Well, off the top of my head, the price structure for expensive dedicated hardware vs. inexpensive software that makes pre-existing hardware work for multiple purposes gives one reason to reconsider capital allocation among technology firms. Apple is particularly interesting, since it sells both, but the phenomena has wide application. Standards that facilitate information transfer among people and devices and investment opportunities -- from Bluetooth to XBRL to 802.11 -- affect ROI in amazing and unpredictable ways.
The Black Death of Bubbles Still Lurks [View article]
Exactly. The principle (Occam) that "entities must not be multiplied beyond necessity" is apt. Had disclosure about RMBS been adequate, there would have been much less demand for all of the complexity built on top of RMBS. Sure, there's some complex trading around public company securities using GAAP disclosure, but there are enough people going long and short on public companies that even the dot com bubble didn't get big enough to present "systemic risk." Folks lost money, but there was still enough information in the market that no one said we were going to crash back into the Stone Age.
On the other hand, since the market didn't understand all the complexity built on top of RMBS, late September '08 saw all out panic. But had better disclosure made it possible for RMBS to be seen as what they were -- simply anticipated future flows of funds subject to certain risks and certain assumptions -- the drive to retranche and repackage them multiple times might have been exposed for the folly it turned out to be before it ran so out of control.
The development and implementation of GAAP after WWII was like an antibiotic that protected capital markets for more than half a century. RMBS derivatives were a virus, not a bacteria, against which antibiotics were futile and which thrived in the fluid surrounding productive public company organs. The virus hit the brain -- the banking sector -- first and then the other organs suffered. XBRL is the anti-viral that can map the DNA of RMBS and help the body realize that a natural diet with all the fiber of well-analyzed aggregated risk factors -- not processed meats and fats, HFCS, and artificial flavors and coloring -- is healthiest in the long run.
The Oil Casino: SEC Heading for Monte Carlo, Part I [View article]
First, Alan's description of the toxic asset crisis is priceless:
"Statistical rocket science wrongly predicted a AAA happy meal from diseased meat, lean tails, and worthless guarantees."
While no one wrote an analysis like Alan's warning investors in advance about potential or perceived problems with data rules for asset-backed securities, the good news is that this is now a topic for open discussion in the oil and gas sector. Without commenting on the merits of Alan's analysis, I'd note that the full text of the rule and its justification are available here: sec.gov/rules/final/20...
In the case of ABS, the rules allowed disclosure to be satisfied with ASCII data that was largely impossible for most investors to analyze (except for the short sellers who did). Even ratings agencies had problems using unstructured data from "tapes," meaning the pay-to-rate incentives overwhelmed incentives to get the analysis right.
A careful reading of the oil and gas rule and critical analysis should help investors arrive at their own balance among cash flow, various types of claimed reserves, and other information available to them to use to evaluate oil and gas companies. I would merely note Section 8 of the rule, which suggests a path toward a global standard to provide data in an industry standard format:
~~~ "VIII. Application of Interactive Data Format to Oil and Gas Disclosures
"In the Proposing Release, we sought comment on the desirability of rules that would permit, or require, oil and gas companies to present the tabular disclosures in Subpart 1200 in interactive data format in addition to the currently required format. Most commenters addressing the topic supported the use of XBRL for oil and gas disclosures.314 They believed using interactive data would be very helpful to investors and analysts.315
"However, they also recommended that the Commission wait until a well developed taxonomy exists.316 Some recommended that the Commission implement it in stages, initially with a voluntary program.317 One commenter recommended that the SEC work with other groups like SPE, IASB, and the United Nations to ensure tags ultimately become the industry standard.318
"We agree that much of the disclosures regarding oil and gas companies would be conducive to interactive data. We intend to continue to work on developing a taxonomy for such disclosure. Once a well-developed taxonomy is created, we will address this issue further. We are not, however, adopting interactive data requirements in this release. We will continue to consider whether to require interactive oil and gas disclosure filings in the future and, if so, when such filings should be required based on the development status of an oil and gas disclosure taxonomy." ~~~
The ABS industry wasn't too excited about creating a taxonomy for ABS, and only some participants now realize that an investor-friendly taxonomy would help restore the ABS market to its production possibility frontier (and keep future bubbles from expanding quite as far past the ABS PPF). Moreover, a taxonomy alone is not enough. To prevent GIGO, any taxonomy must be created in a way that allows for objective evaluation of the quality of its application, whether by auditors, a self-regulatory organization, effective deterrents to the use of bad data, sufficient openness to allow third party testing, other methods, or some combination thereof. Fortunately, it's easier, and in the long run less expensive, to audit machines and business processes than it is to audit human judgment. One of XBRL's key features is its potential integration with validation rules. That's not to say character isn't critical -- tone from the top can be a vital investment criteria -- but it is to say that the part of President Reagan's favorite Russian proverb after the conjunction is pretty important too: Trust but verify.
