5 replies to this topic

[nimblebear]

Monday sees the start of the third quarter reporting season for US banks. Under strict rules, American banks are required to tot up the value their debt-related investments, a process called marking to market. But most of the markets for these instruments are closed. You can’t get a price for these assets, never mind trade them. These securities have plummeted over July and August, which means banks are sitting on huge losses. That is unless US regulators go easy on them — the sort of moral hazard they seem comfortable with these days. But even if the most liberal interpretation of the mark to market rules are applied, it’s going to get bloody with all the inevitable consequences for stock markets. Analysts calculate there could be as much as $230bn of losses lurking, waiting to be disclosed, which is more than three times the $70bn a year that experts reckon the banking industry can absorb with any degree of comfort. From UK times. (Its funny how you don't see this stuff in the US press.)

[ogm]

Are they really losses or not ? If you hold a certain bond that has fallen in value to 70 cents, and yet to continue receiving payments on time. Is that a loss ?

[Tor]

apparently the amount the market has fallen exceeds the losses possible in aggregate from both the housing market and also the sub prime arena. all possible losses eminating from those assets.

[pdx5]

Are they really losses or not ?

If you hold a certain bond that has fallen in value to 70 cents, and yet to continue receiving payments on time. Is that a loss ?

Certainly not a tax related loss if you don't sell the bonds.

However the market value of holdings does play a part in what the
bank can use as collateral for loans from Fed & other banks.

[OEXCHAOS]

When valuing these sorts of assets, it gets tricky. I think we ran into trouble when we started taking not really fungible assets and then pretended that they were "statistically fungible". Obviously, when there's a liquidity problem with a performing asset, it's not really wise to treat it as though it was a liquid, fungible asset. I think I'd only get freaked when they became "non-performing". Mark

[JAP]

4 investment banks report this week