banks now allowed to lie about assets

[Roddimus]

http://www.independent.co.uk/news/business/news/us-suspends-marktomarket-rules-on-bank-assets-1661117.html

so the other week obama's SEC changed the rules for mark-to-market.
for years the banks have been required to price their mortgage assets to the market value of the house. if the bank bought a mortgage for $300k but the house is now worth $150k, the bank would be required to take a loss on its books. this is the primary reason why so many banks were tanking last year.
but now, after begging bush to change the rules to no avail, obama has now allowed the banks to more or less value the mortgage based on their own models. essentially if a house that was $300k is now $150k, the bank can say the house is actually worth $280k based on what they think it "should" be. this is the reason why the banks are suddenly posting "profits" or smaller than expected losses.
this is also utter bullshit. for all the jawboning obama has done for more regulations on the banks, he's just given them one of the biggest free passes the government could possibly give. not only are insolvent banks being prevented from going bankrupt, they're now being allowed to lie and distort more than ever before.

[tr0llaccount]

<speechless>

[Hukt On Wax]

w0w :(

[Odizus]

Doesn’t that help keep our economy up and running if we can keep more money in our banks?

Doesn’t this prevent a depression even though the small guy gets screwed?

Isn't that the same as one person has to suffer to save the whole lot?

It sucks and it's horrible business, but if it helps our economy...

I am not positive that is the idea being presented here, but it sounds like that…

Correct me if I am wrong. :D

[Cethe]

uhmmm....i dunno.

my gut tells me this is shitty business & in the end not going to help anything.

but my gut instict isn't admissible in court is it?

[Roddimus]

It sucks and it's horrible business, but if it helps our economy...
horrible business never helps our economy.
the banks are in trouble because they lied and overvalued their assets. how is allowing them to lie and overvalue their assets even more going to help anyone?
this is simply going to ramp up the distrust the world already has in our banking system. if obama wants the world to chuck our economy to the side of the road like a bad banana, he's doing a really good job.
you can't just play pretend when it comes the economy.

[Boyd Main]

sounds like a bad idea....BUT... who can tell what property is worth these days? I have no idea what my house is worth, and no-one has the authoritative answer to what it is worth either. Unless it has just sold, the market value of a house is just an estimate based on some kind of model. What model should banks be using? Is there an impartial standard?

[Roddimus]

sounds like a bad idea....BUT... who can tell what property is worth these days?
by comparing your house to the selling price of similar houses.
I have no idea what my house is worth, and no-one has the authoritative answer to what it is worth either.
the market sure does.
Unless it has just sold, the market value of a house is just an estimate based on some kind of model. What model should banks be using? Is there an impartial standard?
yes, what someone is willing to pay for it.
the problem is, the banks have houses on their books that are in unfinished/vacant neighborhoods. they have houses that have been stripped and destroyed by previous owners. they have houses that are being occupied by bobcats.
the values of many of the houses on the banks' books are literally next to worthless. the toxic assets we keep hearing about are indeed toxic. the banks want to pretend they're not toxic, and now obama has given them a free pass to do so.

[Gobo]

http://granitegrok.com/pix/ObamaBorg.jpg

[Boyd Main]

by comparing your house to the selling price of similar houses.

My point is that houses aren't selling. There are no comparables. I have no idea what my house is worth these days, and anyone who tells me they do is lying. The only true market value is what it gets when I put in on the market, anything else is an estimate.

I understand your concerns with Mark-to-Market reporting, but I don't understand what you think the correct way to go about putting values on these properties is. It's not like holding a bond or a quantity of a commodity, where there is a true market value for all items like that. Each property is unique and housing is not fungible. And in this market when houses are sitting for months/years unsold, comparables are useless because there are so few.

You don't want banks to use their own models, sure, I agree with you. But whose model should they use?

