ETFnerd

Time to Exempt Mortgage Securities from Mark-to-Market Rules

Jason, if you have an illiquid asset it makes sense to find its fair value and then to take a liquidity DISCOUNT if it is illiquid. That should write the asset down further, not write it up to a fantasy book value number.

If short sellers are successful, it is because they correctly assess that the asset is overvalued in the books.

The argument that does make sense is that valuation models are sensitive to inputs/assumptions which give a fairly wide range of valuations. Different numbers can be justified, but the market, not an accrual accounting rule, should determine the value of a company's assets.

Finally I hope you will realize that it is unfair to blame every economic problem on the Fed, the SEC, and the Treasury Secretary, etc. These are convenient scapegoats, but usually they are people working hard to ensure the best outcome for the economy, with a few exceptions. Blaming them is like blaming the police for murders while ignoring the role of the murderers. I don't recall the SEC underwriting any loans, nor underwriting them so badly that it drove all the buyers out of the market.

Clock is Ticking for Banks With Asset Quality Issues (Part II)

Banks are in a world of hurt and will continue in that place for a while. Because investors in the market decided to close their eyes to being sold garbage because they were making money doing so, banks and unregulated lenders threw their underwriting standards out the window in order to churn out garbage in ever increasing quantities. The result is that investors don't trust the banks' underwriting any longer and refuse to buy any more garbage. In fact the baby gets thrown out with the bathwater, and investors refuse to buy regardless of whether the product is garbage or not. Thus we have the current liquidity crisis.

I think the question is not whether the banks have little time to right their business. That is only a concern for investment bankers like yourself wanting to sell these services to these banks so that they may be able to survive even if in moribund fashion. The real question is when will the banks regain their credibility with the buyers of their wholesale products. That ship is sunk and it's time to build a new one from scratch.