DJIA closes above 8000-Chuck, your thoughts on M2M?

[Frozen Sooner]

Caveats:

The DJIA does not equal the economy.
Obviously, it was recently much higher.
This isn't meant to imply that the President is doing a great job or anything. I mean, I think he's doing fine, but I don't know that this recent rally has anythng to do with anything he's doing, just like I don't think the collapse a couple of months ago had anything to do with him.

Back to our regularly scheduled post:

FASB just relaxed the mark-to-market rule, stating that financial institutions could book impaired loans at some percentage of their face value based on the degree of impairment rather than marking them at sale value in a market that's pretty much evaporated.

Something about eliminating M2M doesn't sit right with me.

[NYC Poke]

As someone who has witnessed firsthand how M2M can be abused, I'm a little uncomfortable with it.

[Vaevictis]

I think M2M is... very problematic. It's a big part of what let Enron pull its shenanigans, and it's causing problems with the banks.

On the other hand, not having M2M can let companies carry assets at inflated values.

Personally, I think we should just get back to fundamental accounting here -- fair assessment of value. Sometimes, liquidation value (M2M) is not necessarily a fair assessment of an asset's value, sometimes it is. Let the accountants sort it out, and hit them with everything in the book if they don't report properly.

[Chuck Bao]

This just goes along with my original thoughts that they have to do anything to survive. This was completely anticipated. Heh! Accounting standards board!!!

Some analysts are talking about this decision countering the other government objective of getting the banks to sell off their toxic assets.

The banks couldn't have afforded to do that anyway. There is no all or none. This is a compromise and an unfortunate compromise and yet still needed.

All it does is give the banks a little wiggle room. And, that wiggle room is obviously very good news for current bank shareholders.

I was never convinced about the plan with the private sector being a partner in buying the toxic assets. These private investors were just vultures. They weren't about to give a good price anyway and they'd basically profit off of taxpayers losses. NO THANKS!

At the end of the day, the net effect is that it buys the banks some time. Some time when the economic outlook isn't so bleak and we will again go through some periods that the economic outlook is starting to look better.

So, I'm all hurray about this in a very cosmetic sense.

[jkjsooner]

On a related note, here's an easy to read op-ed piece on Geitner's latest plan.

http://www.nytimes.com/2009/04/01/opinion/01stiglitz.html?pagewanted=1&_r=1

Basically, one of the ideas is to get a price set on these assets but by having the government take most of the risk and investors get most of the upside, we're not at all setting the true market price.

In addition there is talk that the banks may sell these assets back to themselves which won't solve anything except moving the risk from the banks to the government. (That part is not in this article.)

I don't want to be too critical of Geitner or Obama as I think they were dealt a horrible hand and a forced into making tough decisions. That being said, there seems to be way too many serious flaws with this latest plan.

[Jerk]

When they say "toxic assets" do they mean home mortgages that are either up-side-down or in some other way risky?

[Frozen Sooner]

When they say "toxic assets" do they mean home mortgages that are either up-side-down or in some other way risky?

A toxic asset is one for which no market exists. Doesn't necessarily speak to the likelihood of performance of the underlying loan, though of course a loan that's not performing is probably not going to have much of a market.

[Jerk]

So, snowballs in Alaska would be a toxic asset?

[Frozen Sooner]

Pretty much.

[Jerk]

Well...in my humble opinion, this does nothing to change the fundamental problem with our economy, which is too much debt -gov't debt, state debt, county debt, city debt, corporate debt, family debt, individual debt.

I guess massive amounts of debt are okay as long as the payments are made...then along comes $4/gallon gas and POP!

Sigh...we will have to become productive again and learn to live within our means.

[Jerk]

http://market-ticker.denninger.net/uploads/debt-trend-breakdown_2.jpg

[Chuck Bao]

Fast forward to present day, that chart is going to go off the chart, so to speak.

I had never heard the term "toxic asset" before the Asian economic crisis. I soon learned that toxic asset is nearly 100% worthless. It is largely unrecoverable and lost.

Maybe the toxicity level changes between Asia and the US and 10 years ago, but I am not intrepreting these assets as backed by something like mortgages and physical property. Mortgages shouldn't be called toxic if there is some underlying value.

Jerk, think more about those weird derivative products, like loan default securities, that nobody really understands; or, if they do understand it, they haven't be able to adequately explain it to the rest of us.

[jkjsooner]

Mortgages shouldn't be called toxic if there is some underlying value.



I think these are highly leveraged assets based on mortgages so they are essentially worthless - and of course the other derivatives you mention.

[Jerk]

Jerk, think more about those weird derivative products, like loan default securities, that nobody really understands; or, if they do understand it, they haven't be able to adequately explain it to the rest of us.

No, I don't understand them. I do understand one thing: unless GDP goes up substantially we won't even be able to service our debt. All of this Keneysian economics is just piling debt on top of debt to fund things that do not produce. It may ease the pain for awhile...hell, maybe we will see what looks like a recovery, but until there is actual wealth being created, we are f***ed.

Just my opinion, but I'm only a truck driver. I also believe that the Sun has more influence on the Earth's temperature than man, so I might be kind of crazy, too.

eta- you will be better off in the long-term over in Asia, because you make things, you manufacture stuff, you export goods, you have surpluses, and you haven't borrowed yourself into oblivion.