Mr. B

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

There is always more to these situations than meets the eye. Given the lack of character of the participants, it is not hard to imagine that Paulson and Geithner have been less than honest with the taxpaying public.

The real problem at AIG-FP was the ability to write these "policies" without having to post collateral. A collateral requirement would have prevented this from ever happening. Instead, leverage was infinite. Now everyone gets to pay and the bailout is really for speculators, which could have been banks, hedge funds or other market participants. Add that to the outrage.

Is JPMorgan Hiding Losses?

Please stop and be rational.

Mark-to-market has severe short comings in reflecting value.

A bond is ultimately valued by its expected cash flows discounted to its present value.

If there is no market, does that mean there is no value? If your competitor is forced to sell at a discount for whatever reason, does that mean that the security sold and all other similar securities should be valued at the distressed market price?

If your neighbor was forced to sell his home today, what price would you get? Not the best price. Now what if you had to mark your home down because of that sale? Does it reflect reality? No! It reflects ditressed market conditions.

The more illiquid the asset, the more the distortion in value will occur in periods of distress.

In the case of the banks, this non-cash mark down impairs capital. We know what this causes on a systemic basis.

Mark-to-market is a normalized environment may be helpful, but it has only magnified the problems in the current environment.

Valuing a security based upon its expected cash flows is certainly subject to abuse. Someone who wants to cheat will cheat and the rules don't matter anyway.