Volker-This is not an Ordinary Recession

Wookster wrote: »

Not sure if anyone can discern what is toxic and what isn't, and with the track record of such instruments the values will be very deflated indeed (whether correctly so or not).

This is why I think an accounting valuation based around estimated future cashflows rather than market value is appropriate.

but the FSA chief is accepting in the hearing that probably many of these 'assets' cant be sold on how ever long they are held on to even if the situation improves !!! so how can anyone give any value to these assets. they only way to do it is to auction them or to keep them on govt books via insurance schemes will be giving govt money for worthless IOU paperwork which will never get sold on.

Wookster wrote: »

It will be interesting to see if the IASB comes out with any changes to the treatment of such instruments. Your solution would involve simply writing them down to nil - that would bankrupt more than half the banks in the US & EU I'd guess, despite that while some of the assets aren't saleable they aren't delinquent.

i see it as a choice between the banks going bankcrupt or the losses being passed on to the tax payer. if the bankers enjoyed the gains they should face the losses now as well. there are other well capitalised banks that didnt take excessive risks that will survive and will fill the vacuum.

if you see tangible common equity capital ratio (a highly conservative measure of solvency) then most U.S. banks are at or close to insolvency by TCE measure. see link . obviously the risk to the common investor (his shares) getting wiped out is more when there are preffered stock holders making up the tier1 requirements. hence for the common investor these companies are technically bust if the TCE requirements fall less than the tier 1 requirement. this obviously wasnt an issue earlier but now with govt and private sovereign fund investment being given preffered stock status the common investor stands to get wiped out if the capital adequacy requirements dont cover the situation. in the present climate the TCE model looks better for the common investor. not ideal but cant see any better option.

Rochdale_Pioneers wrote: »

What I am saying is that the declining UK economy keeps being compared to the size of the world economy pre-crash. Global GDP is shrinking as individual national GDPs shrink. UK in recession on its own really hurts - we shrink as a slice of the total pie. UK in a global recession is less bad - we shrink but our size of the pie can actually increase if we shrink at a slower rate than the pie.

You can only compare the size of your economy to the total economy at any moment in time. If our GDP drops 10%, but European GDP drops 15%, then we come out of it comparatively stronger - a bigger player in a shrunken market.

UK GDP is dropping down the league table.

"Britain’s economy has been overtaken by France and, according to economists, could even fall behind Italy next year. ....new figures show that the economic crisis has pushed Britain well down the international league table."
http://www.timesonline.co.uk/tol/news/uk/article5299162.ece