William Ellard

Global Capital Asset Death Spiral

AP;
Thanks for the input. The fed's short term rate of 1%, lead to very low savings/fixed income rates - which lead to the extra demand for SIV's. Also mort rates of 5%, and more importantly, HELOC rates of 3-4%.

I agree China's Yuan was fixed too low, but this has benefits to the US also in lower inflation. I agree with you that China must float the yuan in free markets - they are big boys and girls now - no need to manipulate.

I fully think the Bush tax cuts for the wealthy also had a hand in the over use of SIV's as described in my article. One can plot the tax cut cash benefits and the amount of CMO type investments and mortgage volume. My opinion is that tax cut should be broad, and focused on the segment that will spend these extra dollars, not put those dollars into SIV's!

Dave;
Thanks for the input. I did not know those specifics on AIG, but I do feel if the US investment fund is created, AIG's stock will soar. I also have seen the change in the housing market over the past 15 years.

Today everyone feels they need to own a home right out of high school! There is nothing wrong with renting for 5 or 10 years, then putting 10% down and buying....

Jeff;
I like equities right now - great valuations. I am not "the sky is falling" perma-bear. I am just sick of seeing our government using all these backdoor methods and bailouts to try and solve the CADS.

The US needs to invest in our financial system and help everyday citizens, not bail out all the super rich counterparties of bear sterns, freddie mac, CFC etc.....

Global Capital Asset Death Spiral

'd say yes. If it were worth more, wouldn't someone have stepped forward to pay more for your neighbor's house?

Just the facts.
My idea is that the asset owner(home owner), should be allowed to value the asset using a cash flow model. In the above 250K home selling for 20K, one more data point is in that area the new rents for these homes is 2,000 per month.

Now using the PV of future cash flows the home would be worth more than 200K. This is the same as the cash flow example I provided from ACAS......

Global Capital Asset Death Spiral

Read the following fasb created stupidity forced on ACAS. From the jadedconsumer blogsite:

"[A]t the end of the first quarter of 2008, the Company held an investment in a commercial real estate collateralized debt obligation (CRE CDO) which had been depreciated $209 million from its inception to date, including $160 million in the first quarter of 2008. The investment is currently producing approximately $8 million per quarter of cash flow but its current fair value determined in accordance with GAAP is $11 million due to a lack of liquidity in the financial markets for CDO investments which has caused investment spreads to widen. However, the Company anticipates realizing its $220 million investment on settlement or maturity based on its assumptions of future credit losses, which includes a recession over the life of the investment.
via ACAS' Form 10-Q filed May 6, 2008."

Global Capital Asset Death Spiral

"Mark to market nonsense"

Fasb 157 was created in part because firms such as Enron. The gov't can't stop fraud with new regulations IMHO. My article was not blaming the theory of mark to market, just its apparent inflexibility. If some markets have ZERO bids - then what is the real value?

If your home is worth around 250K, but the person next door goes bankrupt, and the home goes into foreclosure and sells for 20K - does that mean the new value of your home is now 20K?