Posted on 03/10/2009 2:56:10 PM PDT by FromLori
There was a newsflash this morning on Reuters that "Mark to Market is NOT going to be suspended", allegedly sourced from someone at the SEC.
MTM was put into place after ENRON due to the amazing abuses on their balance sheet with asset "valuations" in an attempt to prevent re-runs of that debacle. It has been circumvented to a large part by "Level 3" assets, which are in fact marked to model (same thing as non-MTM eh?)
So why the furor?
Let's say you are a bank and have $1 billion of some bond issue that was stuffed to the gills with crap subprime and liar loans. It is, thus far, cash-flowing fine, but everyone knows that these liar loans and subprime garbage is likely a 50 cent recovery deal eventually, if you're lucky.
So long as this paper is cash-flowing if you're intending to hold it to maturity then you can value it at "par" under your model, because well, today, it is making coupon payments. That is, your bucket might be different than other people's bucket.
So you hold this thing in "Level 3" and call it par. All is good, right?
No.
(Excerpt) Read more at market-ticker.org ...
They can’t change mark-to-market to free floating valuations. It will definitely collapse the entire financial system eventually.
For all you market watchers, I am happy with the gains in the market today. Does anyone thing this is a longterm thing and how in the world did Citi post a gain already?
Citi issued a memo to all employees that the bank had been profitable in Jan and Feb. NOBODY was expecting it.
It’s hard to tell if it’s the bottom or not. We’ve been in a bear market for a year and a half and have lost around 2/3 of the value from the high. We could be at a mid or long term bottom but it’s hard to tell.
What I can say from today’s action is that the market is that alot of the market shorts were covered today. I think it’s significant enough to indicate a start of a reversal but the market will test the bottom at least once or twice before it does.
I don’t follow stocks specifically so I don’t know the Citi story.
Before write-offs.
You know what? This is possibly artificially inflating the stock price so that some people can sell their stocks for higher prices before the “real” numbers get on the books.
What do you guys think about that possibility with this CEO putting a memo around like that?
I don’t know about others but I think it is a scam! Citi is broke I have to find the article I had it somewhere but yes I agree.
Turns out that an old fraternity brother is director of worldwide overseas ops at Citi. Not the sharpest knife in the drawer, but an absolutely honest man. Expect to chat with him tomorrow.
He will NOT tell me anything proprietary, but -- trust me -- I should be able to read between the lines.
We shall see what we shall see, eh?
Your link does not work.
Which link I think you may mean this one that says citigroup is a joke?
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