Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
Articles |The FORUM |Law Library |Videos | Fraudsters & Co. |File Complaints |How they STEAL |Search MSFraud |Contact Us
Why FAS 157 strikes dread into bankers

We have heard about sub-prime mortgages; we have heard about collateralised debt obligations (CDOs); we have heard about banks writing down their assets; we have heard about global bankers resigning; we have heard about Northern Rock and the first run on a British bank in 140 years.

The risk of a worldwide banking crisis – one that is particularly damaging to mortgages, private equity, hedge funds and the banks themselves – is higher than it was a month ago, and the storm is rising.

This is still an emerging story. It was not until last Wednesday that The Financial Times led on the legal provision that CDOs can be liquidated by the senior holders when they go into default. That could lead to a fire sale of CDOs and still larger defaults.

Yet this, as important as it could be, is not the biggest threat. Few non-bankers have heard of FAS 157 and 159, yet these are the regulations that will set the terms on which the banks will value their assets. The trouble with FAS 157 and 159 is that they are perfectly reasonable regulations in themselves which could have disastrous, though unintended, consequences.

What are FAS 157 and 159? They are the new United States (Federal) accounting standards that have been introduced to regulate the valuation of bank assets. These valuations are of crucial importance because they are the basis of all bank lending: no assets, no lending; no lending, no bank. According to an informative article in The Financial Times, the new standards will apply fully from Thursday. Many US banks have adopted them already. All US quoted banks will have to publish asset figures in conformity with FAS 157 by next spring.

The new rules divide bank assets into three “levels”, according to the freedom with with which they can be bought or sold. Level-one assets, which are easy to value or trade, have to have quoted prices in active markets such as US government bonds or gold bullion. Level two is an intermediate stage; these assets are not as fully marketable as level one, but still sufficiently tradeable to have a definite value.

Level-three assets – usually artificial financial instruments – are the problem. They do not have quoted prices in active markets. They have to be valued by reference to the bank’s own models. According to the analyst Martin Hutchinson, who had analysed some of the US banks, the holdings of level-three assets are substantial. Lehman has $22 billion; Bear Stearns $20 billion; JP Morgan Chase $60 billion. Even these figures may be understated, since the banks have themselves decided whether assets belong to level three or the more acceptable level two, and they have an interest in placing as little in level three and as much in level two as they reasonably can.

Martin Hutchinson has also analysed the assets of Goldman Sachs. The bank has disclosed $72 billion of level-three assets, out of total assets of $900 billion. That seems reasonable enough, but it compares with Goldman Sachs’s capital of $36 billion. Any substantial write off of level-three assets would impact on Goldman Sachs net asset value.

One cannot say that FAS 157 is only an American regulation and the banks of other countries would not therefore be affected. Most global banks already have a listing in the United States that would therefore be subject to US accounting standards. Those that do not will be judged by FAS 157 as the international standard. From now on all major banks will have to declare their assets in the FAS 157 form with its division into different levels by marketability.

No doubt this is the reform that should have been introduced years ago; that would have saved a great deal of agony and some abuse. But FAS 157 is coming into effect at a most inconvenient time. The sub-prime mortgage defaults have already undermined confidence in mortgage banked securities. These form a significant part – perhaps about a quarter – of all level-three assets. Level three also includes higher-quality mortgages and leveraged bridged loans for buyouts.

The global banking system now faces the risk of a general flight towards cash and liquid level one assets on a scale that has not been seen since the early 1930s. Already British banks are showing signs of near panic. I hear of London banks going back on recently agreed loans to parties of good credit, presumably on orders from head office.

There have also been cancellations of offers of credit cards that had already been approved. One need have little sympathy for the US investment banks; they found it profitable to make speculative loans, and now they are paying the price.

Even if ordinary mortgages do continue to be offered – and they are bound to be restricted – sub-prime mortgages will no longer be available for first-time buyers. Yet the housing market depends on people being able to sell their first houses when they trade up to their second. If all banks are anxious to protect their cash reserves, and to reduce their level-three assets, that will make ordinary borrowing difficult and level-three borrowing impossible. Probably the downturn will spread into stock markets, even though it did not originate in stock market speculation.

