Posted on 03/07/2009 8:21:07 AM PST by TigerLikesRooster
The Market Kills The Bezzle
It appears that Mr. Market is singularly unimpressed with the unemployment situation, which is actually showing a slowing in the rate of change in U-6, which is in fact positive.
However, "The Bezzle" remains unaddressed by government, and therefore, irrespective of anything else, the market will sell off.
The Nasdaq is down more than 2% at this point, and here's the chart of today's /ES thus far:
This will not stop until "The Bezzle" comes out. One way or another, it will come out.
That's more than a 3% move downward today in the first hour and a half from the top today - more than 20 S&P points.
Either Government will force The Bezzle out, or the market will force it out, and if The Market forces it out the consequence will be the destruction of millions of jobs that would otherwise not need to be destroyed, along with trillions of unnecessary wealth destruction.
The Government is incapable of keeping The Bezzle from being removed from the system, no matter what people in DC, including lobbyists and politicians would like.
This simply isn't up to them - they are not in control.
President Clinton discovered during his first term that The Bond Market in fact controlled his agenda, not the other way around. He was forced to abandon his audacious health care agenda when the bond market threw up all over it.
(Excerpt) Read more at market-ticker.denninger.net ...
Ping!
Mr Denniger has been right for the last year. Mark to Market will be reviewed next week. We might get a huge turn around.
including lobbyists and politicians would like.
This simply isn’t up to them - they are not in control.
That is the problem no plan no control it scares the hell out of the traders.
Not to worry. Zero will give another speech or two, and the market will come closer to him.
(Him being Zero)...
Zero is working hard for his legacy: Mark to Zero.
btttt
After his crazy post on Thursday, I’m beginning to wonder about Karl Denninger.
Superb articles - thanks for posting them.
Are they really considering softening or removing the mark to market requirements? That is great news. Can you confirm it?
I was in the store the other day looking at a display of slow moving merchandise. MTM would indicate it had a zero value. For $0.00 I would have bought a truck load.
The Mark-to-Market accounting rule would be a mere paper change. If you truly want to know if changing that one rule would have an impact on either the economy or on the stock market, then look to Japan, as they just eased that rule this week.
If Japan’s Nikkei runs up Monday, then there you have it.
But it won’t.
Paper rules are just gimmicks.
What is needed is tangible change.
One such real improvement would be making mortgage bonds tax free like municipal bonds. That would make the bonds more valuable...and it would drive down interest rates.
Making bonds more valuable means less to mark down. Heck, you might even have to mark them *up* on corporate books!
That’s a real fix. Much better than gimmicks.
Watch Japan next week and you’ll see the gimmick fail...but making mortgage bonds tax-free will succeed because that ads real value, both intrinsic to the bond’s return as well as inherent inside the bond itself.
I don’t deny that your suggestion would work, although it will never fly in today’s DC.
My understanding of MTM is that it has crushed the underlying values due to illiquidity not due to the actual value of the assets. Is that right?
I know that there has been a depreciation of value in the market in general, just that MTM is not reflecting the true value say 75%, but marking it down to zero.
For bezzle, my nezzle.
Dat’s the shezzle.
ROMFLMAO!!!!! That will be my response Monday morning around the water cooler. Good one Mr. Humblegunner!
Yes, the market call the shots. The Democrats are going to be spanked hard.
MTM does have problems. Illiquidity obviously makes it difficult to guess what the market would actually pay if you put those securities up for sale Monday morning.
Also, MTM doesn’t allow for valuing performing assets based on keeping them to maturity. That’s flawed. We should *want* banks making loans with the intention of holding, rather than selling to Wall Street, lots of their loans. And we should want those loans to perform.
So a pleasant MTM reform would be to allow for securities that are performing (i.e. people making their mortgage payments on those particular loans) to be valued based upon their cash flow...instead of what the Market would pay for those loans if firesold today.
MTM’s flaws work on the way up, too. It’s not just a flaw in a down market. You get overvaluations when the market heats up.
Agreed.
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