One has to assume that this current financial crisis is in part due to a long history of cooked books. I’ll refer to a blog post by Sean Corrigan here. But to what extent are we seeing this. And how does this play-out in these government assisted corporate take-overs. For instance Wachovia had a book value at mid-year of $75b. And then they sell out for $2b just several weeks later!? Am I just completely missing something here?
The link you posted doesn’t really provide any evidence for your post.
The part of the link I was referring to is quoted below:
“Worse still, once the first better capitalised institution says, ‘OK, Hank, I got this junk on my books for 70 cents on the dollar, but it’s yours for 20c’, - err - won’t all the OTHER banks now have to revalue downwards accordingly since we have finally had a little, long-overdue ‘price discovery’ take place?”
I took this to mean that the mortgage assets referred to were vastly over-stated. Did I mis-read him?
I guess I’m more confused by the very root of our current situation. Billions and billions of dollars seem to be dissappearing, causing banks to fail nationally and abroad. But I’m finding it hard to believe that there are that many people NOT paying their mortgages. What’s the foreclosure rate now? Isn’t it around 7%? Can there be that many billions at stake for that seeming little foreclosure?
Someone please enlighten me.
Thanks.
This question came up at my office only yesterday. If only a sliver of mortgages are actually delinquent, why do the banks need $700B? My wild guess is the banks are sitting on a lot of “walk aways” and won’t foreclose because they don’t want to carry the collateral on their books. Also, there’s the whole practice of carrying loans as assets. Banks leverage what you might call “hard” assets like real property, securities or precious metals, so perhaps they are leveraging baskets of loans as well.
Sooo, it would appear there is a HUGE upside down pyramid resting on top of the home values of Americans. And if homes aren’t worth what the real estate sector says they’re worth, then the banks are not just broke, they’re negative equity for as high as you can count, and so are all the entities that issued those strange “default insurance” instruments–the premiums were calculated on false values.
IOW, we’re f***ed.