LinearChaos
11-15-2007, 03:38 PM
re: the financial crisis
We ain't seen nothing yet:
This is related to the Bloomberg video (thread link (http://www.ronpaulforums.com/showthread.php?t=36677&highlight=bloomberg)) with the guy from Morgan Stanley that was posted a couple of days ago, and involves category 3 assets. It is the video where the guy says he believes that there is a greater than 50% chance of the financial market grinding to a halt.
Video here (http://www.bloomberg.com/avp/avp.asx...jAB8ctLx3E.asf).
Google Search on November 15th Accounting Rule (http://www.google.com/search?hl=en&client=firefox-a&rls=org.mozilla%3Aen-US%3Aofficial&q=november+15th+accounting+rule&btnG=Search)
Various Tidbits:
From Bloomberg (http://www.bloomberg.com/apps/news?pid=20601087&sid=ap42s_XrP58Q&refer=home):
Banks Face $100 Billion of Writedowns on Level 3 Rule
Nov. 7 (Bloomberg) -- U.S. banks and brokers face as much as $100 billion of writedowns because of Level 3 accounting rules, in addition to the losses caused by the subprime credit slump, according to Royal Bank of Scotland Group Plc.
Morgan Stanley, the second-largest U.S. securities firm, fell for a fifth-straight day, dropping 6 percent to $51.19 in New York Stock Exchange composite trading. Lehman Brothers Holdings Inc. and Bear Stearns Cos., the No. 1 and No. 2 underwriters of U.S. mortgage bonds, each declined more than 5 percent. All three firms are based in New York.
The Financial Accounting Standards Board's rule 157 makes it more difficult for companies to avoid putting market prices on their hardest-to-value securities, known as Level 3 assets, Royal Bank chief credit strategist Bob Janjuah wrote in a note today. While the rule hasn't gone into effect yet, the biggest U.S. lenders and brokerages have already begun reporting their Level 3 holdings.
``This credit crisis, when all is out, will see $250 billion to $500 billion of losses,'' said Janjuah, who's based in London. ``The heat is on and it is inevitable that more players will have to revalue at least a decent portion'' of assets they currently value using ``mark-to-make believe.''
Wall Street's biggest firms have written down at least $40 billion as prices of mortgage-related assets dwindle because of record foreclosures. Morgan Stanley has 251 percent of its equity in Level 3 assets, making it the most vulnerable to writedowns, followed by Goldman Sachs Group Inc. at 185 percent, according to Janjuah. Goldman, the biggest U.S. securities firm, fell 4 percent in New York trading today.
Link (http://www.forexfactory.com/showthread.php?t=54844)
"The reality is that most financial institutions – banks, commercial banks, pension funds, hedge funds – have barely started to recognize the lower “fair value” of their impaired securities. Valuation of illiquid assets is a most complex issue; but starting with the November 15th adoption of FASB 157 the leeway that financial institutions have used so far for creative accounting will be much more limited. Valuation of illiquid assets is a most technical issue. But new regulations will limit the ability of financial institutions to put “illiquid” asset in “level 3” securities, i.e. securities where the lack of market prices allows them to use dubious “valuation models” and “unobservable inputs” to value such assets".
The Financial Times reported that, “the banks have not yet made write-offs as large as the ABX might imply. Merrill Lynch analysts, for example, calculate that mid-quality ABX debt is on average now trading at 40 cents in the dollar. But these analysts say that Merrill Lynch itself has only written this type of debt down to 63 cents in the dollar – and UBS is still assuming this debt is worth 90 cents. “Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct,” Merrill says.”
Link (http://www.rgemonitor.com/blog/roubini/225427)
You heard it first here on Monday but what was until last week an obscure and arcane corner of accounting and asset valuations (level 1, 2, 3 securities, the new FASB 157 regulation) is now a front page issue on the mainstream press and across Wall Street.
Suddenly markets and investors are discovering that many financial institutions were parking a large fraction of their asset in the level 3 bucket where they avoid using market prices to evaluate such assets but rather rely on “model valuations” and “unobservable inputs”. But now the forthcoming FASB 157 regulation will prevent them (unless heavy political lobby leads to a postponement of its implementation on November 15th) from playing such accounting tricks and force them to use market prices – when available even in illiquid market conditions – to price these assets.
And guess what now? New reliable estimates suggest that using these market prices – rather than level 3 model gimmicks - will lead to losses of another $100 billion on top of hundreds of billions of subprime losses. And some market participants are already talking – quite realistically – about total losses from this credit disaster in the $500 billion range.
