When i take out a car loan, Vic, or a home mortgage, one of the preconditions is that it can't be called unless I'm not making my payments, and that's the same for the vast majority of homeowners you referenced at the top of this page... they may not be able to get the refi deal they want, but, oh well, they're safe within the current arrangement. Well, unless they went for one of the chump loans.
Not so for commercial loans of several types, something the borrowers knew going in- they elected to take that risk in return for lower costs of borrowing. And, in truth, banks are currently loathe to do that, rather being stuck with making margin calls on outfits that aren't making their payments. You haven't provided any examples of going concerns who pay their bills being called on margin, anyway. And we've seen pre-emptive deals like the countrywide buyout, because BofA had the liquidity to swing it. What else are the banks supposed to do when their debtors can't pay?
The current problems aren't created from a mark to market methodology, but rather from the lack of such in the past, the use of mark to model pie in the sky pollyanna valuation schemes that border on outright fraud. That's part of how the housing market got so far afield- utterly ignoring the ability of the buyer to actually pay, even as investors were allowed huge leverage to buy securities based on unrealistically high housing prices. Even as prices levelled out or declined, the model said that the price was going up, allowing that last nickel in profit to go onto the quarterly report... fat bonuses into executive bank accounts, and for rosy projections, too.
Yeh, I'm sure that holders of such securities and their creditors would very much like to continue claiming that their paper is worth whatever they say it might be at some indeterminant point down the road- and they can, too. All they have to do is pony up the cash to keep their payments current, and everybody will be happy. Except that they can't, never really could except in an artificially inflated and fast growing valuation scenario...
That's over for the foreseeable future. Get used to it. It's not that the companies involved have to pretend to have to sell at the current price, whatever it is, gentlemen, but that some really have to sell in order to stay afloat. Otherwise, they'd hold and wouldn't sell, right? And if you're forced to sell at a discount, that obviously means that the value of those same securities have declined across the board, and it would be fundamentally dishonest to claim mine were worth more... well, unless I'm a banker or a leveraged buyout hedge fund operator.
Other markets implement mark to market quite successfully in an effort to keep everybody honest- The Chicago Mercantile Exchange marks to market twice daily in the world of highly speculative and fast moving commodity futures, and it works well, preventing traders from getting into positions they can't hope to cover, positions that many of today's holders of mortgage backed securities find themselves in...
Not so for commercial loans of several types, something the borrowers knew going in- they elected to take that risk in return for lower costs of borrowing. And, in truth, banks are currently loathe to do that, rather being stuck with making margin calls on outfits that aren't making their payments. You haven't provided any examples of going concerns who pay their bills being called on margin, anyway. And we've seen pre-emptive deals like the countrywide buyout, because BofA had the liquidity to swing it. What else are the banks supposed to do when their debtors can't pay?
The current problems aren't created from a mark to market methodology, but rather from the lack of such in the past, the use of mark to model pie in the sky pollyanna valuation schemes that border on outright fraud. That's part of how the housing market got so far afield- utterly ignoring the ability of the buyer to actually pay, even as investors were allowed huge leverage to buy securities based on unrealistically high housing prices. Even as prices levelled out or declined, the model said that the price was going up, allowing that last nickel in profit to go onto the quarterly report... fat bonuses into executive bank accounts, and for rosy projections, too.
Yeh, I'm sure that holders of such securities and their creditors would very much like to continue claiming that their paper is worth whatever they say it might be at some indeterminant point down the road- and they can, too. All they have to do is pony up the cash to keep their payments current, and everybody will be happy. Except that they can't, never really could except in an artificially inflated and fast growing valuation scenario...
That's over for the foreseeable future. Get used to it. It's not that the companies involved have to pretend to have to sell at the current price, whatever it is, gentlemen, but that some really have to sell in order to stay afloat. Otherwise, they'd hold and wouldn't sell, right? And if you're forced to sell at a discount, that obviously means that the value of those same securities have declined across the board, and it would be fundamentally dishonest to claim mine were worth more... well, unless I'm a banker or a leveraged buyout hedge fund operator.
Other markets implement mark to market quite successfully in an effort to keep everybody honest- The Chicago Mercantile Exchange marks to market twice daily in the world of highly speculative and fast moving commodity futures, and it works well, preventing traders from getting into positions they can't hope to cover, positions that many of today's holders of mortgage backed securities find themselves in...
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