On Oct 2, 2008, at 2:57 PM, Patrick Coskren wrote: > On Oct 2, 2008, at 8:03 PM, Chris Gehlker wrote: > >> On Oct 2, 2008, at 10:15 AM, Charles Bennett wrote: >>> >>> It's the mark to market rule, that forces banks to value their >>> assets at *today* value regardless of the time frame that they >>> intend to hold the investment. > > I've been traveling, so I haven't kept up with the latest back and > forth and I'm not arguing a particular point. But I'm wondering about > the basic issue here. The rule as you describe it above sounds > entirely reasonable. I own some Apple stock that I intend to keep > for a long time. But its value is about $100/share. That's what the > market has priced it at. How long I intend to hang onto it doesn't > matter. > > How is this different?
Imagine this. You buy a $30,000 new car. (perhaps a SUV) You drive it off the lot and it's worth 20k as a "used" car. By law, you must show the 10k "loss" on your books today. Now, since it's a SUV, gas goes to $6 and you couldn't sell it if you had to. By law, you must declare a 30k loss *right now* and tell everyone thinking of loaning you money that you are 30k in the hole. If you were a renter or otherwise had less than 30k other assets, you are now bankrupt. Oddly, you can still make the payments, still use the car and have no intention of selling it, but none of that matters because the accounting rules say you have to declare the loss today. I'm sure I sucked at the analogy, but the sort of real time requirement is what nailed them. In their case, as soon as the value of their assets dropped below a percentage of of their outstanding loans, they were prohibited from loaning out any more money. In theory, the bailout is a bridge loan, where the government owns the property, and gives the banks the cash (thus raising their asset value back above the point where they can make loans) in turn, the banks owe the government the value plus interest. I'm not clear on why that doesn't trigger the same problem, except it's the government doing it so they give them an exception to the rules. One senator describe it as a pile of shit with a marsh mellow in the middle. Now that they added another 100 billion in pork, I guess it has two marsh mellows and we are supposed to ignore the brown stuff. =c= _______________________________________________ OSX-Nutters mailing list | [email protected] http://lists.tit-wank.com/mailman/listinfo/osx-nutters List hosted at http://cat5.org/
