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BAILOUT [strike]STRUCK DOWN[/strike] PASSED DOW PLUMMETING!
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Bradylama
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Old Oct 7, 2008, 10:33 AM Local time: Oct 7, 2008, 10:33 AM #101 of 126
Don't make me bust out some Venn diagrams homey.

I was speaking idiomatically.
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Old Oct 7, 2008, 10:46 AM Local time: Oct 7, 2008, 11:46 PM #102 of 126
Given what's happened, I find it funny that the Dow plummets when the bailout was struck down. And it also plummets after the bailout is approved.

What kind of toxic man-thing is happening now?
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Old Oct 7, 2008, 01:12 PM #103 of 126
From what little I've heard, part of the plummet was due to European and Asian markets not being confident in their respective goverments' reactions to the banking crisis. Basically pointing at the US, Germany (they bailed out a bank recently) and other countries and asking 'what are we doing?'

This was something I heard on the news while doing something else. Don't jump down my throat if I turn out to be mistaken.

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Old Oct 7, 2008, 09:12 PM Local time: Oct 7, 2008, 09:12 PM #104 of 126
http://speaker.gov/img/AIGinvoice.jpg

Apparently the AIG chaps are spending their $85 billion dollar bailout about as responsibly as a fratboy spends an inheritance from Rich Uncle Pennybags. HOW CHARMING. One can only imagine that JPMorganChase will spend its share of the bailout money on a skyscraper made out of bricks of cocaine.

Serious question: why is it that these companies that are "too big to fail" are even allowed to exist? It seems that if a company's failure would have apocalyptic consequences for the economy, they should probably broken up to avoid HAVING to bail them out over and over.

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Old Oct 7, 2008, 10:35 PM Local time: Oct 7, 2008, 08:35 PM #105 of 126
The bailout did nothing. Just like the Fed dumping $630 billion did nothing. People are still pulling their money out of money markets, credit is still frozen, and the stock market is still crashing. Unless the housing market recovers the banking crisis will continue, because without a housing recovery our banking system is still insolvent. Banks have absolutely no reason to extend credit. Everybody has a reason to horde cash or gold. No government bailout of any asset bubble has ever worked. It doesn't matter whether we're talking about railroads (a la the Long Depression), tulips, or housing.

Given what's happened, I find it funny that the Dow plummets when the bailout was struck down. And it also plummets after the bailout is approved.
I'm sure the collective wisdom of our elected representatives will prevail, and the next bailout will work much better.

hahaha!

http://speaker.gov/img/AIGinvoice.jpg
Apparently the AIG chaps are spending their $85 billion dollar bailout about as responsibly as a fratboy spends an inheritance from Rich Uncle Pennybags. HOW CHARMING. One can only imagine that JPMorganChase will spend its share of the bailout money on a skyscraper made out of bricks of cocaine.
Can anyone really say they're surprised?

I figure the folks at Morgan-Chase are a little bit smarter then the AiG execs. So they'll use their bailout money to boost their stock price, then all the insiders will dump. Then and only then can they buy cocaine, booze, and hookers. It's what I'd do.

Serious question: why is it that these companies that are "too big to fail" are even allowed to exist? It seems that if a company's failure would have apocalyptic consequences for the economy, they should probably broken up to avoid HAVING to bail them out over and over.
Mostly because this "too big to fail" nonsense is bullshit the pundits crank out. The other reason is because nobody is enforcing trust laws, much less accounting laws, and/or any other laws that govern finance. As sick as it might sound this is probably a good thing. If our financial institutions were forced to reveal just how insolvent they were mass chaos and panic would ensue.

There's only one institution "too big to fail"; the central government.

Jam it back in, in the dark.
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Old Oct 8, 2008, 12:39 AM Local time: Oct 8, 2008, 01:39 PM #106 of 126
How can you say it didn't work, when it hasn't even started yet?

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Old Oct 8, 2008, 08:20 AM Local time: Oct 8, 2008, 06:20 AM #107 of 126
How can you say it didn't work, when it hasn't even started yet?
I'm trying to maintain a little optimism by saying it'll do nothing. It hasn't blown up in our faces....yet. Which is entirely possible considering the circumstances.

