Next leg of banking collapse underway

StevieJ

Generali wrote: »

I call a mark to market CYA as it gives the auditor something (s)he can point at on a Bloomberg screen as a reason for a valuation.

For a loan, discounted cash flow gives a better valuation model IMO.

Presumably the key question is what will the default rate be? How does a DCF answer this? I accept in normal times industry norms could be used, we are not in normal times.

Laughing_man

Really2 wrote: »

Dont you go on all I did is specify what a writedown was you turn it in to a war.:rotfl:

Is that yous !!! talking? as for going on about google links HELLO what do you do.
http://www.allbusiness.com/glossaries/write-down/4941919-1.html
Dictionary of Real Estate Terms
write-down
To diminish in amount on the records, generally to reflect a market value loss.
Example: Bank auditors, upon discovering that a certain mortgage was worthless, insisted on a write-down. The bank recorded the decline as a bad debt expense.

So its not the market value of the loans but the assets the loans relate to(wothless mortgage = Loan value higher than asset). Put down as a bad debt expense.

It's oK you can say sorry by PM to avoid embaressment.

*sigh*

The example you've given has no relevance to MBS's, it refers to classic mortgage lending, where wite-downs had a slightly different meaning- because they were usually intended to be held to maturity- I'm not contesting that, I have been explaining how writedowns on subprime CDO's work, not credit cards, overdrafts or asset depreciation etc., just CDO's.

It's not 'my' definition of a write-down, but the one required under current accounting rules that apply to these instruments, a technical term with a specific meaning in this context.

A mortgage and a mortgage backed security, and write-downs on them, are completely different. The problem is banks stopped 'classical' mortgage lending and started securitising it and selling it on. Do you understand what securitisation means and the problems its causing? Were there too many long words in the sources I gave? Because you still don't seem have read them.

I quite like petty arguments on the internet, they're one of my many vices, not enough to make thousands of posts, but they're definately entertaining.

For example you spent ages on google trying to prove that writedowns have nothing to do with market value:

Not once, nothing mentioned about market value.

and then post:

write-down
To diminish in amount on the records, generally to reflect a market value loss.

later on to support your case. It's even underlined and everything.

I tell you what, if you stop casting around for something that you can sort of bend to fit your opinion and address yourself to the material I have provided and show it to be innaccurate or misinterpreted somehow I'll concede the point.

Trying to say 'I was talking about writedowns in a wider sense' as a get out would be pretty weak, although easier on your ego than 'o.k I was wrong', so I'll just remind you now that you started out ITT with

People do not realise a write down is for "potential" bad debt.
So banks are putting billions aside "just in case" these debts go bad.
These are not actual losses yet just accounted for potential losses.
Some debts may never go bad that money will be transfer back during the next "happy days"

Which is wrong and would give anyone reading it who didn't know better entirely the wrong idea about whats been going on.

Why do you log off after every time I answer does it take you that long to reaserch an answer. Wast of a google as you put it.:)

I'm intimidated by your powerful intellect, commitment to reason and command of the facts.

Really2

Laughing_man wrote: »

*sigh*

The example you've given has no relevance to MBS's, it refers to classic mortgage lending, where wite-downs had a slightly different meaning- because they were usually intended to be held to maturity- I'm not contesting that, I have been explaining how writedowns on subprime CDO's work, not credit cards, overdrafts or asset depreciation etc., just CDO's.

So why make insults and stuff when I was stating what a writedown was.

Not all rightdowns being done are on subprime CDO's are they?

Also you seem to have missed this out bank recorded the decline as a bad debt expense.:rolleyes: (So they do not just write off the loan do they just its value this could come back in the future or do you disagree on that also)
So I stick by what I said the loans are not bad debt just down in value this could come back in the future or the whole loan may wll be repaid realising its full value.
So mean as they are not written off completely would that not make it a provision for the expectation of them achieving 0 return?

You realy are king turd.:rotfl:

PS ages googling "writedown" yes first one up on a list must have been 02.sec.
You take a whole day.

lets face facts you went on a rant making out all writedowns were down to CDO's (I don't dispute some are but I do with you making out they all are) they aint so get over it.

PPS you have gone again. Best wait untill tomorow so you can cobble together a few more articles

Laughing_man

Generali wrote: »

I call a mark to market CYA as it gives the auditor something (s)he can point at on a Bloomberg screen as a reason for a valuation.

o.k, like see where you're at?

For a loan, discounted cash flow gives a better valuation model IMO.