We ain't seen nothing yet:
This is related to the Bloomberg video (thread link (http://www.ronpaulforums.com/showthread.php?t=36677&highlight=bloomberg)) with the guy from Morgan Stanley that was posted a couple of days ago, and involves category 3 assets. It is the video where the guy says he believes that there is a greater than 50% chance of the financial market grinding to a halt.
Video here (http://www.bloomberg.com/avp/avp.asx...jAB8ctLx3E.asf).
Google Search on November 15th Accounting Rule (http://www.google.com/search?hl=en&client=firefox-a&rls=org.mozilla%3Aen-US%3Aofficial&q=november+15th+accounting+rule&btnG=Search)
Various Tidbits:
From Bloomberg (http://www.bloomberg.com/apps/news?pid=20601087&sid=ap42s_XrP58Q&refer=home):
Banks Face $100 Billion of Writedowns on Level 3 Rule
Nov. 7 (Bloomberg) -- U.S. banks and brokers face as much as $100 billion of writedowns because of Level 3 accounting rules, in addition to the losses caused by the subprime credit slump, according to Royal Bank of Scotland Group Plc.
Morgan Stanley, the second-largest U.S. securities firm, fell for a fifth-straight day, dropping 6 percent to $51.19 in New York Stock Exchange composite trading. Lehman Brothers Holdings Inc. and Bear Stearns Cos., the No. 1 and No. 2 underwriters of U.S. mortgage bonds, each declined more than 5 percent. All three firms are based in New York.
The Financial Accounting Standards Board's rule 157 makes it more difficult for companies to avoid putting market prices on their hardest-to-value securities, known as Level 3 assets, Royal Bank chief credit strategist Bob Janjuah wrote in a note today. While the rule hasn't gone into effect yet, the biggest U.S. lenders and brokerages have already begun reporting their Level 3 holdings.
``This credit crisis, when all is out, will see $250 billion to $500 billion of losses,'' said Janjuah, who's based in London. ``The heat is on and it is inevitable that more players will have to revalue at least a decent portion'' of assets they currently value using ``mark-to-make believe.''
Wall Street's biggest firms have written down at least $40 billion as prices of mortgage-related assets dwindle because of record foreclosures. Morgan Stanley has 251 percent of its equity in Level 3 assets, making it the most vulnerable to writedowns, followed by Goldman Sachs Group Inc. at 185 percent, according to Janjuah. Goldman, the biggest U.S. securities firm, fell 4 percent in New York trading today.
Link (http://www.forexfactory.com/showthread.php?t=54844)
"The reality is that most financial institutions – banks, commercial banks, pension funds, hedge funds – have barely started to recognize the lower “fair value” of their impaired securities. Valuation of illiquid assets is a most complex issue; but starting with the November 15th adoption of FASB 157 the leeway that financial institutions have used so far for creative accounting will be much more limited. Valuation of illiquid assets is a most technical issue. But new regulations will limit the ability of financial institutions to put “illiquid” asset in “level 3” securities, i.e. securities where the lack of market prices allows them to use dubious “valuation models” and “unobservable inputs” to value such assets".
The Financial Times reported that, “the banks have not yet made write-offs as large as the ABX might imply. Merrill Lynch analysts, for example, calculate that mid-quality ABX debt is on average now trading at 40 cents in the dollar. But these analysts say that Merrill Lynch itself has only written this type of debt down to 63 cents in the dollar – and UBS is still assuming this debt is worth 90 cents. “Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct,” Merrill says.”
Link (http://www.rgemonitor.com/blog/roubini/225427)
You heard it first here on Monday but what was until last week an obscure and arcane corner of accounting and asset valuations (level 1, 2, 3 securities, the new FASB 157 regulation) is now a front page issue on the mainstream press and across Wall Street.
Suddenly markets and investors are discovering that many financial institutions were parking a large fraction of their asset in the level 3 bucket where they avoid using market prices to evaluate such assets but rather rely on “model valuations” and “unobservable inputs”. But now the forthcoming FASB 157 regulation will prevent them (unless heavy political lobby leads to a postponement of its implementation on November 15th) from playing such accounting tricks and force them to use market prices – when available even in illiquid market conditions – to price these assets.
And guess what now? New reliable estimates suggest that using these market prices – rather than level 3 model gimmicks - will lead to losses of another $100 billion on top of hundreds of billions of subprime losses. And some market participants are already talking – quite realistically – about total losses from this credit disaster in the $500 billion range.