As Rep. Peter DeFazio (D-OR) so candidly pointed out.
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"If we don't deal with the foreclosures and the deteriorating values, then, when the values drop another 5 or 10 percent, we're going to find there's another trillion dollars in junk securities out there and we will have already maxed out our credit and more people will have already lost their jobs. People are not spending because they are afraid they will lose their jobs. Their wages haven't increased. They are worried about the real economy, not the Wall Street economy. This bill will not solve the underlying problems."
Regardless of whatever the Paulson Plan accomplishes, if DeFazio is right the economy will be in even deeper shit. The bad news does not even begin to end there.

Investors are going around to financial institutions worldwide and screaming "PROVE TO US YOU'RE FUCKING SOLVENT!" and then when the institution can't it fails. The government responds by "pulling a Hoover" and dumps all the liquidity/debt it can into the financial company/system as some form of a "rescue". Most governments (unlike Hoover's) are not sitting on a huge surplus in their budget. So a bailout could potentially threaten a country's credit rating (which DeFazio alluded to) and/or increases the possibility the government will have to declare bankruptcy at a later date. Kind of like what is happening to Iceland right now.

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Old Oct 8, 2008, 08:38 AM #108 of 126
Mostly because this "too big to fail" nonsense is bullshit the pundits crank out. The other reason is because nobody is enforcing trust laws, much less accounting laws, and/or any other laws that govern finance. As sick as it might sound this is probably a good thing. If our financial institutions were forced to reveal just how insolvent they were mass chaos and panic would ensue.
Help me out here, since I'm not well-versed in Chicken Little; there are no banks or financial institutions that are simply too big to fall. However, if we knew how poorly these institutions are doing, a worldwide panic is inevitable. Therefore, these institutions are not too big to fall?

???

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Old Oct 8, 2008, 10:03 AM Local time: Oct 8, 2008, 04:03 PM 1 #109 of 126
No government bailout of any asset bubble has ever worked. It doesn't matter whether we're talking about railroads (a la the Long Depression), tulips, or housing.
Actually, the reason you even have a housing bubble is because of the moves your government made to soften the blow after the dotcom bubble burst. Sure, in the long run everything has the potential to go to shit much worse than would have happened in the first place but saying that one cannot bail out an economy after a bubble bursts is just plain wrong.

Quote:
The other reason is because nobody is enforcing trust laws, much less accounting laws, and/or any other laws that govern finance. As sick as it might sound this is probably a good thing. If our financial institutions were forced to reveal just how insolvent they were mass chaos and panic would ensue.
Hi there.

You don't know much about accountancy do you? "Accounting" laws are some of the most strictly enforced that there are. If a company ignores them, they'll never get an audit signed off and will never persuade anyone to invest in them. They'll also get a massive fine.

There are actually very few proscriptive "Accounting" laws as you put it. Here in the UK we have the soon to be superseded Companies Act 1985, sections of which deal with the annual reporting requirements for companies. The actual statutory requirements are very few, I could produce a set of Companies Act compliant accounts for a small company on the back of a cigarette packet, literally.

What protects investors and makes accounts of any use at all is not the laws in place, it's the accounting standards and Generally Accepted Accounting Practice. In the UK we have Financial Reporting Standards. The book is massive and very detailed and revisions are made on a constant, rolling basis. Work is presently afoot to codify the various accounting standards from around the world into the International Financial Reporting Standards (IFRS), led primarily by the leading UK accountants' institutions (If there's one thing us Brits are good at, it's accountancy).

The main barrier to amalgamating European and American standards is the US's use of fair-value accounting, rather than asset value accounting. Over here, if you buy a machine, it goes in your accounts at the price you paid for it, which is depreciated over the life of the machine. In the US, the value of the machine is not what you paid for it, rather it's based on the revenue you expect to derive from the machine over it's lifespan.

In terms of machinery, that's not a problem and despite the obvious problems with what's often a highly subjective and speculative method of valuation, fair value is a reasonable, if overly complicated wy to value things.

