Wow, they are just as stupid as you are! WooHoo! This worked REALLY well for Enron!!!111!
Seriously, all this is doing is putting false assets on the books. I can tell you that my house is worth $1M. It isn't worth that much unless I could find a willing buyer to purchase it for $1M. Anyone who wants to do that can have BOTH of my houses ... I'll throw in the second one for free!
All this does is hold off the wolf for a little while. It doesn't do anything to slow down foreclosures, it simply allows the bank to say that the value of the homes they now own is higher than what they could sell them for. As time goes by and the bank can't sell the house at the stated price, it will have another liquidity emergency. Only this one will be even larger, particularly if the bank uses the inflated value of the homes in their reserving formulas.
Here's the kicker, that wolf will show up in 12-18 months. In 24 months we are going to see the last wave of the insane ARMS resetting. Absorbing those two issues in such a short time is going to make the market really go insane.
"the new guidance should allow banks to rely more on their own assumptions when they determine fair value rather than the distressed sale prices occurring in the markets."
So we are going to let the decision makers at the banks determine the banks' own values? Wonderful. Again, that practice turned out great for Enron. Remember, these are the same decision makers who thought it would be a good idea to give $300,000 loans to people who make $45,000 a year.
Seriously, all this is doing is putting false assets on the books. I can tell you that my house is worth $1M. It isn't worth that much unless I could find a willing buyer to purchase it for $1M. Anyone who wants to do that can have BOTH of my houses ... I'll throw in the second one for free!
All this does is hold off the wolf for a little while. It doesn't do anything to slow down foreclosures, it simply allows the bank to say that the value of the homes they now own is higher than what they could sell them for. As time goes by and the bank can't sell the house at the stated price, it will have another liquidity emergency. Only this one will be even larger, particularly if the bank uses the inflated value of the homes in their reserving formulas.
Here's the kicker, that wolf will show up in 12-18 months. In 24 months we are going to see the last wave of the insane ARMS resetting. Absorbing those two issues in such a short time is going to make the market really go insane.
"the new guidance should allow banks to rely more on their own assumptions when they determine fair value rather than the distressed sale prices occurring in the markets."
So we are going to let the decision makers at the banks determine the banks' own values? Wonderful. Again, that practice turned out great for Enron. Remember, these are the same decision makers who thought it would be a good idea to give $300,000 loans to people who make $45,000 a year.