It is far too late to cancel FAS 157 and 159, even if that were desirable. The concept of different levels for bank assets has been introduced to the banking system and the defaults on sub-prime mortgages have lowered the acceptability of all level-three assets. No one knows what they are worth and hardly anyone wants them.

Commercial banking, with its large customer base, is in better shape than investment banking, but will also be affected. FAS 157 may prove an historic regulatory blunder.

Quote 0 0
.

What does this have to do with anything? Can we get back to mortgage servicing?

Quote 0 0

Dot.....
Actually in this instance, FAS 157 has a whole LOT to do w/ mortgage servicing fraud and how investment banks have been gambling on it in off balance sheet over leveraged derivative trades.     So tune in on Thursday, November 15th to find out.

Quote 0 0
~Beenawhile
Alright this has me quakin'.

No matter how much I try to understand the financial realm of this fraud. My brain just refuses to let me learn about the stock, and banking side of this, and how it all correlates.

So in saying that (I feel really dumb now.) But feel even dumber to ask these following questions.

What does this mean for our checking account?
1. Do any of you predict that there will be an immediate "trickle" down into the accounts of personal checking, and savings?

1. Is it even possible that banking will go into such an uproar, that funds will NOT be available to our personal checking?

2. Should we be taking precautionary measures, and withdrawing money from our personal checking, and savings accounts?

What are the possible ramifications if any, of this having on the day to day life of the middle class?

Will this have an an astonishing effect on 401k's.
What is the prediction for the 401k's?

Again, I'm aware these are pretty lame questions. For that I apologize, but would still appreciate answers to these questions if anyone can provide them.


I remember the devil said about a 1 1/2 yrs ago that he wanted to make the world a one world currency. He's the lovely Bush appointed Ambassador to the Netherlands.
Do you think, he's had a part in this, some how some way?
Is it possible he has an ulterior motive (if he was behind this)?
and
Do you think it would somehow benefit that of his levels of extortion, in some way?
Thanks in advance,
beenawhile


Quote 0 0
Moose

~Beenawhile wrote:
Alright this has me quakin'.

No matter how much I try to understand the financial realm of this fraud. My brain just refuses to let me learn about the stock, and banking side of this, and how it all correlates.

So in saying that (I feel really dumb now.) But feel even dumber to ask these following questions.

What does this mean for our checking account?
1. Do any of you predict that there will be an immediate "trickle" down into the accounts of personal checking, and savings?


No. It has nothing to do with DDA (Demand Deposit Accounts), as in checking.

~Beenawhile wrote:
1. Is it even possible that banking will go into such an uproar, that funds will NOT be available to our personal checking?


No. (See the other 1., above.)

~Beenawhile wrote:
2. Should we be taking precautionary measures, and withdrawing money from our personal checking, and savings accounts?


You should always have precautionary measures in place and not have everything potentially tied up in "bank" accounts, but the FAS changes do not affect depositors' accounts, only how the affected financial institutions report their assets. 

~Beenawhile wrote:
What are the possible ramifications if any, of this having on the day to day life of the middle class?


IMHO, Zero. If you believe the sky is falling because of this, you have to also believe the uber-bean-counters at FASB (the propeller heads who establish Financial Accounting Standards) would put the industry in some kind of dire peril. Then there's the fact that this isn't exactly a surprise move - a lot of companies are already in compliance.

The author is also alarmingly wrong about lending, but that's another long walk on a short pier.

~Beenawhile wrote:
Will this have an an astonishing effect on 401k's.
What is the prediction for the 401k's?


IMHO, no. If your 401 is over-weighted in financial stocks, maybe.  Again, these kinds of things happen all the time and writers like Mr. Rees-Mogg have print-space to fill and like to get people alarmed for whatever reason. I'm reminded of the "Join us on the thirteenth-annual-end-of-the-world-day!" bumper sticker.  Some people just like to be hyperbolic.

~Beenawhile wrote:
Again, I'm aware these are pretty lame questions. For that I apologize, but would still appreciate answers to these questions if anyone can provide them.

I remember the devil said about a 1 1/2 yrs ago that he wanted to make the world a one world currency. He's the lovely Bush appointed Ambassador to the Netherlands.
Do you think, he's had a part in this, some how some way?
Is it possible he has an ulterior motive (if he was behind this)?
and
Do you think it would somehow benefit that of his levels of extortion, in some way?
Thanks in advance,
beenawhile



I wouldn't lose any sleep over what the Ambassador says, thinks or does at this stage. His company is in ruin and in the grand scheme of things, he's a lightweight.