The problems start however when you come to prepare accounts for financial institutions. When the American banks gave away all that money in the form of sub-prime mortgages, the loans were not valued in terms of how much was loaned out, they were valued at how much the banks would eventually get back. All these financial institutions had their balance sheets propped up by theoretical future revenue streams from dodgy loans they were never going to get back, but this was entirely in line with standard US accounting practices. To the casual observer, the banks were hugely solvent and all was fine. It was only once the loans started getting written off that it became apparent just how badly propped up they were and many quickly found themselves on the borderline of insolvency.

It's not like anyone was misleading the public, the information was always there. It's just that most people haven't got a clue how to read a set of accounts properly, or in fact have any desire whatsoever to do so. Industry comemtators have been saying for years that the system was on incredibly shakey ground and would collapse at the first hint of trouble but for whatever reason, nobody listened to them.

It's all actually turned out ok for the British banking system. Northern Rock collapsing last year was enough of a shock for them to start covering themselves and stop overstrtetching their assets. The Northern Rock itself was a relatively small bank and the only real losers were middle class people who'd bought a second home to rent out, borrowing beyond their means to do so and frankly, fuck 'em, they shouldn't have borrowed more than they could afford to repay. The US banks on the other hand thought they could ride out the whole sub-prime thing but US accounting practices left their balance sheets extra-exposed to effects with brutally insufficient actual physical capital.

Short version for retards: Banks "suddenly revealing the extent of their insolvency" would have no fucking effect whatsoever because a) The majority of people haven't got the first fucking clue about financial reporting and are simply running around in a panic because the tv has told them too and b) The information is already public knowledge and has been for years with no discernable effect.

Seriously, people are banging on about sub-prime mortgages and credit crunches and shit left, right and centre but how many people actually know what the problem is, how it was caused and the reasoning behind the attempts to fix it? Fuck all, that's how many. It's all just misguided sensationalist bullshit. Yes, the American economy is in trouble, people are going to lose thier jobs and their standards of living are going to have to fall but the world isn't going to end, it's just the business cycle catching up. Economies go up and economies go down, roughly every five years in fact. Recent governments have been trying to iron out the down bits and create a state of permanent growth, mainly to keep getting re-elected, and with no consideration of long-term repercussions. The economy has overheated and is now self-correcting. John Maynard-Keynes is sitting on his cloud with a big "I told you so" smirk all over his face and the masses are getting their buttons pushed by an increasingly manipulative and sensationalist media and thinking that this is all surprising and new whereas anyone with a passing interest in finance, accoutnancy and global economics (Which granted isn't many people) has seen this (Or something similar) coming for fucking ages.

At the end of the day, there's absolutely nothing you, as the general populace can do about it. Nothing at all, except try to make yourself indispensable at work and hope that your company doesn't count any banks amongst it's customers.

I was speaking idiomatically.
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Old Oct 8, 2008, 11:11 AM Local time: Oct 9, 2008, 12:11 AM 1 #110 of 126
The main barrier to amalgamating European and American standards is the US's use of fair-value accounting, rather than asset value accounting. Over here, if you buy a machine, it goes in your accounts at the price you paid for it, which is depreciated over the life of the machine. In the US, the value of the machine is not what you paid for it, rather it's based on the revenue you expect to derive from the machine over it's lifespan.
I know I'm kinda nitpicking, but I'm pretty sure that is not the case. US GAAP requires you to capitalize all costs related to preparing the fixed asset for its intended use. While you are free to adjust the cost downwards (impairment of assets), US GAAP prohibits upward revaluation.

Depreciation is a different matter altogether. You're allowed to depreciate the said long-lived asset based on the revenue you expect to derive from it over its lifespan.

Quote:
When the American banks gave away all that money in the form of sub-prime mortgages, the loans were not valued in terms of how much was loaned out, they were valued at how much the banks would eventually get back. All these financial institutions had their balance sheets propped up by theoretical future revenue streams from dodgy loans they were never going to get back, but this was entirely in line with standard US accounting practices.

To the casual observer, the banks were hugely solvent and all was fine. It was only once the loans started getting written off that it became apparent just how badly propped up they were and many quickly found themselves on the borderline of insolvency.
I disagree here. FASB Statement No. 157, effected November 2007, redefined fair value for financial instruments by mandating a mark-to-market rule. The asset must be valued at the exit price, the price you can get if you sell it on the open market.