(There's a comment letter on the topic of XBRL for oil and gas reserves at www.sec.gov/comments/s... -- worthwhile reading.)
Very nice analysis, and a wonderful afterthought. I wonder how the afterthought might be converted into forethought. If the government won't get behind it, is there a holder of ABS, CDOs, or whatchamahaveyous who might be willing to step up and let someone dissect their proprietary information into a format that would support exchange trading? Is there an exchange that would be willing to be the host? If the quality of the underlying data is even marginally adequate, it should be nothing more than a plumbing problem to expose it to the market, since there should be enough data to ensure that errors cause aggregate instruments to revert toward the mean. The government could be the plumber, but that reminds me of the old Reagan joke:
A Russian wants to buy a car. The dealer tells him it will take a long time and that he will put his name on a list and he should come back in 20 years. The man says, "Do I pick it up in the morning or in the afternoon?" The dealer asks, "What's the difference 20 years from now?" The Russian says, "Because the plumber is scheduled to come that morning."
If we rely on the government, we may be waiting 20 years for the ABS, CDO, or whatchamahaveyous plumber to get here. Who might step up to make freedom and capitalism work now?
The Black Death of Bubbles Still Lurks [View article]
To mix a few metaphors, disease is most effectively fought at the cellular and molecular levels. Until information about the assets is available to the market in a usable format at that level of detail, the patient can not enjoy the benefits of sunlight. You can Google ABS XBRL SEC and among the treatments that will appear is this: www.edgareview.com/200.../ Too bad there's no anesthesia for the holders of these assets to protect them from the pain of experiencing market pricing of the instruments they created. (Disclosure: Long EDGR, which sold certain hedge funds a vaccine against ABS a few years ago and could supply it to the entire market if the SEC chooses to require mass immunization.)
Why Solving the Credit Crunch Is Key [View article]
On Jun 22 05:49 AM Moon Kil Woong wrote:
>...Don't we need to hunt that down and cage it with some form of constraint...
Yes -- and the cage is the transparency data base Mr. Greenberg suggests. Just as the U.S. GAAP taxonomy empowered investors to identify public company security risk factors in the 1900s, an XBRL taxonomy could empower investors to identify asset security risk factors in the 2000s. The more transparency that came to public company markets, the more difficult it was for Wall Street insiders to extract economic rents, driving the search for less transparent securities, such as ABS. Mr. Butter's article at seekingalpha.com/artic... and his prior posts are worthwhile reading with this one. Since the XBRL taxonomy exists now, the only reason to wait 10 years seems to be a lack of enlightened leadership.
Paul Krugman says California's collapse has him rattled, and wonders if America will follow it into ungovernability. "Who would have thought that America’s largest state, a state whose economy is larger than that of all but a few nations, could so easily become a banana republic?" [View news story]
If "governability" means multiple taxation and regulation at the local, state, and federal levels, let's hope governability is suffering. Government is too big and it costs too much, particularly if you're a Californian. Californians are fleeing the state despite the great weather because it costs too much to live here. Lower taxes and less government will make for a stronger California, a stronger nation, and a stronger world. It might sound warm and fuzzy for majorities to coerce people to tolerate attempts to extract wealth politically, rather than empower people to create wealth economically, but coercion is coercion, and the people of California showed they were tired of it last week. If we're lucky, that election will be a harbinger like Proposition 13 30 years ago. The New York Times hated that and it's no surprise they don't like the potential of another prairie fire helping someone else follow Gov. Reagan's path.
What Black Swans Might Be Served Up Next? [View article]
I seem to recall some debate as to whether the 08 crisis was, in fact, a black swan, since some people did predict it -- including, significantly, the hedge funds that reportedly paid to data tag the HTML and ASCII RMBS disclosures filed on EDGAR in XBRL. The parallel to climate change is interesting in this respect, as the perception of both climate change and the housing bubble depends on the analysis of a huge number of data points, and the reliability of those data points is subject to considerable debate. One wonders if the process of aggregating those data points mitigates the impact of defective information with respect to particular observations. This may have been the case with respect to those who profited by shorting the RMBS market on the basis of the XBRL data they paid to create.
