Comments

FASB did vote and the new approached passed.

Posted by tom peters at April 2, 2009 11:43 AM

FASB did vote and the new approached passed.

Posted by tom peters at April 2, 2009 11:43 AM

One down and two to go. Reestablishment of the short uptick rule and SEC enforcement of the current rules regarding short selling are still necessary.

Posted by Useless Sam Grant at April 2, 2009 2:53 PM

It seems that the biggest problem--adapted or not-- seems to be 1) how to value these illiquid assets 2) once valuation is established will banks be will to take a haircut, and 3) how to get investors to buy these assets without wasting the taxpayers’ dollars. The counter parties of AIG, for example, were not required to take a haircut. They received full value and banks will probably sell these assets to private partners at full value. In essence, banks will big.

Banks got billions in fees beforehand and billions in valuation of assets that have no known value, along with the sale of the assets at full price. (I might add as appraisals were so out of whacked there is really no way of assessing what these houses are actually worth. All of this, of course, being sanctioned by credit rating agencies that gave a AAA rating for such toxic assets It seems to me, and I am no expert, that what is needed is a bottom up approach and not a top bottom approach.

The approach suggested above is from firsthand experience. I know this as an investor in the market everyday dealing with banks, inspectors, appraisers, tenants and homeowners. Many of these homes have been on the market for a few years. Homes are not like fine wine; they age badly when left unattended, especially during rough winters. One house we recently put an offer to purchase in a great neighborhood for a great price did not pass the inspection as the foundation of the house has shifted and black mole was underneath the drywall throughout the house. Also, the bureaucracy of banks and their various partners is often mind-boggling, not to mention many city governments inspectors and the like.

Regarding short selling, at the end of last year, I read a great book by Nicholas Darvas, How I Made $2,000,000 in the Stock Market. Some years ago I read Reminiscences of a Stock Operator by Jesse Livermore, the Boy Plunger. Both men made millions during their time as they went both long and short. It did not matter to them whether it was a Bear or Bull Market. A friend who has been trading daily for some 27 years, mostly with a ton of stops though less so these days, has the same kind of mind set. I must say that while he has done exceptionally well for the many years that I have known him, I can’t help but to feel quite bad when shorting is done in an incredibly difficult market when companies are trying to hold on. It seems as if the few are controlling the stakes of many and that the market itself, the companies, has less value. Individual trades times many hundreds as opposed to the interest of millions of others have greater significance. I guess this is an aspect of capitalism.

By the way, Nouriel Roubini seems to be in favor of mark to market, while Nassim Taleb and Arianna Huffington seem to be less enthusiastic about it. The three including Congressman Franks was on Squawk Box this week. Here is a clip of Taleb on Squawk Box where Huffington was hosting. Mark to market was discussed. There is also a clip of Roubini and Congressman Frank discussing the same.

http://www.huffingtonpost.com/huff-tv/emblack-swanem-author-nas_b_181551.html

Thanks for the post, TP. This is a very important issue; even with the adaptation of mark to market there seems to be a necessity to add and find real "robustness." We can begin by letting small investors with cash buy these properties and assess the value and market. Can appraisers and credit agencies really be trusted now? There are millions of such investors out there who know these markets from state to state very well and are well able to bring robustness.

Posted by Judith Ellis at April 3, 2009 3:51 PM

During Enron's heyday their valuation of futures contracts was called "marking to Enron."

Posted by Bob Stone at April 8, 2009 8:16 AM

Bob - That's too funny! lol! lol! lol! lol! lol!

Posted by Judith Ellis at April 9, 2009 11:12 AM