It's all peachy when there's a market, but when you get a credit crunch like this, leveraged investors are forced to dispose of these financial instruments at low prices. The mark-to-market rule means everyone now has to revalue their asset holdings to these low prices. The writedowns eventually impact equity capital.

To comply with capital adequacy requirements, banks then have to raise capital. Some lucky banks received infusions from sovereign wealth funds, while others were forced to liquidate more of their assets. You get another round of revaluations and writedowns. The downward spiral continues until some banks face the prospect of bankruptcy - of which the mere rumor of such a possibility will trigger a massive run by nervous depositors.

______________

You know, the unfortunate thing is, the value of these financial assets are based on real estate mortgages. The underlying collateral being actual houses. Given enough time, housing prices would probably go right back up, and whoever's holding the paper at that time will make money. Too bad this is time the banks don't have.

Which is why the main gist of Paulson's proposal was for the US government to buy up some of these financial instruments from banks, sit on them for a while, and subsequently resell them once the air clears. Unlike your run of the mill bank, Uncle Sam has all the time in the world.

What kind of toxic man-thing is happening now?
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Old Oct 8, 2008, 11:30 AM Local time: Oct 8, 2008, 05:30 PM #111 of 126
That was a combination of paraphrasing and a bit of assumption on my part Zerg. Fixed assets weren't the best example to use really as their treatment is quite different from long-term loan agreements but since those are hideously complicated to account for, I was using that more as a way to explain the differences between US and UK GAAP and in the process got my explanation arse over tit. Trying to explain accounting systems at the same time as actually preparing a set of accounts is, in retrospect, a silly thing to try and do!

Your explanation is far more clear (And frankly correct) than mine.

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Old Oct 8, 2008, 11:32 AM Local time: Oct 8, 2008, 09:32 AM #112 of 126
However, if we knew how poorly these institutions are doing, a worldwide panic is inevitable. Therefore, these institutions are not too big to fall?
We're already in a panic tbat began with the liquidity crisis. (at the end of '07) The question is how much damage will there be, and who will be left standing. Seeing the investment banks and financial houses all bomb at once is unlikely if not impossible. Seeing as how they're already dead. Their zombie corpses are just feeding off the Federal Reserve and government to stagger onwards. Hoping to be revitalized in the future.

That doesn't mean they're "too big to fail". The perception of all these institutions failing at once that would trigger some massive runs by depositors. Which is basically what I mean't by mass chaos and panic.

Actually, the reason you even have a housing bubble is because of the moves your government made to soften the blow after the dotcom bubble burst. Sure, in the long run everything has the potential to go to shit much worse than would have happened in the first place but saying that one cannot bail out an economy after a bubble bursts is just plain wrong.
The mess is a lot bigger then just the dot-com bust. If we blow another bubble we will continue to compound the mess. The business cycle is being interrupted (if not overtly manipulated by the Federal Reserve) with all the bubbles being blown.

Another bubble being blown is exactly what I'm hoping won't happen.


You don't know much about accountancy do you? "Accounting" laws are some of the most strictly enforced that there are. If a company ignores them, they'll never get an audit signed off and will never persuade anyone to invest in them. They'll also get a massive fine.
(snip)
I disagree here. FASB Statement No. 157, effected November 2007, redefined fair value for financial instruments by mandating a mark-to-market rule. The asset must be valued at the exit price, the price you can get if you sell it on the open market.
The SEC has suspended it's marked-to-market accounting rules. This was a part of the Paulson bailout. Essentially helping the financial institutions lie about their overall value to investors. Which is what I originally meant when I said accounting laws are not being enforced.

"There's value here! I promise!" *waves magic wand* "Just as much as when we packaged these mortgages!" *flails magic wand*

It's all actually turned out ok for the British banking system.
Which is why the British Banking System doesn't need a bailout does it? Oh yeah... yeah sure.

Help me out here, since I'm not well-versed in Chicken Little;

If anything it's more like Humpty Dumpty.

Around this time last year the DOW hit a nice peak at 14,100. Look at it where it currently stands today.

Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.


Hahaha!

All the king's horses and all the king's men
Couldn't put Humpty together again.

