BerkeleyBob

Wall Street Breakfast: Must-Know News

I have been ranting about socialism for the rich, capitalism for the poor for a while now. Why should top rated insurers need TARP funding? Perhaps the relationship of state v. federal regulation for adequacy reserve, etc. needs re-examination. If they have taken a hit on their annuities or got involved on the wrong side of a CDS or other derivative transaction, what does that say about their fiduciary relationship to their policy holders (and in the case of a mutual, owners)? What does it say about their ability to manage risk? The huge loss in a substantial position in B of A is a resounding loss of no confidence--the financials benefitted from the easing of mark to market, but this sector is a long way from home free. It is possible, just very difficult, to make money in this market.

Mark-to-Market: Poor Way to Disclose Bank Positions

The S&L "crisis" of the 80's was related to increasing interest rates to finance the war and the loan portfolios of the busted S&L's were propped up by phony appraisals. One difference between now and then is that a secondary market to allow fractional and repackaged mortgages to be sold. What is in common is that the rating agencies and the investment banks failed to accurately appraise what was being sold, setting in motion a global meltdown. If you resist mark to market, then make damn sure your loans are prudently underwritten. There are huge consequences to bad estimates based on financial models.