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Wednesday, January 6 2010 |
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- The next bursting bubble is inflated bank loan values, says Jonathan Weil. Without them, many more banks would be worth much closer to or less than zero, according to their own footnotes.
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This news story has 1 comment:
An example would be a prime CA borrower who has never missed a payment that bought in 2006, and is still gainfully employed. Fair value of that loan today would encompasse the fact that more than likely the homeowner is underwater, that CA real estate is in the tank and everything else putting a value around 70 cents on the dollar. Not the same under traditional loan reserve accounting.
But here's the question. Let's say you get your wish and banks have to mark held to maturity loans to market and thus on June 30 write down the loan to 70 cents and take the hit. They are still cash flowing 100% on that loan and 2 years later, when the recession effects have worn off to some extent and that same loan now has a fair value of 95% of par - are you going to whine like a little girl that banks are unfairly massaging their earnings?
My guess is that you will totally forget that they had to write the loan down to 70 cents because you whined about it then. Like a little girl.
Regards