D'oh!

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Last edited by Watts; Oct 8, 2008 at 11:39 AM. Reason: Humpty Dumpty made me do it!!!
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Old Oct 8, 2008, 11:45 AM Local time: Oct 8, 2008, 05:45 PM #113 of 126
Which is why the British Banking System doesn't need a bailout does it? Oh yeah... yeah sure.
I never said that. I know full well that the government is bailing out the banks but I was suggesting that our banking system has a long-term future and is simply in need of a quick cash injection to get rolling again.

The primary reason for our bank bailout, unlike the US's one, is not to stop banks going bankrupt but to stop them foreclosing on debts and repossesing people's houses. Whilst our property market has slowed to almost a standstill, houses here are still worth a shit load and if the banks really, really needed money, they'd bump up interest rates and start repossesing some houses. At the moment, with the government about as unpopular as a British government ever has been, they can't let that happen so are encouraging the Bank of England to bail out the banks. The Tories won't stop them because, as the next likely party of government they're going to have to deal with all the fallout from the current situation so they're looking to mitigate the damage. The Bank of England meanwhile, ignoring the pressure from the Government, are aware that the economy is on the brink of a recession and the importance of confidence in the housing market to keep consumer spending up and stop the economy from grinding to a halt. Obviously they don't want silly arse inflation but as house prices have stopped now and for the time being at least oil prices have slowed down (A situation helped by the kicking the dollar is taking at the moment), they can afford to stimulate a bit of growth by restoring faith in the banks . It's not an emergency measure, it's a faith restoring one and completely different from the bailout America has gone through.

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Old Oct 8, 2008, 11:45 AM Local time: Oct 9, 2008, 12:45 AM 1 #114 of 126
The SEC has suspended it's marked-to-market accounting rules. This was a part of the Paulson bailout. Essentially helping the financial institutions lie about their overall value to investors. Which is what I originally meant when I said accounting laws are not being enforced.

"There's value here! I promise!" *waves magic wand* "Just as much as when we packaged these mortgages!" *flails magic wand*
I think the intent of the Paulson bill (it's not really a bailout man, not unless Treasury pays large premium for those financial assets) was to staunch the bleeding.

Mark-to-market does not work in these unusual circumstances. There IS not market to mark to - disposing of assets at what can be considered fire-sale prices is hardly a 'fair' value. If your neighbor is selling off his perfectly operational car at say, $100 due to desperation, should you write down the value of your car to $100? Yet that's what mark-to-market essentially means, and it's basically the mechanism that starts the dominoes tumbling.

In sum, I disagree with your assessment that this is an example of non-enforcement of accounting rules.

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Old Oct 9, 2008, 08:25 AM Local time: Oct 9, 2008, 06:25 AM #115 of 126
I never said that. I know full well that the government is bailing out the banks but I was suggesting that our banking system has a long-term future and is simply in need of a quick cash injection to get rolling again.
It is not all that different after the Paulson Plan works it's magic.... ideally. There's even a news story hitting the headlines today that the US treasury might grab a stake in our zombie financial institutions. Very much akin to the British bank bailout. (Thanks for the idea!)


I think the intent of the Paulson bill (it's not really a bailout man, not unless Treasury pays large premium for those financial assets) was to staunch the bleeding.

Mark-to-market does not work in these unusual circumstances. There IS not market to mark to - disposing of assets at what can be considered fire-sale prices is hardly a 'fair' value. If your neighbor is selling off his perfectly operational car at say, $100 due to desperation, should you write down the value of your car to $100? Yet that's what mark-to-market essentially means, and it's basically the mechanism that starts the dominoes tumbling.
(Let's pretend we're actually capitalists for a second.)

The dominoes started to fall when a) no buyer could be found and b) the market could not price these "assets". With mark-to-market rules being abolished the Treasury is paying a high premium for assets that the market is either too scared to price or is unwilling to pay the price that is asked. In either case they cannot be sold on the market. Their value is essentially zero.

How this works into your scenario:

If my neighbor can't sell his car for any price, then his car's value is zero. Whether he tells me his car is worth $100 or not. Seeing as how my neighbor's car value is fucked due to a lack of demand. If I try to sell what cannot be sold I'll be just as fucked.