[Roddimus]

My point is that houses aren't selling. There are no comparables.
there are comparables tho. if a house isn't selling it's because it's too expensive or has no real value. historically the average house has almost always sold for around 100k (adjusted for inflation). the average price of a house has a long way down to go before we reach that medium.
I have no idea what my house is worth these days, and anyone who tells me they do is lying. The only true market value is what it gets when I put in on the market, anything else is an estimate.
of course it's an estimate, but it's an estimate that is based on the prices people are paying for comparable houses. i don't see how that's not a fair value.
I understand your concerns with Mark-to-Market reporting, but I don't understand what you think the correct way to go about putting values on these properties is.
the value should be whatever it takes to sell the property. why is this so confusing?
And in this market when houses are sitting for months/years unsold, comparables are useless because there are so few.
yes, because the market overbuilt in areas that have no real value. have you been to arizona?
You don't want banks to use their own models, sure, I agree with you. But whose model should they use?
they should use the market's model. the banks don't like what the market is willing to pay tho, because it will render them insolvent. they made stupid, stupid bets on worthless properties. why shouldn't they bare the pain of those moronic choices?

[Odizus]

I still don't understand, why would Obama screw us, isn't he our magical savior??

[TeknoAXE]

Hitler was supposed to be the magical savior of Germany. Look how far he got them.

[Roddimus]

I still don't understand, why would Obama screw us, isn't he our magical savior??
no, but you're supposed to think he is.

[Mayo Finch]

Roddy, its not that I don't respect your understanding, its that your logic does not equate to practical reasoning in my analysis. You claimed, "Buy gold because the dollar is going to shit." and that has not been the case. A well rounded understanding of global capital is saying stabilization of the dollar is good for the world economy right now.

It does not matter what price the banks value properties at. If the banks want to hold dead assets, fine. If they are trying to put the properties on market for the assumed value and there are no buyers, then they could say a $200,000 house is worth a billion dollars and it really wouldn't make a difference.

The only real issue is if the banks are reaching out for cash flow loans on inflated assets and the lenders don't respect the banks assessed value, then the banks will run into capital failures. In the short term it looks good on the books and in the long term it is not a stable solution.

True market value on assets is different than proposed value.

How do you value the price of a home? Often its based on recent home sales and a valuation estimate of recent home prices of comparable properties. The list of recent comparable sales includes home prices as well as property data, including beds, baths, size and last date sold.

So sure, their books get some padding, but if you look at the overall mechanism that this is supporting, it is not any particular bank, it is in the bank holding corporations. They gain leverage to secure cash flow for operations.

I will gladly explain further, but seriously, your an independent with super strong libretarian values. Your logic is good for a number of things, but the libratarian logic has shown to be continously flawed. I have stopped listening. The times that I have bought into the reasoning of your style of thinking has been a mistake time and time again. The potential crisis is so often based on the idea that, "this is a contribution to the catalyst of global systematic failure" or "collapse of our society."

Things are bad. They are not going to get better. We have lived the best days already. Reform and overhaul of our system will be necessary by the time our kids are well into adulthood. We need to focus more on how to develop sustainable local economies and avoid unsubstantiated economic growth. I'm all about understanding why our system may be in danger, but I also believe that it is up to us to take an active role in developing the world we live in instead of being hypercritical purveyors of doom all the time.

[Boyd Main]

the value should be whatever it takes to sell the property. why is this so confusing?

Because that is not a practical way to do accounting, to have to sell all your assets before you have any idea what your net worth is.

When I go to the bank to ask for a HELOC, they don't make me sell my house to prove how much equity I have it in. That would be absurd, but it's what you seem to be proposing banks should do.

[Roddimus]