And what the author also doesn't realize is that most subprime loans aren't "bank" loans at all, and of those that did dabble in subprime, most have dried up or cut back those operations substantially.

Quote 0 0
Joe B
Beenawhile-

     I am no expert and I often get this wrong. I will claim no absolute right that I am correct in all of this. However, I am going to try and explain this in a way that you and some others might better understand. It is difficult to understand these news articles, and I often need to translate it into normal English so I can understand it myself!!
 
     Up until recently, FAS rules (Financial Accounting Standards) did not apply to most derivative and "other unusual" banking products. So what does this mean, and what does it have to do with subprime? More in a minute. Financial Accounting Standards were designed so that when a person looked at the balance sheet of one company, it could easily compare it to the balance sheet of another company. It was so that a uniform set of standards applied to most/all accounting procedures. Do you remember Enron? Well,  Enron took many many assets "off balance sheet" in part to avoid FAS rules! (in part, there were other reasons that are not important to this discussion). So, as an investor, or a federal regulator, you could take a quick glance at the balance sheets of various companies, and follow how well they were performing and complying with generally accepted accounting principals (GAAP). So what, what about MS Fraud...?
 
     OK, the bundles of securities into which MOST OF OUR LOANS were sold into, fall into this category of a manufactured security. OK, so you have all these mortgages (thousands or tens of thousands maybe of our individual mortgages) out there that have been bundled into securities and then packaged and sold. They are bought by investment firms, banks, and hedge funds, pension funds, and others. Now, each of these securities are not "traded" in an open exchange like the stock market. For example, want to know the value of Disney at any moment in time, take the stock price, multiply it times the number of outstanding shares, and BINGO, the value of Disney. Now, try to figure out the value of the CDO that your mortgage is in... Good luck, you cannot. In fact, even if you invested in the CDO, you cannot figure out what it is worth.
 
     Now, here's the rub.... up until now, all of these banks have all computed the value of these assets in strange and unusual --- "just trust me" ways. Most of the banks in fact created their own proprietary method for computing the value of THEIR OWN assets. Think about this for a minute... A company that has a cash position of approximately $69 Billion like Goldman Sachs right now, also holds WHAT THEY SAY is $69 Billion worth of these securities. Now, imagine if these assets were proven worthless using these new standards (unlikely that they would be COMPLETELY worthless, but even if impaired by 50%, it is huge), then overnight after applying these new standards, Goldman loses its entire cash value! Now, if you lent Goldman money, you now want it back---and QUICK! Only problem is, they don't have any more to give you because all of their cash ($69 B) is now GONE!! So, think if there are 29 banks like Goldman who have all lent and borrowed money from each other that now need cash to pay others for this mess. What you have left is a significant threat of collapse of a large number of our banks.
 
     This is a huge part of the current problem. All of these banks have all of these strange valuation methods, and none of them are necessarily accurate. Moreover, so much of their overall worth is tied up in this "asset," that should they prove completely ridiculous, it could have disastrous consequences for the financial industry, not unlike the S & L crisis of the 1990's.
 
     So, I hope that provided some background that MAY clear up some questions, and the applicability to MSFraud. Now, I will try to answer your other questions. 


Alright this has me quakin'.

No matter how much I try to understand the financial realm of this fraud. My brain just refuses to let me learn about the stock, and banking side of this, and how it all correlates.
Hopefully the above diatribe helped...

So in saying that (I feel really dumb now.) But feel even dumber to ask these following questions.

What does this mean for our checking account?
1. Do any of you predict that there will be an immediate "trickle" down into the accounts of personal checking, and savings?
Most of us that have money in small regional banks are likely to be OK. If you are in a top 3 or 4 national bank I would be moderately concerned. Remember though, unless you are fortunate enough to have several hundred grand in your bank, your deposits are insured by Uncle Sam, and you will be ok. So, why it would be disheartening to watch, you will weather this storm OK.

