Mark to market?

[T.Rally]

Originally Posted by Larry Gude

Nonsense. Revalue 'it' once a quarter. Once a year. Depending on the asset.


Gas? Sure. Every day.
A house mortgage? Once a quarter.

If the housing market has not truly bottomed out yet, how would revaluing every quarter change the value of a toxic asset? Wouldn't the value of a bank's assets still be in the tank?

I'm not for mark to market as much as I just don't see any valid alternatives. If market value is not a fair representation of an assets worth what else is there? A blue book for houses??

[This_person]

Originally Posted by T.Rally

If the housing market has not truly bottomed out yet, how would revaluing every quarter change the value of a toxic asset? Wouldn't the value of a bank's assets still be in the tank?

I'm not for mark to market as much as I just don't see any valid alternatives. If market value is not a fair representation of an assets worth what else is there? A blue book for houses??

Wouldn't the loan have to be in default for there even to be a reason to re-value a mortgage? I mean, what's the point in constantly requestioning the value of the loan once the money is out of the bank, unless your borrower isn't living up to his/her end of the deal?

I thought that was why they came up with formulas for how much interest you pay based upon the mortgage value at the time of loaning, the credit rating of the borrower, the income/debt ratio, etc., etc.

What I'm saying is that the "value" of the loan has more to do with the person who's borrowed the money than what they borrowed it for.

[Tilted]

Originally Posted by Larry Gude

Give me one good reason in favor of mark to market?

The major problems with mark to market arise due to regulations with regard to capital positions and such.

Mark to model valuation is much more subjective, and lends itself more readily to deception and manipulation. There have been times in the past when those accounting practices were used to 'fudge' values, and paint a fiscal picture that was very different than reality. Sometimes it makes it harder for potential investors and business partners to get an accurate picture of what is going on.

The answer is probably to allow for mark to market accounting, but not to use that accounting for the imposition of strict capital regulations. More sophisticated mark to model principles can be used in that regard. Beyond those regulations, we are just talking about the information that businesses share with their business partners - and they have the ability to assess its value based on its methodology.

But, again, my thoughts on the subject aren't particularly well developed.

Originally Posted by somdrenter

So then, once purchased, the value can never be less than purchased price. Excellent.

No, the value can change tremendously - it can go up or down, without theoretical limitations. However, the issue is what principle that valuation is based on. See below.

This choice has vastly different implications when it comes to personal possessions (such as homes), as opposed to business operations, which are governed by regulatory limitations. If someone wants to stay in their house, and they can keep making payments, then an accounting of the value of their house usually doesn't matter much. But, with businesses (particularly financial institutions), such valuations are very important. And, sometimes the representative accuracy of mark to market valuations can be highly compromised by conditions.

Originally Posted by Larry Gude

Nonsense. Revalue 'it' once a quarter. Once a year. Depending on the asset.


Gas? Sure. Every day.
A house mortgage? Once a quarter.

The biggest issue with mark to market isn't how often you have to value things, but rather how you have to value them.

Put very crudely:

Do you value them in accordance with what you could sell them for in the current market, if you were inclined to sell them (marked to market)?

Or, do you value them in accordance with their actual value to you, in relation to your operations (marked to model)?

[Pete (Premo)]

Originally Posted by Tilted

The major problems with mark to market arise due to regulations with regard to capital positions and such.

Mark to model valuation is much more subjective, and lends itself more readily to deception and manipulation. There have been times in the past when those accounting practices were used to 'fudge' values, and paint a fiscal picture that was very different than reality. Sometimes it makes it harder for potential investors and business partners to get an accurate picture of what is going on.

The answer is probably to allow for mark to market accounting, but not to use that accounting for the imposition of strict capital regulations. More sophisticated mark to model principles can be used in that regard. Beyond those regulations, we are just talking about the information that businesses share with their business partners - and they have the ability to assess its value based on its methodology.

But, again, my thoughts on the subject aren't particularly well developed.



No, the value can can change tremendously - it can go up or down, without theoretical limitations. However, the issue is what principle that valuation is based on. See below.

This choice has vastly different implications when it comes to personal possessions (such as homes), as opposed to business operations, which are governed by regulatory limitations. If someone wants to stay in their house, and they can keep making payments, then an accounting of the value of their house usually doesn't matter much. But, with businesses (particularly financial institutions), such valuations are very important. And, sometimes the representative accuracy of mark to market valuations can be highly compromised by conditions.