Mark Cuban is right that "the smart thing for the SEC to do is to demand that any new financial instrument, regulated or not, needs to have an XBRL taxonomy assigned to it for future reporting pursposes before it could be sold." blogmaverick.com/2008/.../
Yahoo's Dispute of Eric Jackson's Articles [View article]
Nice point Joe. The interplay between options, restricted stock, and cash compensation is rather complex, to say the least. Attempting to figure it out obviously consumes a lot of valuable investor time. Of course, much of this complexity would be unnecessary if it weren't for the cap on corporate deductibility of cash compensation. Shareholders and boards could simply pay their executives cash based on a prudent formula measuring share value, share price stability, long term growth, stable dividend payouts, and other factors they find to be in shareholders' best interests.
Of course, that would make tax law less complex, resulting in fewer billable hours. Since tax lawyers appear to rank among K Street's most powerful lobbying shops (Exhibit 1: convincing Congress to introduce this complexity with the tax preference for options over cash), perhaps reform is a pipe dream. Too bad investors don't have a comparable lobby.
However, it would certainly be in the government's interest to adopt policies to encourage more stable revenue streams. Tax rules facilitating compensation policies (and hence tax revenue streams) based on long term shareholder value instead short term performance couldn't hurt. Executives could focus on company performance instead of spending time figuring out exercise programs and dealing with second guessing of exercise disclosures.
The aggregate effect might even strengthen the dollar. With 10,000 public companies increasing their demand for dollars relative to equity rights, it couldn't hurt. To the extent companies in the global capital market decided to stick with or move to a more dollar-friendly tax and regulatory regime, that would help the dollar. And non-employee shareholders could win too, with more capability to create more effective incentives and less reason to worry about dilution, another complexity that could be mitigated by smarter tax policy. Perhaps someday tax policy will overcome the politics of envy that facilitated the so-called compensation ceiling, and simplicity will overcome complexity. The dollar could certainly benefit from more dollar-friendly tax laws. The ongoing dollar trend seems as good a reason as any to promote dollar-friendly tax, spending, and monetary policies.
How Much Did Cash-for-Clunkers Boost Auto Sales? [View article]
And as Paul Atkins pointed out at yesterday's TARP hearing, creating moral hazard is also a real cost. He was discussing subsidizing banks and car manufacturers directly, but in this case, moral hazard arises when future consumers decide it's a good idea to postpone consumption, and more consumers do so at the margin based on hopes that if they continue to wait, the government might fund another incentive program. The clearer and more consistent the rules, the quicker the market gets you to a market clearing price. Government command and control activity only interferes with that mechanism.
Will the SEC Give the Buy Side What It Needs? [View article]
Actually, since they were getting gov't help after Lehman (note the AIG conduit to Goldman Sachs et al.) and it was not at all certain that full transparency would result in better prices, the more risk-averse position was to hold and recapitalize and wait rather than go for full transparency. Andrew Butter's article from Tuesday, and its comments, have it right: seekingalpha.com/artic...
Mr. Greenberg is also exactly right:
"Essentially, what would cause the buy side to return to the market and allow credit to flow through securitization again would be giving them more granular data on a more timely basis so that they could perform their own due diligence and have more trust in the ratings agencies methodologies."
See the comments to the Butter article for links to ways to produce that more granular data. The Treasury plan yesterday at least called for disclosure of loan level detail. What it left out was the need to disclose the detail and subsequent data in a format that can be easily analyzed by potential buyers. That format, for which a list of data tags already exists, is XBRL. All that is needed is the leadership to force the sell side to disclose instead of muck around in opacity that's further confused by potential and actual taxpayer subsidies.
Bear Stearns tried to offer some of its junk to the public in 2007 but nixed the deal, presumably when they found out that the transparency required wouldn't get them the price they wanted. Here's a quote from the FT at the time:
"Jack McCleary, head of asset-backed securities syndication at UBS said: 'The market does good job of sniffing out leverage. Dealers will look at funds with similar positions to ensure valuations are appropriate.'" -- www.ft.com/cms/s/0/f7b...
Alas, Mr. McCleary was all too prescient about the ability of the market. Too bad there wasn't more transparency sooner to help it move faster, before opacity exacerbated the bubble.
Is the U.S. Style Securitization Model Dead? [View article]
Brilliant and candid. There is a way to expose the circuits the same way GAAP exposes the circuits of public companies: XBRL. Public companies were slow to embrace full GAAP disclosure in the 30s and MBS makers are slow to embrace full XBRL disclosure now. It will happen. The question is when the golfers will let it happen.