Roddy, its not that I don't respect your understanding, its that your logic does not equate to practical reasoning in my analysis. You claimed, "Buy gold because the dollar is going to shit." and that has not been the case.
so a few months of a bear market rally in an mutli-year down-trend automatically means the dollar is now safe? ever heard of a head fake?
if the dollar is suddenly so safe, why is china, arguably the most productive--and currently most resilient--economy in the world, calling for its replacement and slowly diversifying its reserves into hard assets? why was china a net seller of treasuries in january and february for the first time since they started supporting our national debt? do you honestly believe that the fed's recently monetization of the exploding national debt is a positive sign for the long term strength of the dollar?
don't be fooled by short term technical movements in the dollar. talk to me about the USD in a year (or even possibly in a few more months).
It does not matter what price the banks value properties at.
of course it matters! how can you possibly say that?
the banks created and sold CDOs based on the values of those properties. if those properties are now worthless, their CDOs are now worthless as well. the people who paid for those CDOs sure as hell care if their financial products have the value they paid.
If the banks want to hold dead assets, fine. If they are trying to put the properties on market for the assumed value and there are no buyers, then they could say a $200,000 house is worth a billion dollars and it really wouldn't make a difference.
it makes a shit load of difference. i don't think you have a real understanding of this issue.
The only real issue is if the banks are reaching out for cash flow loans on inflated assets and the lenders don't respect the banks assessed value, then the banks will run into capital failures.
OK, well maybe you do sort of understand the issue. but if you do believe ^^^that, then it really does make a difference how the assets are valued and what they're valued at.
True market value on assets is different than proposed value.
yes, it is. the true market value is also the only REAL value those assets can have. if no one is willing to buy something, how can you possibly say it has any value?
So sure, their books get some padding, but if you look at the overall mechanism that this is supporting, it is not any particular bank, it is in the bank holding corporations. They gain leverage to secure cash flow for operations.
...through outright fraud.
I will gladly explain further,
no need, i understand this topic pretty well.
I have stopped listening.
but not posting apparently.
We need to focus more on how to develop sustainable local economies and avoid unsubstantiated economic growth.
and allowing the banks to lie and distort their books achieves this how?
I'm all about understanding why our system may be in danger, but I also believe that it is up to us to take an active role in developing the world we live in instead of being hypercritical purveyors of doom all the time.
i'm just a purveyor of reality, but not too many people enjoy getting a reality check.

[Roddimus]

Because that is not a practical way to do accounting, to have to sell all your assets before you have any idea what your net worth is.
you don't have to sell your assets, but you can at least compare your assets to similar assets that are selling to give you a starting point. if it takes $100k to sell a similar property in your neighborhood, then you're safe in assuming your house is worth around $100k.
again, why is this confusing?
When I go to the bank to ask for a HELOC, they don't make me sell my house to prove how much equity I have it in. That would be absurd, but it's what you seem to be proposing banks should do.
no, i'm just proposing the banks do what they've always been required to do. that is, price their mortgage assets based on market values.

[Boyd Main]

you don't have to sell your assets, but you can at least compare your assets to similar assets that are selling to give you a starting point. if it takes $100k to sell a similar property in your neighborhood, then you're safe in assuming your house is worth around $100k.
again, why is this confusing?.

It's not confusing. It just wont work right now. Like I've said a couple of times previously in this thread, the state of the market is such that comparables are useless. When nothing is selling, there are no comparables. Or if there are some, the data set is so weak that the error bars swamp the signal.

I don't pretend to know what the right answer is, but at least I acknowledge there is a problem. Your faith in 'the market' is blinding you to the fact that there even is one.

[Roddimus]

It's not confusing. It just wont work right now. Like I've said a couple of times previously in this thread, the state of the market is such that comparables are useless.
see, this is the thing you and so many others don't seem to understand; the state of the market is fine, it's just not working the way you--or the banks--want it to work.
the market is demanding lower and lower prices, but the sellers, mainly the banks, don't want to sell at those prices. demand has not diminished, it's simply changed what it's demanding.
When nothing is selling, there are no comparables.
the only reasons a house wouldn't sell is because a) it's priced too high, or b) it does not have value because of damage, poor location, etc.
if i bought a comic for a hundred dollars but the only possible buyer i can find anywhere is only willing to pay twenty, it's tough shit for me. if i can't find a buyer at any price, then it probably means i got swindled into buying something with no value. it's no different for someone who bought a house.
I don't pretend to know what the right answer is, but at least I acknowledge there is a problem. Your faith in 'the market' is blinding you to the fact that there even is one.
no, i realize there is a problem. the only problem is that houses were waaaaay too overpriced. the market is currently correcting that problem. you, and the banks, see the solution as the problem. yes, the solution is painful, but sometimes medicine tastes bad.

[Roddimus]

here are a couple of videos of the types of houses the banks don't want to value according to the market:

http://www.youtube.com/watch?v=WeOUFNXPCi8&feature=player_embedded

http://www.youtube.com/watch?v=nzACsGrumEU&feature=player_embedded

http://www.youtube.com/watch?v=mWLyd9Jaxtg&feature=player_embedded

these types of houses are all over the place in cali, arizona, florida and elsewhere. ask yourself what you'd be willing to pay for properties like those.

[Nukegrrrl]

I think that the bobcats add value to the vacant homes.

http://latimesblogs.latimes.com/laland/images/2008/09/04/k6oo8rnc.jpg (http://www.nwtekno.org/showthread.php?t=130022)