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Old Oct 9, 2008, 08:32 AM Local time: Oct 9, 2008, 09:32 PM #116 of 126
Let's say you have a perfectly usable car that you can't sell to the market at any price. You can still ride it around, drag race it around the freeway and stuff like that. Does it mean that the car's value is zero?

I would argue that the market assigning a value of essentially zero to the car, is a failing of the market and not the car.

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Old Oct 9, 2008, 08:37 AM Local time: Oct 9, 2008, 06:37 AM #117 of 126
Let's say you have a perfectly usable car that you can't sell to the market at any price. You can still ride it around, drag race it around the freeway and stuff like that. Does it mean that the car's value is zero?

I would argue that the market assigning a value of essentially zero to the car, is a failing of the market and not the car.
Value is the amount somebody will pay. Which just brings us around full circle to what I said originally.

I suppose we could just re-package all the paper derivatives as toilet paper though. I'd personally love to wipe my ass with that shit.

I was speaking idiomatically.
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Old Oct 9, 2008, 08:43 AM Local time: Oct 9, 2008, 02:43 PM 1 #118 of 126
Value is the amount somebody will pay. Which just brings us around full circle to what I said originally.
Only it isn't. Value is the value in use of the asset. In the case of the car you would look at alternative costs of transport, for example the cost over the expected life of the car of riding the bus instead. Likewise, on a very simplistic level, whilst banks can't sell on these debts at present, this doesn't mean they have zero value. Not every single mortgage is going to default and the value is the future revenue streams in the form of interest, plus the value of the property securing the loan in the first place which might not be as much as it was this time last year but still isn't zero.

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Old Oct 9, 2008, 08:54 AM Local time: Oct 9, 2008, 06:54 AM #119 of 126
Value is the value in use of the asset.
If somebody will pay to utilize in some form said asset it has value. Otherwise, it's zero. Try looking at real estate in the inner city parts of Detroit. No buyers, no users, no demand, no value.

That's not a market failure. That's how the market works.

Likewise, on a very simplistic level, whilst banks can't sell on these debts at present, this doesn't mean they have zero value. Not every single mortgage is going to default and the value is the future revenue streams in the form of interest, plus the value of the property securing the loan in the first place which might not be as much as it was this time last year but still isn't zero.
In the future it may have value. In the present it does not when the buyer of last resort is the government.

I said we were pretending to be capitalists and I meant it dammit.

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Old Oct 9, 2008, 09:01 AM Local time: Oct 9, 2008, 03:01 PM 1 #120 of 126
But you're just plain wrong. IF you owned a bit of land and you couldn't find anyone to buy it and someone came along and said to you that as you couldn't find a buyer you might as well just give it to them, you wouldn't, simple as that. The only reason you would would be if holding the land was costing you something and you needed the cashflow.

Even talking on a strictly theoretical level, nothing ever has zero value because future potential value is always a consideration. Nothing is ever enacted on a straight supply and demand current value basis, that's elementary school economics. The reality is that future potential earnings on one side and the opportunity cost of selling or holding the asset on the other side always feature in these transactions. The very concept of there being no buyers so the asset has no value is ridiculous because anything that's free, by the very nature of trying to divide by zero has, mathematically infinite demand.

Your understanding of real world economics is very limited. I think you might want to try learning something beyond the grade school level before you start shooting your mouth off again.

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Old Oct 9, 2008, 10:16 AM Local time: Oct 9, 2008, 08:16 AM #121 of 126
But you're just plain wrong. IF you owned a bit of land and you couldn't find anyone to buy it and someone came along and said to you that as you couldn't find a buyer you might as well just give it to them, you wouldn't, simple as that. The only reason you would would be if holding the land was costing you something and you needed the cashflow.

Even talking on a strictly theoretical level, nothing ever has zero value because future potential value is always a consideration. Nothing is ever enacted on a straight supply and demand current value basis, that's elementary school economics. The reality is that future potential earnings on one side and the opportunity cost of selling or holding the asset on the other side always feature in these transactions. The very concept of there being no buyers so the asset has no value is ridiculous because anything that's free, by the very nature of trying to divide by zero has, mathematically infinite demand.
This has nothing to do with investing and everything to do with accounting.