FAS 157 and Other Regulatory Actions: Good Intentions, Unintended Consequences [View article]
Jack,
I think part of the reason there is not yet a solution stems from a complex cultural stalemate among lawyers, accountants, investors, and regulators. Lawyers like documents, accountants like numbers, investors like numbers in context, and regulators don't know how to proceed. Politicians simply throw up their hands and take the "easy" way out -- earmark more of "other people's money" to prevent what they are warned would otherwise be "catastrophic."
I can't understand why the President, who has spoken eloquently on the power of markets, doesn't command a market solution. Perhaps today's WSJ story on creating public-private investment funds is another trial balloon about a bureaucratic attempt to address these "complex" issues without frightening too many people into the realization that what they hold is worth either what a buyer will pay for it or the net present value of future cash flows to them -- but no more. (See paulwilkinson.com/2009.../.)
Politicians hate giving bad news to their constituencies. Bankers won't take sub-optimal prices as long as there's a reasonable chance that waiting for government money is a better option. We've yet to see the leadership -- the guts -- required to restore a functioning market. Someone, some time, will step up to lead. Until enough economic actors know who and when, the economy, which most of all depends on information that can be used by market participants to make decisions, will continue to suffer. Paul
FAS 157 and Other Regulatory Actions: Good Intentions, Unintended Consequences [View article]
"Good policy, bad timing" is one of the better explanations for FAS 157 that I've heard. Perhaps bad execution was also part of the problem. Just as turning on a floodlight in the middle of the night can help improve vision, flipping the switch can also blind people. Giving investors more time to understand how to evaluate the new information would have eased the transition.
One tactic that would have helped was suggested in the SEC staff report on FMV published in December. The explanation is the second point here: paulwilkinson.com/2009.../. There's also a link to the staff report.
What the staff means by "the complete integration of interactive data as a tool to bridge the gap between historical cost measures and fair value" is using XBRL to give investors choice in how to evaluate asset value, as described elsewhere on paulwilkinson.com. Different views as to value make markets. More useful information to evaluate investments would certainly help improve credit markets, just as more useful information helped make U.S. equity markets the world's strongest.
Other costs without prices: the externalities of adopting a policy that says something like, "keep taking risk, but not too much because you'll be blamed for bringing down the system, but it'll be OK because they'll be emergency government funding you can use to get out from under your excessive risk, and we'll be more likely to create ad hoc rescues in the future since we can now look back and cite the 'success' of TARP which turned a 'profit,' at least when you don't account for the cost of uncertainty created by ad hoc rules." The costs of intervention are far greater than can be measured by a simple ROI calculation, and they're imposed not just on taxpayers underwriting the debt to finance a particular intervention, but on every participant operating in the murkier "markets" of the indefinite future that are the consequences of the intervention precedent.
Apps Beat Devices: My $160 Lesson [View article]
The Black Death of Bubbles Still Lurks [View article]
On the other hand, since the market didn't understand all the complexity built on top of RMBS, late September '08 saw all out panic. But had better disclosure made it possible for RMBS to be seen as what they were -- simply anticipated future flows of funds subject to certain risks and certain assumptions -- the drive to retranche and repackage them multiple times might have been exposed for the folly it turned out to be before it ran so out of control.
The development and implementation of GAAP after WWII was like an antibiotic that protected capital markets for more than half a century. RMBS derivatives were a virus, not a bacteria, against which antibiotics were futile and which thrived in the fluid surrounding productive public company organs. The virus hit the brain -- the banking sector -- first and then the other organs suffered. XBRL is the anti-viral that can map the DNA of RMBS and help the body realize that a natural diet with all the fiber of well-analyzed aggregated risk factors -- not processed meats and fats, HFCS, and artificial flavors and coloring -- is healthiest in the long run.
The Oil Casino: SEC Heading for Monte Carlo, Part I [View article]
"Statistical rocket science wrongly predicted a AAA happy meal from diseased meat, lean tails, and worthless guarantees."
While no one wrote an analysis like Alan's warning investors in advance about potential or perceived problems with data rules for asset-backed securities, the good news is that this is now a topic for open discussion in the oil and gas sector. Without commenting on the merits of Alan's analysis, I'd note that the full text of the rule and its justification are available here: sec.gov/rules/final/20...
In the case of ABS, the rules allowed disclosure to be satisfied with ASCII data that was largely impossible for most investors to analyze (except for the short sellers who did). Even ratings agencies had problems using unstructured data from "tapes," meaning the pay-to-rate incentives overwhelmed incentives to get the analysis right.