1. Is it even possible that banking will go into such an uproar, that funds will NOT be available to our personal checking?
Again, not likely, except in the absolute worst possible scenario. It is not entirely impossible, but highly unlikely in my opinion...

2. Should we be taking precautionary measures, and withdrawing money from our personal checking, and savings accounts?
See answer to number 1

What are the possible ramifications if any, of this having on the day to day life of the middle class?

It will make access to credit more difficult in the short term. However, in the long-term, we should all actually benefit from the house cleaning that will inevitable occur as a result of this impeding mess. Getting our banks to behave will have a significant benefit to our overall economy, and in my opinion, it was precisely our banks misbehaving that caused each of our individual problems in the first place!! However, in the short-term, it could be a tad difficult. I also believe that due to the large role that these banks play in our economy, that the Federal Reserve will take a very active role in this recovery/restabilization!! We will see...

Will this have an an astonishing effect on 401k's.
What is the prediction for the 401k's?
Well, this could be a different story! I am afraid that many of our 401K's have invested in these CDO's directly by taking on CDO's, or indirectly through their investments in many of these banks. This could be a rather significant fallout of this mess, and I can offer no such optimistic assumptions here. Any individual 401K could be extremely to moderately impacted by the upcoming trouble. Now, I cannot offer any suggestions on what you should do. Remember that this could touch more than banks, because these banks lend money to many large companies. These loans could be called, and credit to invest could tighten etc. So, it is hard to tell just haw far this will reach. Your specific 401K could have no impact, or it could be damaged heavily, depending on how it has invested! Sorry...

Again, I'm aware these are pretty lame questions. For that I apologize, but would still appreciate answers to these questions if anyone can provide them.
These are not lame questions. It is hard to explain or understand how an accounting standard could impact your 401K...Hopefully I have done at least an average job explaining all of this to you.

I remember the devil said about a 1 1/2 yrs ago that he wanted to make the world a one world currency. He's the lovely Bush appointed Ambassador to the Netherlands.
Do you think, he's had a part in this, some how some way?
Is it possible he has an ulterior motive (if he was behind this)?
and
Do you think it would somehow benefit that of his levels of extortion, in some way?
There is no shortage of conspiracy theorists out there, and I say hogwash to them all. Do you know how hard it is to get any three people to agree on what to order for dinner? Can you imagine any of these conspiracies actually hold any validity? Not me, I consider all of them highly unlikely!! Many people have some high theories on how this all happened, and disagree. I really think all of this comes down to one word, and repeat it over and over again: GREED!!!!! Go back and look at all that has happened, and all that is going to happen. It will all be a result of, a function of, or related to: GREED!!! Take two aspirin, repeat the word again and again until it sinks in, repeat as necessary!
 
I hope I helped in some small way!

Thanks in advance,
beenawhile

Quote 0 0
Digger
Remember, Bankers Trust of California is now Deutsche Bank; a huge player in Mortgage Servicing Fraud. 
 

Foreclosures: Deutsche Bank uber alles, including Wells Fargo

Friday I wrote about Wells Fargo: “As far as I can tell, no other lender on the county’s 2005 “top ten” list comes close to this level of foreclosure activity.”

Technically, that’s probably true. But the truth, as always, is more complicated than it looks at first. And more bizarre.

Recall that Number Two on the above-mentioned list of the county’s top 2005 mortgage lenders was Argent Mortgage Company, with 1,746 home purchase loans originated, compared to Wells Fargo’s 1,292. But Argent’s name shows up only nine times on the Common Pleas index of civil actions (i.e. foreclosures) filed in 2007, and only six times in a search for property owners on the Auditor’s database.

So… lots of Argent mortgages, but not many foreclosures? Lots of happy endings, for a change?

Fat chance. You see, Argent has a good friend… Deutsche Bank. Deutsche Bank is also one of the biggest home mortgage operations in Cuyahoga County, but it does almost no retail lending. Instead, Deutsche Bank buys mortgages from other lenders. Lots of mortgages.

The legal term for selling a mortgage is “assignment”, and such a sale shows up under the code “RELA” — “release assignment” — in the County Recorder’s database. If you search for “deutsche” and “RELA” from April 1 through June 30 2007, the database finds 523 hits. For January 1 through March 31, 740 hits. For all of 2006, 1,861 hits. For 2005, 973 hits. Add it all up, and Deutsche Bank’s name appeared on a Cuyahoga County mortgage assignment filing almost 4,100 times in the last thirty-six months.