I can't really say if DCF is better, do the current rules give them that choice?

From what I can gather there isn't a standard DCF that everyone uses, the valuation it arrives at depends on the assumptions the analyst plugs in- which will only be as reliable as the analyst. I think DCF, or something similar, is already used to value level 3 assets- but they won't tell you what assumptions they've used to generate the value, or indeed what the assets are. This creates more problems than it solves for all concerned, IMO, especially when the rules allow you to put it on level 2 where the model and assumptions must be disclosed. If its on level 3 you're basically using DCF to lie about how much its worth, right?

I can't read a balance sheet though and don't know how much of the banks capital base is tied up in level 3, I've read it's alot, but wouldn't mind being wrong.

I don't know really, DCF might be better than CYA, but not if its used to mislead investors. I certainly wouldn't trust a nice banker with a DCF valuation on a CDO that he wasn't prepared to let me take apart and have a good look at, and I wouldn't pay a penny over CYA until I found the model was good. Then I'd probably haggle over the assumtions in the model anyway.

Laughing_man

Really2 wrote: »

So why make insults and stuff when I was stating what a writedown was.

Not all rightdowns being done are on subprime CDO's are they?

Also you seem to have missed this out bank recorded the decline as a bad debt expense.:rolleyes: (So they do not just write off the loan do they just its value this could come back in the future or do you disagree on that also)
So I stick by what I said the loans are not bad debt just down in value this could come back in the future or the whole loan may wll be repaid realising its full value.
So mean as they are not written off completely would that not make it a provision for the expectation of them achieving 0 return?

You realy are king turd.:rotfl:

PS ages googling "writedown" yes first one up on a list must have been 02.sec.
You take a whole day.

lets face facts you went on a rant making out all writedowns were down to CDO's (I don't dispute some are but I do with you making out they all are) they aint so get over it.

PPS you have gone again. Best wait untill tomorow so you can cobble together a few more articles

Trying to say 'I was talking about writedowns in a wider sense' as a get out would be pretty weak, although easier on your ego than 'o.k I was wrong', so I'll just remind you now that you started out ITT with

People do not realise a write down is for "potential" bad debt.
So banks are putting billions aside "just in case" these debts go bad.
These are not actual losses yet just accounted for potential losses.
Some debts may never go bad that money will be transfer back during the next "happy days"

Which is wrong and would give anyone reading it who didn't know better entirely the wrong idea about whats been going on.

chucky

the housepricecrash.com rejects are starting to arrive...

Really2

Laughing_man wrote: »

Is that really you?

Generali

StevieJ wrote: »

Presumably the key question is what will the default rate be? How does a DCF answer this? I accept in normal times industry norms could be used, we are not in normal times.

AIUI it's the default rate, the rate of the underlying secured asset at the point of default and finally the rates at which securitised mortgages in that bond are being settled (either paid off or refinanced, it's immaterial which) that comprise the main variables for CDO valuation as they are the main determinants of cash flow.

The trouble with marking something highly illiquid like a CDO to market is that you end up with prices that are firstly all over the place and secondly often using out of date quotes. It's just IMO of course but it makes more sense to do it that way to me, as long as you can have confidence in your input variables in your valuation model which as you point out is problematic right now.

StevieJ

Generali wrote: »

AIUI it's the default rate, the rate of the underlying secured asset at the point of default and finally the rates at which securitised mortgages in that bond are being settled (either paid off or refinanced, it's immaterial which) that comprise the main variables for CDO valuation as they are the main determinants of cash flow.

The trouble with marking something highly illiquid like a CDO to market is that you end up with prices that are firstly all over the place and secondly often using out of date quotes. It's just IMO of course but it makes more sense to do it that way to me, as long as you can have confidence in your input variables in your valuation model which as you point out is problematic right now.

I think that the Barclays share price is crashing because they are using a Mark to model rather than a Mark to market. It seems the stock market does not trust that valuation method. The question is why are Barclays reporting a profit of 6 billion compared to big losses by similar banks?

Generali

StevieJ wrote: »

I think that the Barclays share price is crashing because they are using a Mark to model rather than a Mark to market. It seems the stock market does not trust that valuation method. The question is why are Barclays reporting a profit of 6 billion compared to big losses by similar banks?

Well it could be that their model is bad or it could be that they judged the risks better.

One of the problems investing in banks IMO is that to a large extent you have to take their word for it when it comes to risk.

At the moment that trust is gone.