A careful reading of the oil and gas rule and critical analysis should help investors arrive at their own balance among cash flow, various types of claimed reserves, and other information available to them to use to evaluate oil and gas companies. I would merely note Section 8 of the rule, which suggests a path toward a global standard to provide data in an industry standard format:
~~~
"VIII. Application of Interactive Data Format to Oil and Gas Disclosures
"In the Proposing Release, we sought comment on the desirability of rules that would permit, or require, oil and gas companies to present the tabular disclosures in Subpart 1200 in interactive data format in addition to the currently required format. Most commenters addressing the topic supported the use of XBRL for oil and gas disclosures.314 They believed using interactive data would be very helpful to investors and analysts.315
"However, they also recommended that the Commission wait until a well developed taxonomy exists.316 Some recommended that the Commission implement it in stages, initially with a voluntary program.317 One commenter recommended that the SEC work with other groups like SPE, IASB, and the United Nations to ensure tags ultimately become the industry standard.318
"We agree that much of the disclosures regarding oil and gas companies would be conducive to interactive data. We intend to continue to work on developing a taxonomy for such disclosure. Once a well-developed taxonomy is created, we will address this issue further. We are not, however, adopting interactive data requirements in this release. We will continue to consider whether to require interactive oil and gas disclosure filings in the future and, if so, when such filings should be required based on the development status of an oil and gas disclosure taxonomy."
~~~
The ABS industry wasn't too excited about creating a taxonomy for ABS, and only some participants now realize that an investor-friendly taxonomy would help restore the ABS market to its production possibility frontier (and keep future bubbles from expanding quite as far past the ABS PPF). Moreover, a taxonomy alone is not enough. To prevent GIGO, any taxonomy must be created in a way that allows for objective evaluation of the quality of its application, whether by auditors, a self-regulatory organization, effective deterrents to the use of bad data, sufficient openness to allow third party testing, other methods, or some combination thereof. Fortunately, it's easier, and in the long run less expensive, to audit machines and business processes than it is to audit human judgment. One of XBRL's key features is its potential integration with validation rules. That's not to say character isn't critical -- tone from the top can be a vital investment criteria -- but it is to say that the part of President Reagan's favorite Russian proverb after the conjunction is pretty important too: Trust but verify.
(There's a comment letter on the topic of XBRL for oil and gas reserves at www.sec.gov/comments/s... -- worthwhile reading.)
Non-Recourse Loans: Positively Counterproductive [View article]
A Russian wants to buy a car. The dealer tells him it will take a long time and that he will put his name on a list and he should come back in 20 years. The man says, "Do I pick it up in the morning or in the afternoon?" The dealer asks, "What's the difference 20 years from now?" The Russian says, "Because the plumber is scheduled to come that morning."
If we rely on the government, we may be waiting 20 years for the ABS, CDO, or whatchamahaveyous plumber to get here. Who might step up to make freedom and capitalism work now?
The Black Death of Bubbles Still Lurks [View article]
Why Solving the Credit Crunch Is Key [View article]
>...Don't we need to hunt that down and cage it with some form of constraint...
Yes -- and the cage is the transparency data base Mr. Greenberg suggests. Just as the U.S. GAAP taxonomy empowered investors to identify public company security risk factors in the 1900s, an XBRL taxonomy could empower investors to identify asset security risk factors in the 2000s. The more transparency that came to public company markets, the more difficult it was for Wall Street insiders to extract economic rents, driving the search for less transparent securities, such as ABS. Mr. Butter's article at seekingalpha.com/artic... and his prior posts are worthwhile reading with this one. Since the XBRL taxonomy exists now, the only reason to wait 10 years seems to be a lack of enlightened leadership.
Paul Krugman says California's collapse has him rattled, and wonders if America will follow it into ungovernability. "Who would have thought that America’s largest state, a state whose economy is larger than that of all but a few nations, could so easily become a banana republic?" [View news story]
What Black Swans Might Be Served Up Next? [View article]
Mark Cuban is right that "the smart thing for the SEC to do is to demand that any new financial instrument, regulated or not, needs to have an XBRL taxonomy assigned to it for future reporting pursposes before it could be sold." blogmaverick.com/2008/.../
See freerisk.org/wiki/inde... as well.
Yahoo's Dispute of Eric Jackson's Articles [View article]
Of course, that would make tax law less complex, resulting in fewer billable hours. Since tax lawyers appear to rank among K Street's most powerful lobbying shops (Exhibit 1: convincing Congress to introduce this complexity with the tax preference for options over cash), perhaps reform is a pipe dream. Too bad investors don't have a comparable lobby.
