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SHELLY

SoWal Insider
Jun 13, 2005
5,763
803
As for discounting the note, that's a whole different question and not easily answered in a post here.

They can just dump it in the "Superfund" will all the other bubble-era toxic waste and go on with business as usual. Next!


.
 
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SHELLY

SoWal Insider
Jun 13, 2005
5,763
803
Goofer,
I am probably stating or rather asking the obvious to those of you who know so much more than I about finances - but massive liquidations paid by whom? The federal government? And who will decide who qualifies for the writedowns?

Maybe the taxpayers if Mr Paulson has his way:


"Henry Paulson, the US Treasury Secretary, is seeking to persuade the White House to offer financial compensation to American mortgage lenders that try to help troubled homeowners by renegotiating the terms of their loans.

The Times has learnt that Mr Paulson is lobbying President Bush to provide funds so that mortgage lenders can reduce the loss that they would incur from either reducing the rate of an adjustable home loan or extending the life of the mortgage to make it cheaper for the property owner.

It is understood that Mr Paulson?s proposals are meeting significant resistance within Washington, where it is perceived that such a move would be a bank bail-out scheme."
 

jlweathers

Beach Lover
May 2, 2007
96
0
T Much of the current mess has come from the "mark to model" method of valuing "assets".

i agree with this for the most part - trouble is: how do value something that is not very liquid? such as many of the instruments that are heading way south these days. you have no option other than mark to model - they are illiquid instruments (i.e. their is no readily accessible market to sell these assets)

presumably these instruments and their valuation models are based on some expected future cash flows versus the financial instrument's unsystematic risk - so, in theory that is pretty simply to value.

so now lets assume that delinquency rates on subprime mortgages suddenly go up & you as a CDO investor are highly leveraged & your business model is essentially buying CDOs with s-t borrowing and making money from the yield spread. now all of sudden since delinquencies have risen your lender is not so happy with your CDO as collateral for the s-t borrowing your accustomed to getting in the commercial paper market. & you were accustomed to using these s-t borrowings to not only fund existing debt you own but to buy more CDOs (& gain more revenues via the yield spread). so now your cash flow stream has diminished & your banker wants some of his money back - so where do you come up with cash? you are forced to liquidate assets to repay your indebtedness. concurrently your buddies you play golf with are doing the same thing & consequently their is a heck of a lot of CDOs available for purchase & since all pricing decisions are essentially based on supply & demand a dramatic increase in supply suggests price must go down. the increase in supply & the perceived increase in risk have in this case caused the asset prices to go way down.

consequently the valuation models have failed - they become irrelevant in the short-term b/c after all something is only worth what another individual will pay.

however, i would presume that everyone is pretty confident in the U.S. economy over the mid to long-term & in the longer-term (say 5 years) these models will again be closer to an accurate valuation.

so, i give this schpill only to say that these models cannot deal with s-t market disruptions like we have today (they don't deal well with uncertainty) - when mortgage delinquencies get back to a more reasonable level then the models will again prevail.

truth be told...if you can build a better mousetrap (in this case the model) you will be poised to make a ton of money in the near future...this whole mess has fasb, the fed, aicpa, treasury, etc. looking at how to value assets - will be a very interesting future!!
 

Bob

SoWal Insider
Nov 16, 2004
10,366
1,391
O'Wal
i agree with this for the most part - trouble is: how do value something that is not very liquid? such as many of the instruments that are heading way south these days. you have no option other than mark to model - they are illiquid instruments (i.e. their is no readily accessible market to sell these assets)

presumably these instruments and their valuation models are based on some expected future cash flows versus the financial instrument's unsystematic risk - so, in theory that is pretty simply to value.

so now lets assume that delinquency rates on subprime mortgages suddenly go up & you as a CDO investor are highly leveraged & your business model is essentially buying CDOs with s-t borrowing and making money from the yield spread. now all of sudden since delinquencies have risen your lender is not so happy with your CDO as collateral for the s-t borrowing your accustomed to getting in the commercial paper market. & you were accustomed to using these s-t borrowings to not only fund existing debt you own but to buy more CDOs (& gain more revenues via the yield spread). so now your cash flow stream has diminished & your banker wants some of his money back - so where do you come up with cash? you are forced to liquidate assets to repay your indebtedness. concurrently your buddies you play golf with are doing the same thing & consequently their is a heck of a lot of CDOs available for purchase & since all pricing decisions are essentially based on supply & demand a dramatic increase in supply suggests price must go down. the increase in supply & the perceived increase in risk have in this case caused the asset prices to go way down.

consequently the valuation models have failed - they become irrelevant in the short-term b/c after all something is only worth what another individual will pay.

however, i would presume that everyone is pretty confident in the U.S. economy over the mid to long-term & in the longer-term (say 5 years) these models will again be closer to an accurate valuation.

so, i give this schpill only to say that these models cannot deal with s-t market disruptions like we have today (they don't deal well with uncertainty) - when mortgage delinquencies get back to a more reasonable level then the models will again prevail.

truth be told...if you can build a better mousetrap (in this case the model) you will be poised to make a ton of money in the near future...this whole mess has fasb, the fed, aicpa, treasury, etc. looking at how to value assets - will be a very interesting future!!
the models will be correct because the subprime ARMs will be not be offered
 

SHELLY

SoWal Insider
Jun 13, 2005
5,763
803
The British explain the US subprime/SIV markets:



.
 
Last edited by a moderator:

Little Fish

Beach Lover
Oct 9, 2007
134
7
Atlanta, GA
Dude said; "trouble is: how do value something that is not very liquid?"

This is exactly why it will get worse before it gets better. When Merrill and other institutions recently wrote down the value of their securitized portfolios, they did so by estimating what they thought the market value could be at that time. Problem is... they have no way of knowing whether or not they were even close to projecting accurate estimates of value. Why is this? This is because no one is purchasing these portfolios. There is no market for these securities. Hedge fund managers are all playing the "wait and see" game. No manager wants to be the first one to offer 70 cents on the dollar, when the market may really turn out to be 50 cents. This is probably why we won't see the real extent of losses on FI's until the first quarter of next year.

There will be money to be made on the purchase of these portfolios. You can bet Hedge fund managers are interested in this market, but they won't step up until they have a greater sense on confidence in pricing. They need a little more information and then... one by one they'll be stepping up to the plate and bidding on these assets. Then we'll know the true extent of the losses in the market.

Little Fish
 

Bob

SoWal Insider
Nov 16, 2004
10,366
1,391
O'Wal
What's hilarious is that the U.K. has a much higher percentage of adjustable rate mortgages than the U.S. market. .
 

Miss Kitty

Meow
Jun 10, 2005
47,011
1,131
71
Hopefully, the Fed will get the kids. :wave:
 
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