Mark to market?

[Larry Gude (Premo)]

Originally Posted by somdrenter

Well then, I’d like a $900000000000000.00 loan on a 30 year old double wide on a half acre, in the middle of a mosquito infested swamp 200 miles from any civilization

And there you go. A mortgage is an asset backed loan.

I really wish you'd explain why you think mark to market, which has existed for some time now, has anything to do with mortgage fraud.

[Larry Gude (Premo)]

Originally Posted by somdrenter

Actually, I could come around to your quarterly evaluation. Would a 20% decline in a quarter be the same as a 20% decline over the equivalent number of days?

There is an argument to be made for that. In some ways it's the same thing. It others, it makes all the difference in the world.

I made the comparison early between a $300,000 loan to people who shouldn't have gotten the loan and those who had earned it. Isn't THAT the issue?

Mark to market would, on the loan to the people who deserve it, show nice and steady, wouldn't it?

And the loan to those who didn't earn it or the rules were broke for them may well show, mark to market, a good bit of volatility and with good reason, wouldn't it?

So, what if those two are bundled together in one 'product'? How the hell do you score that?

Mark to market has NOT served the interests of the markets, not investors, not risk takers, certainly not the economy in this current mess, has it?

[somdrenter]

Originally Posted by This_person

Are you credit worthy?

Of course. And by previous examples, that would be the heaviest weighted valuation of the loan.

I don't understand your point of view here. Are you suggesting that each and every loan for each and every asset be re-evaluated on a daily….

I thought that’s what we we’re talking about…Mark to Market?

What would you do with the new car loan that is undervalued the minute the car is titled?

Risk (loan value?)is measured by creditworthiness of the borrower AND market value of the car.

How about a business loan for a company that is currently failing, but with the correct infusion of cash into a venture MAY be a strong asset (like, a small business loan to create a small business)? Is this a liability from day one?

Liability from day one..absoulutly, there is always some liability. (we’re getting a taste of this with the GM bailout).

The loan is for the value when loaned, based upon the credit-worthiness of the borrower more than the value of the asset.

Then, again, I have perfect credit and would like a loan for my doublewide in the swamp.

A home appraised at $250,000, with a $200,000 loan out to a bad credit risk is worth far less than a home worth $200,000, with a loan of $250,000 to a good credit risk. I don't see where there's an argument with that.

Depends. If the borrower defaults, I have some of his payments plus what I can get from selling it on the market. What’s that? The market has tanked?? Then the value of the loan has even further declined.

[somdrenter]

Originally Posted by Larry Gude

Mark to market has NOT served the interests of the markets, not investors, not risk takers, certainly not the economy in this current mess, has it?

Don’t know if I’d go that far. I believe Mark to Market has shown that the emperor (economy) has no clothes. With quarterly evals the emperor still has no clothes, we may just not know about it until next quarter.

[somdrenter]

Originally Posted by Larry Gude

I really wish you'd explain why you think mark to market, which has existed for some time now, has anything to do with mortgage fraud.

Mortgages were brought up a few post back (don’t remember why now). But now that you mention it……Maybe it doesn’t have anything to do with mortgage fraud…..but it could possibly detect it….maybe?

[This_person]

Originally Posted by somdrenter

Risk (loan value?)is measured by creditworthiness of the borrower AND market value of the car.

The market value of the car - when? Is the bank in worse shape if I'm a bad credit risk who takes really good care of a brand new car, or a great credit risk who destroys my brand new car first day?

The person who will pay back the loan is the good credit risk. The person who is far less likely to repay the loan puts the bank at risk of the market value of the asset the day the bank obtains possession of it.

If a loan is being paid, it really doesn't matter what the loan is for.

If a bank is NOT being re-paid, it begins to matter how much of the money the bank can recover.

Checking the daily, weekly, monthly, or quarterly value of assets being repaid provides virtually no useful data.

[Larry Gude (Premo)]

Originally Posted by somdrenter

Mortgages were brought up a few post back (don’t remember why now). But now that you mention it……Maybe it doesn’t have anything to do with mortgage fraud…..but it could possibly detect it….maybe?

No. NO. NO! Mortgage fraud has been going on and EVERYONE knew it. The markets respond to one of two things; ups or downs. They could have been handing out mortgages to squirrels and, as long as appraisals kept going up and people kept playing, it didn't matter one bit whether mark to market was every day or every 5 seconds. Mark to market served no good purpose but it didn't hurt anything on the way up. Hell, if anything, it clouded the picture even more.