These hits can mean different things. Deutsche might be the mortgage assignor (selling) or the assignee (buying). Deutsche is often a co-assignor (with another part owner) or a co-assignee. Occasionally the Deutsche Bank name appears in both categories.

But in the majority of cases, Deutsche Bank is buying a mortgage from another lender — and its biggest single local supplier is Argent.

So while Argent ends up owning only a handful of foreclosed Cleveland homes, Deutsche Bank — its constant companion — is now the owner of 755 properties in the county, nearly 500 of which are in the city of Cleveland. Argent doesn’t have to go to court much — but Deutsche Bank is the named plaintiff in 848 civil actions (i.e. foreclosures), and has filed more than 600 sheriff’s deeds, since the beginning of the year.

The closer you look, the weirder it gets.

But if it all seems too confusing to think about, here’s the bottom line: Between them, Wells Fargo and Deutsche Bank now own over eight hundred of Cleveland’s one-family and two-family houses — about half of 1% of the city’s total — and they’re foreclosing on hundreds more each month. Either these houses stand vacant or they get sold “as is”. Who’s buying them? Who’s financing the sales? How long will the new buyers last? How much is this sub-market driving the overall depression in neighborhood home values? As far as I can tell, no one has a clue. It’s all happening too fast.

Meanwhile Wells Fargo continues to write more than a hundred new subprime loans in our county every month, and Deutsche Bank continues to buy them up, from Argent and a dozen other lenders.

Is there any way for the city, the county or the neighbors to stop this runaway train, or even slow it down? Is there an “OFF” switch that we haven’t found yet?

The Free Times promises an examination of legal possibilities in its next article on the subject, and I understand the PD will have more to say soon as well. I hope they’ve got something new to suggest. It’s hard to believe there’s a more urgent (immediate, short-term, emergency, can’t-wait-for-another-task-force-report) question on Cleveland’s public agenda right now.

Oh, I’m sorry, I forgot — there’s that Medical Mart thing.
http://www.callahansclevelanddiary.com/?p=300
Quote 0 0
Digger
British humor:  An interview with an investiment banker about their and our banking crisis  Enjoy.

http://www.youtube.com/swf/l.swf?video_id=axAjb6fDsPY&eurl=&iurl=http%3A//img.youtube.com/vi/axAjb6fDsPY/default.jpg&t=OEgsToPDskKAG7nXNmGbYjh_llt6O6jU&rel=1&border=0
Quote 0 0
4 justice now
Joe:

You did such a fine job of translating what the potential impact of FAS 157 on the banking industry could be, I was hoping that you could help explain something that I have heard a few times, but don't quite grasp as to how it would be possible...

I remember reading posts that claim the sub-prime brokers have actually been selling the same note for a given property multiple times to different investors concurrently. If I recall correctly that was one of the explanations as to why it is often so difficult to obtain the original note for a single property.

If this does truly take place, would this function similar to a pyramid scheme, as the last one buying ends up with a big bag of nothing?

Thanks!

4J
Quote 0 0
4 justice now
Digger,

Thanks! I needed that.

R,

4J
Quote 0 0
Joe B
4 J-

     Well, I am not sure I could claim it was a decent job, but it was my understanding at least, but nothing more.
 
     On to your question with the same disclaimer, as I am not an expert in finances, nor am I an investment banker. Please investigate all of this on your own, and do any homework necessary to help your own case. I share my idea and thoughts because I am a victim, and I need others to come forward to help me, and I try to help as well. That being said...

      Yes, these loans are all packaged into CDO's, and then sold to outside investors, who then can re-package and sell them again, whose purchasers can repackage and sell those. I don't think this happens a great deal, because there really aren't that many layers into which to make these sales. So, it may only happen once or twice. However, what you are referring to really isn't what I think  you meant to ask.

