Mark-to-Market

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KugsCheese's picture
KugsCheese
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Mark-to-Market

Is mark-to-market still suspended for Banks (everyone is a bank now)? If so, is it all bad performing assets or only real estate? If so, is anyone estimating the hidden losses?

KugsCheese's picture
KugsCheese
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No one knows?

This information is not readily available.  Are banks on good ground or still hiddening bad assets?

Wendy S. Delmater's picture
Wendy S. Delmater
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Joined: Dec 13 2009
Posts: 1982
mark-to-market?

As you said, no one knows, but I can tell you this article in the Wall Street Journal may help answer your questions.

http://online.wsj.com/article/SB10001424052748704570104576124701144189910.html

Quote from article: 

"...banks still hold plenty of the bad assets that once spooked investors: mortgage-backed securities, collateralized debt obligations and other risky instruments. Their potential impact concerns some accounting and banking observers.

"In part due to those bad assets, the top 10 U.S.-owned banks had $13.8 billion in "unrealized losses" that have lasted at least a year in their investment portfolios as of Sept. 30, according to a Wall Street Journal analysis. Such losses are baked into banks' book value, but don't get counted against earnings as long as the banks believe the investments will later rebound. If those losses were assessed against earnings, it would have reduced the banks' pretax income for the first nine months of 2010 by 21%, according to the Journal analysis."

goes211's picture
goes211
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Is mark-to-market still suspended?

That depends upon what you consider market to market.   All liquid assets are certainly marked to market daily.  The problem is so much of their positions are made up of illiquid assets that it is hard to know what is fair value. 

Consider something as simple as how much you think your house is worth today.  Now compare that to the price you would get if you were told you must sell it by end of day tomorrow.  For most illiquid assets there is a big spead between these two prices.  Now multiply this problem by thousands of houses and you start to see that the answer to the question of what should the mark to market be, is not very clear.  Now add assets like comercial real estate, CDS, complex OTC derivatives, distressed debt, ...  that are all far less liquid than residential real estate and the picture becomes even more muddled.  Also remember that when the SHTF, everyone is going to try and raise capital by attempting to sell these assets, into a market without buyers.  Not a pretty picture...

Leverage is great when you are on the right side of it, but it can be a really ugly when you are not.  Right now the banks are not...

dshields's picture
dshields
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Joined: Oct 24 2009
Posts: 599
M2M

goes211 has a good point - I think if there was an honest effort to mark to market all the too big to fail banks would be insolvent and there would be this big emergency and further fed res bailouts.  it does not seem productive.  so they simply do not do it.  remember, a lot of the real toxic stuff was "sold" to the fed res some time back through a special program and now the liability is on the fed res balance sheet.  nobody really cares about that though because it was all bought with funny money anyway.

 

KugsCheese's picture
KugsCheese
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Joined: Jan 2 2010
Posts: 1429
dshields wrote:goes211 has
dshields wrote:

goes211 has a good point - I think if there was an honest effort to mark to market all the too big to fail banks would be insolvent and there would be this big emergency and further fed res bailouts.  it does not seem productive.  so they simply do not do it.  remember, a lot of the real toxic stuff was "sold" to the fed res some time back through a special program and now the liability is on the fed res balance sheet.  nobody really cares about that though because it was all bought with funny money anyway.

 

 

With indexes like the Case-Shiller in metro markets that point to true value, banks could reliably adjust asset values for real estate related assets.   MBS, CDO and the like are tied to these assets so one could estimate a true value there too.   For all those that seem to see no problem with banks and bonuses (after screwing main street with lies) please watch this video:

      www.bloomberg.com/video/78027552/

The real estate market will not return to nominal peak values for some time (some say more than 10 years).  Do we want to repeat Japan's mistake?

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