slate clean, lets start again. > all this loss delay is just an attempt to fool the > public to buy dying assets. if they can sell > enough to ignoramouses, then maybe the last guy to > buy before an uptick can make some dough, > otherwise, everyone loses dough. don’t fall for > the trap. they’re laying many. LOL. “disgusting”? Seriously dude, get a fuggin life. How do you conclude the governments are getting rid of securitization and the market will be even less liquid? If anything, they’re moving in the opposite direction through TALF.
by less liquid, i mean the market will be gone. yes, TALF is a temporary program to loosen up the system so the banks they own can allocate less to reserves and more to operating activities and hopefully divest the banks before the govies end up owning everything. securitization will see major flak over the coming years as it was basically a money making machine for banks and led to this mess. and yes, disgusting. the fact that an AFer stated that gdp doubling b/c of inflation is a notable point is disgusting, mostly b/c that is the difference between us as financial professionals and them; the fact that we understand a nominal gain isn’t a gain. most common folk cannot wrap their head around this concept.
I thing disgusting is strong here. Spierce is consistently intelligent, and I usually learn or at least question something I’ve been thinking when he posts. I must admit, though, that I raised my eyebrows a bit on hearing that inflation will double GDP in twenty years. Spierce is smart enough to know that it is real GDP that we should care about and not nominal GDP, so the question is “why would an otherwise smart guy be saying this.” My guess is that this is a statement about how big inflation will be; not about how great it will be to double nominal GDP with it. I don’t really see a way around inflation. A lot of people are concentrating on “money printing,” and that does suggest some inflation, but presumably interest rates can be jacked up later on if necessary to reduce it. A major problem could happen if we get inflation plus slow growth, and the worry will be that higher interest rates will put the brakes on whatever growth we have. But the other issue is that, as a nation, we are highly indebted and very likely without the cash flow required to pay it off, and so inflation is not just an economic ailment, but has some politically desirable consequences for eliminating debt. I think it will be hard to resist using this tool to shrink real debt. Normally, when countries do this, the currency takes a hit, but since the US is the primary reserve currency, it looks like we have an advantage here. The consequence is that we will probably be able to inflate our way out of this debt eventually, but that we will likely end up lose our reserve currency primacy by doing it (as the chinese and russians are already muttering).
MattLikesAnalysis Wrote: ------------------------------------------------------- > by less liquid, i mean the market will be gone. > yes, TALF is a temporary program to loosen up the > system so the banks they own can allocate less to > reserves and more to operating activities and > hopefully divest the banks before the govies end > up owning everything. securitization will see > major flak over the coming years as it was > basically a money making machine for banks and led > to this mess. > > and yes, disgusting. the fact that an AFer stated > that gdp doubling b/c of inflation is a notable > point is disgusting, mostly b/c that is the > difference between us as financial professionals > and them; the fact that we understand a nominal > gain isn’t a gain. most common folk cannot wrap > their head around this concept. Securitization didn’t cause the mess. Relaxation of accounting rules, relaxation of leverage of banks, de(under) regulation of bank activities and CDS, and off-balance sheet stupidity caused this. Securitization has existed for almost 40 years without problems, blaming the tool for the problem is disgusting. No sh!t sherlock. It was a joke.
if it was a joke then i’m just razzin you cuz its rainy out and i’m sleepy. but unless i was your best friend, and even if i was, it would’ve been difficult to tell that was a joke. you can’t deny that securitization in itself brings about greater leverage. sure you can increase bank leverage and deregulate, but without MBS and CMBS blowing up, i don’t think we’d have anything close to what we have today. i’m not bashing the idea of MBS or CMBS, but how they were sliced and diced and mis-rated, created confidence from air and now this confidence has been floored, and thats what we’re in, a crisis of confidence. this lack of confidence is what leads us to frozen markets and completely illiquid assets, primarily MBSs and CMBSs.