     What I think you are asking about is something else called leverage. Let me try to explain leverage. I am an investment bank, and I purchased a complete bucket of loans called 2007 XYZ. In this bucket are 50,000 loans (to homeowners like you and me) with a face value of $10 Billion. Now, I go out and purchase additional buckets of different loans using this "bond" as collateral. I may use this loan for collateral on $100 Billion (or more, but $100B in my example), in additional loans. You can see using easy math, that I have leveraged this initial investment 10 times. Now, if a handful of loans default, it's really no big deal. I have insurance to cover it, and even if that doesn't cover it, I easily have cash reserves to make the payments, so I do not harm my overall liquidity.

     Now, let's say that 5,000 loans default, or 10% of my overall portfolio. Well, now this is a problem. I am going to have a problem paying out the cash flows from this investment to any of my investors, or I may default on the the loans that I made using this investment as leverage for. So, let's say I default on one of my payments. These things don't happen in secrecy. So, I am now a different bank that loaned this investment bank $1 Billion, and have the 2007 XYZ as collateral for my investment. Well, now I demand my $1 Billion back (accelerated) or I take a piece of the bank, or some other collateral to secure my investment.

     Now, imagine, as in the case above that I am leveraged 10 times, and I am balancing all of this bad news with somewhat impaired cash flows. Now, take this scenario and multiply it by dozens of banks, and dozens more investment banks, all of whom are buying, selling, lending, borrowing from each other or who are intermingled. So, imagine how quickly a disaster can happen when a bank is leverage too highly.

     Why leverage at all? Well, for good reasons. If I have a relatively safe investment (which most home loans are by the way), backed by the cash flows of the homeowners, and the real interest in the property itself, property values are rising rapidly, there isn't a great deal of risk. However, you can over-leverage an investment, which many of these banks did. Couple this with stagnant or dropping home prices, with a higher level of default, with most tied to these no-doc, option ARMs etc. (not just sub prime by the way), and you have a terrible storm of bad things happening.

     If banks had reigned in their behavior by adhering to reasonable under-writing standards, staying reasonably leveraged, and otherwise exercised decent stewardship, this all would have been avoided.

     Well after writing all of this, I see that I may have mis-read your question. So, same disclaimer, but let's see if I can answer what I think you may have asked...

     You are talking about loans being bought, sold, and sold again. Yes, this happens all the time today, but not as much 15 or more years ago, and it refers to the ability to securitize that I mentioned above.

     So you are a prospective homeowner, and are making an offer on a house. You go to the internet and google home loans, and discover a handful of places--all brokers. You go to (broker X) and get pre-qualified, make an offer on the home, and then close 30 days later. Before you make your first payment, you get a letter in the mail, that says send your payments to bank PDQ. You make 2 payments to bank PDQ, and then you get another letter that says make future payments to bank XYZ, and so on a couple more times.

     This, I think is the scenario that I think you are referring to. In this case, one of two things happened. (Initially, your loan was sold by the folks that brokered the deal (Broker X) to the folks that bundled it into an investment (Bank PDQ). After that however, bank 2 (Banks XYZ) is a bank that either bought bank 1's entire investment CDO, or bank 1 broke its investment down into smaller pieces and re-sold it.

     Think of it this way. I build an apartment building with 5 wings. I rent out 4, but sell an entire wing to someone else to rent out. This I think approximates the scenarios outlined above. Instead of selling the entire CDO (apartment building), I retained 4/5 (4 out of five wings), and sold another piece of the CDO off to another bank (the 5th wing).

     So the CDO gets stripped off and part of it re-sold. Nothing stops that other bank from doing the same thing, and if your loan is in the group that keeps getting parted out, your loan keeps getting sold. So finding the original note can be quite difficult in the most often re-sold note.

     Just to make matters worse, the servicing could be sold as often or even more often as well! So, imagine the nightmare continues, only multiplied!!!

     I hope I have cleared up rather than muddied the issue!

JB


Quote 0 0
Nye's FLA Neighbor
Nye has been talking about the weekend before Thanksiving being a blood bath for America. God I hop not, but he's rarely wrong from what I have seen!
Quote 0 0
arkygirl
Nye has been talking about the weekend before Thanksiving being a blood bath for America.

Just what does this mean? I hope you mean a financial bloodbath and not a literal one....
Quote 0 0
arkygirl,
            Banking Blood Bath
Quote 0 0
~beenawhile
Gosh,
Thank you all for the time to explain this to me. It is very much appreciated.
and Yes, thy brain has finally understood a little bit of the investor side of this. Though I doubt it will continue to "retain" the info two
weeks from now.
But will try.

