HSBC faces crisis over US credit cards

Degenerate

tomterm8 wrote: »

Mortgage-backed securities are pretty easy to value. The problem is, it turns out many of them are worthless.

But you just said that market values these things perfectly, unlike shares which are somehow different. So how do you explain the market over-valuation of sub-prime mortgage debt that kicked this whole mess off?

funkyfreddy9k

haha the FT will have to start calling them "not so smug bank" from now on

chucky

tomterm8 wrote: »

Mortgage-backed securities are pretty easy to value. The problem is, it turns out many of them are worthless.

really? can you explain how please?

michaels

So predict future default rates even for a large basket of loans you would have to had pretty good foresight of future economic growth, income distribution, govt action etc etc - otherwise default rates and recovery on default estimates are guesses, and volatile guesses at that thus even though a set of loan securities might not be saleable at the moment doesn't mean that they won't return an income stream equivalent to 80p on the pound over their term.

Generali

Degenerate wrote: »

Um, excuse me, but you have completely moved the goalposts here. You were arguing that market valuations are always correct. You said:

Let's apply that to another market valuation... Say the valution of RBS shares back in March 2007:

Of course, with hindsight, that would have been complete bo**ocks.

The RBS shares was a problem of asymmetric information - it's very hard to value banks as the information you have is incomplete. The board of RBS has access to the information it needs to value the company properly so as a shareholder you're taking a lot on faith.

The reason structured products (like credit card debt 'bundles') aren't selling are two: a loss of faith in the product and a belief that they can't be accurately valued. In such a market, mark to market isn't a suitable valuation system - mark to model is better although clearly it creates problems of its own.

Whilst a credit card loan to a deadbeat is worthless, one to a dentist has value. Are you seriously arguing that a derivative that combines the two is worthless just because investors don't want to buy it?

PS Let's not pretend that what is going on with the banks represents the end of capitalism or even some kind of vindication of socialism - banks operated in the most tightly regulated market outside pharma. If anything, the banks' problems represent the failure of the promises of big Government.