The mark-to-market rules were instituted so that the financial institutions would be forced to write down the value of their holdings as the fair value. Fair value is whatever you can get on the open market right now. It is entirely of a subjective nature to the present. Future value considerations are thrown out the window.

Jam it back in, in the dark.
Zergrinch
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Old Oct 9, 2008, 10:34 AM Local time: Oct 9, 2008, 11:34 PM #122 of 126
What Shin described is NOT mark-to-market. Mark-to-market operates the way you interpret fair value - as the liquidation value of a certain investment. In accounting, only financial instruments are valued in this manner, or any entity where the going concern does not apply (firm that is winding up). The concept of fair value being mark-to-market falls apart when the market freezes, like what we're seeing here. It is not FAIR for you to assign a VALUE of zero to instruments whose values are tied to assets (in this case, mortgages backed by US houses) that still have value. Unless, of course, you're telling me American houses are REALLY worth the fire-sale prices they're going for now...

Basically, I agree with the suspension of mark-to-market in this scenario. There is no market. Hence, the government is trying to step in and create one. The Paulsen plan is trying to address the reason why everyone's running around dumping the financial assets willy-nilly. How? By giving the market enough time to figure out exactly what kind of assets are backing these securities - hence the need to buy them up and hold them for a while. Consider that a bunch of mortgages have been lumped into mortgage-backed securities, and these securities were sliced, diced and merged into collateralized debt obligations. This financial engineering makes specific identification very difficult. But once these assets are identified, then hopefully the market will start to value them fairly again.

And then you can have your precious marked-to-market fair value accounting re-implemented!

There's nowhere I can't reach.
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Last edited by Zergrinch; Oct 9, 2008 at 10:49 AM.
Fluffykitten McGrundlepuss
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Old Oct 9, 2008, 10:50 AM Local time: Oct 9, 2008, 04:50 PM #123 of 126
And the point remains that who the fuck do you think was being mislead by company accounts anyway? How many normal savers or small investors ever looked at a set of financial statements prepared by their banks? I'll bet that 95% of the shareholders would have received the accounts, looked at the baseline profit figure, looked at the directors remuneration figure and then binned them. That's what makes auditing such a joke these days. The whole point is to protect shareholders and give them the information they need to make an informed decision whether to invest or not but the vast majority of small stakeholder, the most vulnerable ones, haven't got a fucking clue what they're looking at. I personally can deduce a fair bit from looking at a company's accounts but then I've been a professional accountant for eight years and even then, there's a lot of speculation and informed guesswork involved in any summary you do of a company based off the accounts.

To say that not following accounting guidelines is in any way to blame for this is mis-informed, naive and basically just plain wrong. The information has been there all along, in plain sight and available for anyone to view it. The problem is that nobody cared enough to do anything about it and other people were lulled into a state of happy ignorance that financial institutions were somehow exempt from usual economic forces and magically incapable of making dumb decisions.

This thing is sticky, and I don't like it. I don't appreciate it.
Watts
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Old Oct 10, 2008, 01:44 AM Local time: Oct 9, 2008, 11:44 PM #124 of 126
The concept of fair value being mark-to-market falls apart when the market freezes, like what we're seeing here. It is not FAIR for you to assign a VALUE of zero to instruments whose values are tied to assets (in this case, mortgages backed by US houses) that still have value. Unless, of course, you're telling me American houses are REALLY worth the fire-sale prices they're going for now...
Nothing works the way it's suppose to in a recession. Throwing out the rulebook is not going to restore trust or confidence. There can be no trust as long as the mark-to-market accounting rules are suspended. Only a reason for the creation of more mistrust. Nobody knows what the financial outfit's balance sheets are worth and there's no way to know.

I don't particularly care if we agree on any of that. Events will prove it right or wrong all in due course. Sooner rather then later. There's not much of a reason to continue this. Continuing is only bound to strain more nerves.

I am a dolphin, do you want me on your body?
RacinReaver
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Old Oct 10, 2008, 03:12 AM Local time: Oct 10, 2008, 01:12 AM #125 of 126
Start studying a real science.

I was speaking idiomatically.
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