Again, I thank you all for the great explanations.


Quote 0 0
Frank
No one so far has marked the category 3 assets (melted down credit and default derivatives on CDOs which are themselves a form of derivative) down to MARKET, which there is no market and is therefore ZERO. According to the accounting regulation (FAS 157) coming November 15th, all holding this garbage must mark to market which nobody has done yet! (So far the writedowns haven't been to market...but just a decline in their internal mark to model)

This could get interesting for the entire financial sector. Some BIG NAME firms will NOT be around this time next year....count on it.

Jim Sinclair, a Billionaire with a free blog is following this closely.  http://www.jsmineset.com
Quote 0 0
Joe B
Folks-

     If you have some cash, and aren't afraid of a little risk, go ahead and short some of these players, and you too can reap some upside of this mess. They are certainly going to head south, so why not short them all!!!

JB
Quote 0 0
Frank,
Thaks for the great link!  So refreshing how Jim Sinclair calls a spade a _______ shovel. 

“BAT GUANO ASSETS”  Yes, that's what they are!

"It is these bat guano assets that are melting down everywhere. As such this is without any question a derivative crisis." 

______________________________________________

 

Sure would be nice if everyone else would get on the reality wagon, call it for what it is what it is and stop laying it on the backs of subprime borrowers.

Quote 0 0
Moose

Joe - methinks at least some of the authors of such "news" are doing just that.

Quote 0 0

Tuesday, November 13th, 2007

From Bedford Falls to Potterville

Round two of the credit crunch crisis will start on Thursday when we start to find out just how bad off the investment banking industry is as it prepares to repair a major chink in its armor by standardizing valuations for Level 3 assets.

There may be a lot of CEOs canned and investigations and lawsuits from irate investors in the offing, and maybe a surprisingly big rate cut by Bernanke to lessen the sting, but this one promises to get really, really ugly.

Many Level 3 assets are mortgage-related, but also include credit card debt and other unsecured loans. As these are virtually untradeable assets and as property values plummet, expect to see huge write-downs and a very shaky stock market as all this gets sorted out.


....starting Nov. 15, fair value [of a Level 3 asset] at any given moment is the price you can sell the thing for, period. So now all the banks and dealers have to disclose how much of what's on their books is crap that there's no bid for, and write down the value to what it's really worth, which, in some cases, may be bupkes. Needless to say, the previous valuations of those investments, using management's presumptuous assumptions, were much closer to par than the new ones will be."

"Yow. That could get downright ugly. I mean, ABCP and SIVs are already on life support, and that new MLEC fund they're talking about to buy the SIV assets is dumb - solving a debt problem with more debt, yeah, like that'll work - and the markets for CDOs, CMOs, RMBS and CLOs are all similarly distressed, so either the banks and investment banks have to take the crap onto their own books and take big writedowns or sell it at a huge loss. Either way, it could be real nasty."


This doesn't mean the $hit is going to hit the fan for the markets on Thursday. First, some banks may find some of these assets to be worth more than their in-house estimations, while others will report that these assets are severely inflated. Going forward, every time the accountants crack the books and every time there's a corporate report, all asset valuations will have to be based on some realistic measures.

Goldman Sachs has already taken a lot of criticism for what is deemed to be a too liberal application in its Level 3 valuations, which they can set at any price they want to. But this problem is not limited to Goldman Sachs.

Just look how pervasive is Level 3 asset valuations at the nation's top investment banks:


Citigroup
Equity base: $128bn
Level three assets: $134.8bn
Level 3 to equity ratio: 105%

Goldman Sachs
Equity base: $39bn
Level three assets: $72bn
Level 3 to equity ratio: 185%

Morgan Stanley
Equity base: $35bn
Level three assets: $88bn
Level 3 to equity ratio: 251%

Bear Stearns
Equity base: $13bn
Level three assets: $20bn
Level 3 to equity ratio: 154%

Lehman Brothers
Equity base: $22bn
Level three assets: $35bn
Level 3 to equity ratio: 159%

Merrill Lynch
Equity base: $42bn
Level three assets: $16bn
Level 3 to equity ratio: 38%

Quote 0 0
Write a reply...