Happy days

They also have a huge HE portfolio in California.....

 

I am so against revising the mark to market rules. If there is no market, then the value of those assets is ZERO. It's a gimmick and will greatly distort these earnings figures.

 

Yep, and Golden West was in California also. Something just doesn't seem right. Maybe I'm wrong. I hope I am wrong.

 

I disagree, they have future value because they have a house behind them (at some point at least). Suppose you had a SUV last summer that was worth $15K according to Kelley Blue Book. Just because no one is buying them because of gas prices doesn't mean it's value goes to $0. Now, I might have to lower the price to sell it and that certainly would hurt the perceived value but it doesn't make it $0. For example, I could decide to hold onto it until the winter when gas prices went way down and sell it for $12K. Well, the value back in the summer wasn't $0, it was the value of $12K 4-6 months from then. Mark to market would have made it $0, or near $0, because you couldn't sell but that doesn't make sense as there is future value as there is still an asset there.

 

Nope, I think you are right.

 

If they try to sell them right now, what is their value?

 

Why should we assume they have to sell them right now? It's a case of government oversight going to far (this was passed post-Enron). Lord, how did we ever make it 100s of years without mark-to-market?

 

This is why some of us aren't convinced that this is past. Subprime is past mostly. The rest are still coming.

 

They want to sell them and get them off their books as the have to hold a crap load of capital against them that they could use for other purposes. Isn't mark to market what help do in Japan? They hid their collective heads in the sand and and lost an entire decade. One Fed President said the US should never do away with market to market but I guess he was overruled.

 

VA, the thing is though that mark to market is making them take a mortgage they hold (an asset for the bank as it has a house behind it) and value it down to 0 or near 0 simply because they can't re-sell it. The problem is that it has artificially lowered their assets because it has ignored the house sitting behind the mortgage they hold. The problem occurs that banks have to keep a certain amount of reserves on hand. When you artificially devalue their assets, it destabilizes their books causing their ratios to get out of whack which then forces them into selling those assets at firesale prices to try to clean their books up (which they are only doing because an accounting rule change messed with their books to begin with). Until that happens, their books are essentially frozen and thus, our government started pouring money into them to try to 'unfreeze' their books. Suspending mark-to-market for just 2-3 years would have helped to stabilize their books and wouldn't have cost taxpayers a dime to do. It wouldn't have solved the entire problem but it would have helped the overall situation. SOX is government regulation that began as a good idea and ended up being too onerous and had unintended consequences (I know this is shocking from government action).


Here's an column in the WSJ about it...

http://online.wsj.com/article/SB122186515562158671.html