However, it would certainly be in the government's interest to adopt policies to encourage more stable revenue streams. Tax rules facilitating compensation policies (and hence tax revenue streams) based on long term shareholder value instead short term performance couldn't hurt. Executives could focus on company performance instead of spending time figuring out exercise programs and dealing with second guessing of exercise disclosures.
The aggregate effect might even strengthen the dollar. With 10,000 public companies increasing their demand for dollars relative to equity rights, it couldn't hurt. To the extent companies in the global capital market decided to stick with or move to a more dollar-friendly tax and regulatory regime, that would help the dollar. And non-employee shareholders could win too, with more capability to create more effective incentives and less reason to worry about dilution, another complexity that could be mitigated by smarter tax policy. Perhaps someday tax policy will overcome the politics of envy that facilitated the so-called compensation ceiling, and simplicity will overcome complexity. The dollar could certainly benefit from more dollar-friendly tax laws. The ongoing dollar trend seems as good a reason as any to promote dollar-friendly tax, spending, and monetary policies.
How Much Did Cash-for-Clunkers Boost Auto Sales? [View article]
Will the SEC Give the Buy Side What It Needs? [View article]
Mr. Greenberg is also exactly right:
"Essentially, what would cause the buy side to return to the market and allow credit to flow through securitization again would be giving them more granular data on a more timely basis so that they could perform their own due diligence and have more trust in the ratings agencies methodologies."
See the comments to the Butter article for links to ways to produce that more granular data. The Treasury plan yesterday at least called for disclosure of loan level detail. What it left out was the need to disclose the detail and subsequent data in a format that can be easily analyzed by potential buyers. That format, for which a list of data tags already exists, is XBRL. All that is needed is the leadership to force the sell side to disclose instead of muck around in opacity that's further confused by potential and actual taxpayer subsidies.
Bear Stearns tried to offer some of its junk to the public in 2007 but nixed the deal, presumably when they found out that the transparency required wouldn't get them the price they wanted. Here's a quote from the FT at the time:
"Jack McCleary, head of asset-backed securities syndication at UBS said: 'The market does good job of sniffing out leverage. Dealers will look at funds with similar positions to ensure valuations are appropriate.'" -- www.ft.com/cms/s/0/f7b...
Alas, Mr. McCleary was all too prescient about the ability of the market. Too bad there wasn't more transparency sooner to help it move faster, before opacity exacerbated the bubble.
Is the U.S. Style Securitization Model Dead? [View article]
FAS 157 and Other Regulatory Actions: Good Intentions, Unintended Consequences [View article]
I think part of the reason there is not yet a solution stems from a complex cultural stalemate among lawyers, accountants, investors, and regulators. Lawyers like documents, accountants like numbers, investors like numbers in context, and regulators don't know how to proceed. Politicians simply throw up their hands and take the "easy" way out -- earmark more of "other people's money" to prevent what they are warned would otherwise be "catastrophic."
I can't understand why the President, who has spoken eloquently on the power of markets, doesn't command a market solution. Perhaps today's WSJ story on creating public-private investment funds is another trial balloon about a bureaucratic attempt to address these "complex" issues without frightening too many people into the realization that what they hold is worth either what a buyer will pay for it or the net present value of future cash flows to them -- but no more. (See paulwilkinson.com/2009.../.)
Politicians hate giving bad news to their constituencies. Bankers won't take sub-optimal prices as long as there's a reasonable chance that waiting for government money is a better option. We've yet to see the leadership -- the guts -- required to restore a functioning market. Someone, some time, will step up to lead. Until enough economic actors know who and when, the economy, which most of all depends on information that can be used by market participants to make decisions, will continue to suffer.
Paul
FAS 157 and Other Regulatory Actions: Good Intentions, Unintended Consequences [View article]
One tactic that would have helped was suggested in the SEC staff report on FMV published in December. The explanation is the second point here: paulwilkinson.com/2009.../. There's also a link to the staff report.
What the staff means by "the complete integration of interactive data as a tool to bridge the gap between historical cost measures and fair value" is using XBRL to give investors choice in how to evaluate asset value, as described elsewhere on paulwilkinson.com. Different views as to value make markets. More useful information to evaluate investments would certainly help improve credit markets, just as more useful information helped make U.S. equity markets the world's strongest.
Second Thought on the Cost of TARP [View article]