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I will use an analogy here....the game hot potato. You've got a circle of banks passing off the potato, which is the metaphor for the stack of loans issued. each back values the stack of papers differently, based most likely on someone's summary of how many properties, which town their in, the growth rates of those towns....but nobody actually looks through the stacks of paper to determine if the people who loaned the money are paying back. So the circle of banks are passing around this hot potato. And the music stops....after 2 years of denying a housing bubble, it the government finally announces that the housing market bubble burst like a watermelon under Gallagher's sledge hammer. So the bank with the hot potato not only is getting federal money now, but now can re-evaluate the worth of that stack of paper, not to market price, but to an artificially higher price, so the companies bond holders don't take a hit? That seems wrong. Not only does it allow banks to evaluate their own property (conflict of interest) that they are trying to sell, but it means that nobody who is looking to either invest in the bank or put their money in the bank will know that it has under stated it's losses, meaning it has over rated it's profits.

I propose that each loan be gone through to see which ones are performing and which ones aren't. I've heard people say this will take a long time....it shouldn't, the people who miss a monthly payment get told about it automatically, and reports run automatically, it's just a job of checking one list of accounts in various statuses vs the list of which stack of loans that account is in. A computer program can be written in about 15 minutes or less to match names and addresses in both lists and output which list those names and addresses have in common. It would probably take a regular computer maybe 20 or 30 minutes to run the program for every address in the united states. The only time taking issue would be getting those lists into a searchable database (more to the point would be to get those databases from the banks).

Personally, I say, let them fail. Let the banks fail. This really seems to help support an anarchist's idea of money....the government is essentially saying that the valuation in dollars doesn't really matter. We will allow companies to over estimate their earnings in boom times, understate their losses in the down times, without regard for some true value. So, valuation itself does not seem to matter. What seems to matter is the appearance of value. This, I believe, is the big reason the markets fail in the first place. The values were over estimated and ballooning, finally, someone said, "This is over valued" and others started to listen.

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Posted By: Vigilance @ 04/11/2009 12:18:24 PM

Believe it or not, I think this is a step in the right direction, but ONLY if it doesn't swing to the other extreme of letting banks value their assets however they want them to. I do agree that the housing market as it stands is a poor indicator of the more intrinsic value of the goods and services used in the construction of a house that's sitting unsalable on someone's balance sheet, but having the banks mark up their stuff with a magic pen is just as bad in the other direction, or worse. Somehow there's got to be a middle ground here and I hope the system is able to reach it.
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Posted By: trogers @ 04/09/2009 1:38:28 PM

I'm no accountant, but allowing banks to return to the practice of deciding the value of their assets without any relationship to market value means less trust, less transparency and less confidence in the banking system. Repeating the mistakes of the past does not seem like a way toward recovery or prosperity. After all that has been discovered about these assets; who in their right mind will believe the financial reporting from the banks.
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Posted By: cgallaway @ 04/05/2009 6:52:44 PM

I will use an analogy here....the game hot potato. You've got a circle of banks passing off the potato, which is the metaphor for the stack of loans issued. each back values the stack of papers differently, based most likely on someone's summary of how many properties, which town their in, the growth rates of those towns....but nobody actually looks through the stacks of paper to determine if the people who loaned the money are paying back. So the circle of banks are passing around this hot potato. And the music stops....after 2 years of denying a housing bubble, it the government finally announces that the housing market bubble burst like a watermelon under Gallagher's sledge hammer. So the bank with the hot potato not only is getting federal money now, but now can re-evaluate the worth of that stack of paper, not to market price, but to an artificially higher price, so the companies bond holders don't take a hit? That seems wrong. Not only does it allow banks to evaluate their own property (conflict of interest) that they are trying to sell, but it means that nobody who is looking to either invest in the bank or put their money in the bank will know that it has under stated it's losses, meaning it has over rated it's profits.

I propose that each loan be gone through to see which ones are performing and which ones aren't. I've heard people say this will take a long time....it shouldn't, the people who miss a monthly payment get told about it automatically, and reports run automatically, it's just a job of checking one list of accounts in various statuses vs the list of which stack of loans that account is in. A computer program can be written in about 15 minutes or less to match names and addresses in both lists and output which list those names and addresses have in common. It would probably take a regular computer maybe 20 or 30 minutes to run the program for every address in the united states. The only time taking issue would be getting those lists into a searchable database (more to the point would be to get those databases from the banks).

Personally, I say, let them fail. Let the banks fail. This really seems to help support an anarchist's idea of money....the government is essentially saying that the valuation in dollars doesn't really matter. We will allow companies to over estimate their earnings in boom times, understate their losses in the down times, without regard for some true value. So, valuation itself does not seem to matter. What seems to matter is the appearance of value. This, I believe, is the big reason the markets fail in the first place. The values were over estimated and ballooning, finally, someone said, "This is over valued" and others started to listen.