The problem is the reverse. Mark to market exacerbated the problem on the way up AND on the way down.

Down hurts more. Unless you're shorting. Which goes right back to my other post about shorting.

[somdrenter]

Originally Posted by Larry Gude

No. NO. NO! Mortgage fraud has been going on and EVERYONE knew it. The markets respond to one of two things; ups or downs. They could have been handing out mortgages to squirrels and, as long as appraisals kept going up and people kept playing, it didn't matter one bit whether mark to market was every day or every 5 seconds. Mark to market served no good purpose but it didn't hurt anything on the way up. Hell, if anything, it clouded the picture even more.

The problem is the reverse. Mark to market exacerbated the problem on the way up AND on the way down.

Down hurts more. Unless you're shorting. Which goes right back to my other post about shorting.

Hold up..hold uphold up. Yes, I agree, mortgage fraud was/is going on and indeed EVRYONE knew it. When I said “Maybe it doesn’t have anything to do with mortgage fraud”…..let me rephrase. Maybe mark to Market did not cause mortgage fraud…but it helped facilitate the fraud (may I suggest fraud be one of your next topics..)?

If indeed Mark to Market exacerbated the problem on the way up AND down (which I somewhat agree, maybe not exacerbated; it did not “intensify” the problem, it simply indicated that there was a problem with such radical up ticks) can we now, mid stream, change these accounting practices? After all, we’d be using different measuring devices for the market on the down slope vs. the up slope?

Further, if it were not for Mark to Market, we could not have seen this radical up tick and therefore made the suggestion that something might be awry….yes people, some folks did see this coming….

[somdrenter]

Let me go back to…..here:

Originally Posted by Larry Gude

Mark to market played a key roll in making all of this mess far worse than it should have been.

I believe this a poor premise.

Loose lending and toxic mortgages played the key role…..along with greed.

With all this funny money let loose, “valuations” began to rise. After all, everyone can “afford” a $500K home. Trow in some back ally appraisals, pumping from the REI, and the “keeping up with the Jones” for good measure. (Please note the fraud going on….hopefully a topic for a latter day)

Did Mark to Market properly identify the then current valuations? Yes, it did. Did it indicate a rapid up tick? Yes, it did. Could someone correlate that rapid up tick with an increase in wages? Nope. Correlate it to increased output? Nope. Correlate it with consumer spending? Yep.<Hey fellas, something funny going on here>

Originally Posted by Larry Gude

Mark to market would, on the loan to the people who deserve it, show nice and steady, wouldn't it?

Yes, it would.

Originally Posted by Larry Gude

And the loan to those who didn't earn it or the rules were broke for them may well show, mark to market, a good bit of volatility and with good reason, wouldn't it?

Yes, it would.

Originally Posted by Larry Gude

So, what if those two are bundled together in one 'product'? How the hell do you score that?

AhHa! So, it’s not necessarily Market to Market that is the issue here…It’s the bundling!!??

Originally Posted by Larry Gude

Mark to market has NOT served the interests of the markets, not investors, not risk takers, certainly not the economy in this current mess, has it?

It served the market as an indicator for which it is. To serve the interest of the market…that’s what the bailouts are for…

[somdrenter]

Originally Posted by This_person

The market value of the car - when? Is the bank in worse shape if I'm a bad credit risk who takes really good care of a brand new car, or a great credit risk who destroys my brand new car first day?

The person who will pay back the loan is the good credit risk. The person who is far less likely to repay the loan puts the bank at risk of the market value of the asset the day the bank obtains possession of it.

If a loan is being paid, it really doesn't matter what the loan is for.

If a bank is NOT being re-paid, it begins to matter how much of the money the bank can recover.

Checking the daily, weekly, monthly, or quarterly value of assets being repaid provides virtually no useful data.

Usually, ALONG with your credit report, a lender does want to know what the $$ is for. If you have good credit and what to borrow $250K for a house…yeaa…wellll…ok (but we’ll still need a down payment<remember those? And we’ll hold the note on your house as collateral until the loan is paid off.

If you have good credit and want to borrow $250K for a box of Lucky Charms…yeaa..welll…ok..(but you’ll need you wait here whilst we call the cops). It kinda matters to the bank what the loan is for…

Ah! But a box of Lucky Charms is not an investment!! To some no, but I have to wonder…how often does a bank lend out money for an investment vehicle (i.e., gold, stocks, 401K..etc)? Even if you count a business as an “investment vehicle”, there will probably be some collateral involved, they’ll probably want to see some sort of business model, and they’ll probably want to know your qualifications to run such business.