The biggest issue with mark to market isn't how often you have to value things, but rather how you have to value them.

Put very crudely:

Do you value them in accordance with what you could sell them for in the current market, if you were inclined to sell them (marked to market)?

Or, do you value them in accordance with their actual value to you, in relation to your operations (marked to model)?

The biggest issue with mark to market deal as i understand it is it deals with the liquidity of banks. By law banks MUST have a certain percentage of their assets solvent or in cash. If their non cash holdings devalue significantly they get a call from the Fed saying "You need to sell something to raise your cash position". If the market is down you sometimes have to sell something at a poor price thus hurting yourself and the market because you just set another "mark".

[somdrenter]

Originally Posted by Larry Gude

OK, so flail about and don't make a point.

I’m not attempting to make points. I’m asking questions-->?<---

[Tilted]

Originally Posted by Pete

The biggest issue with mark to market deal as i understand it is it deals with the liquidity of banks. By law banks MUST have a certain percentage of their assets solvent or in cash. If their non cash holdings devalue significantly they get a call from the Fed saying "You need to sell something to raise your cash position". If the market is down you sometimes have to sell something at a poor price thus hurting yourself and the market because you just set another "mark".

In a nutshell, that's about right. And within that dynamic, the issue is how they value their assets - mark to market, or mark to model. A lot of people are arguing that, in this market, mark to market accounting is valuing some assets inappropriately low - especially if the holder wouldn't need to sell them, except for, as a result of that misleading valuation.

[somdrenter]

Originally Posted by This_person

What I'm saying is that the "value" of the loan has more to do with the person who's borrowed the money than what they borrowed it for.

When you drive off the lot in a new car, does the value of the car go down or does the value of the loan go down?

[This_person]

Originally Posted by somdrenter

When you drive off the lot in a new car, does the value of the car go down or does the value of the loan go down?

The value of the car drops, drastically, once it's titled and therefore becomes a "used" car.

The value of the loan remains the same - I haven't even made a payment yet. The credibility of the loan being repaid remains the same, I haven't changed my credit rating.

The value of mark to market dropped drastically, by the value of the car's decline - if I really do understand it correctly. So, by having a good credit rating and buying a new car, I've thus created a toxic asset, and caused the bank to be in financial dire straights!

Sounds kind of dumb to me, personally.

[somdrenter]

Originally Posted by This_person

The value of the car drops, drastically, once it's titled and therefore becomes a "used" car.

The value of the loan remains the same - I haven't even made a payment yet. The credibility of the loan being repaid remains the same, I haven't changed my credit rating.

The value of mark to market dropped drastically, by the value of the car's decline - if I really do understand it correctly. So, by having a good credit rating and buying a new car, I've thus created a toxic asset, and caused the bank to be in financial dire straights!

Sounds kind of dumb to me, personally.

So, when you go to trade that car in, the value of the trade in should be based on the value of your previous loan, not the value of the car?

[Larry Gude (Premo)]

Originally Posted by T.Rally

If the housing market has not truly bottomed out yet, how would revaluing every quarter change the value of a toxic asset? Wouldn't the value of a bank's assets still be in the tank? YES, it would still do the job; refelct a value for assets. However, it's not as volitile as a DAILY or weekly or monthly roller coaster ride. I mean, what is the value of a $200,000 note on 30 years for people who have been paying their mortgage, rock solid? Is it fair to change the value to less, even though they've no intention of selling?

I'm not for mark to market as much as I just don't see any valid alternatives. If market value is not a fair representation of an assets worth what else is there? A blue book for houses??

To me, if you hold the mortgage on a house for $300,000 and the people who bought it earn $50,000 a year and have a five year balloon that is about to go to 9% then that should be reflected.

If you have a $300,000 loan on a family that earns $100,000 a year and haven't missed a single payment and have a 30 year fixed note at 6%, that is a far better asset than the other one. For damn sure they should not be re-valued with the same formula be it every day or every month or every quarter or every year.

This is why getting into the nuts and bolts of what the real estate agents and mortgage brokers and big lenders and their insurers and this bundling and all, it should be looked at. That is what needs to happen which is pretty much why it won't happen; too many hands were in the cookie jar.