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No proof if this is true or not, but its whats goosing the markets . . .

Category: Corporate Management, Credit, Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

73 Responses to “NYSE Floor Rumor: SEC to Overturn Mark-to-Market”

  1. I-Man says:

    Whatever it is… it looks like it sure caught alot of people short… take a look at FAZ, SDS, QID, SRS… like popping a hot air balloon.

    I would normally be fading this, but with all the cash out there, and people seem to be caught so offguard here, my gut tells me not to fade this one. If people with cash get an itch here this could be the start of a powerful move to the upside.

  2. Mannwich says:

    Of course, another “rumor” while the market is tanking. Did Steve Liesman break it?

  3. Mannwich says:

    Call me crazy, but wouldn’t overturning mark-to-market merely be playing another game of “make-believe” and “pretend our marks aren’t worth zero”, and merely delay the inevitable even more?

    We love the game of kick the can in this country. I used to love that game when I was a kid. We played it every day at the bus stop, but made it even better by using a ball. One unfortunate kid was “it” for about 3 months straight and often ran home crying (not going to school) because of it). That’s a little how I feel these days…

  4. greg says:

    I hope this is true, so I can mark my Feb 100 Apple calls to $20.00.

  5. mikesic says:

    I think that mark to market is WAY too punitive. There has to be a way to value these instruments. The number for the majority is not zero or 100. You would think that if they are still producing income that you could use some sort of discounted cash flow model to come up with a value. As the cash flows decrease due to the underlying securities defaulting, then they get marked lower etc. I think you could see a mark UP of a lot of these assets as the crisis disapates over the next few years. Companies like the death star (goldman), MS, and JPM will ultimately benefit over time. FWIW.

  6. Mannwich says:

    @mikesic: Maybe so, but I think in actuality most (or at least many) of these instruments ARE indeed worthless. That’s the issue.

  7. mikesic says:

    Mannwich,

    from what i understand that even the majority of the Lehman paper is performing (source BlackRock) but are valued at zero due to mark to market. At some point if/when liquidity comes back, someone is going to buy this paper.

  8. VennData says:

    We’ve gone from not-negotiating-drug-companies-on-price to limiting-executive-pay. Any moderates out there?

  9. Mannwich says:

    @mikesic: You are right. We the taxpayer are going to buy all the worthless stuff and the banks will keep the stuff that will make a profit. Great deal………for them.

  10. leftback says:

    @I-Man: You can still make money fading this rally ahead of the NFP number tomorrow. For a trade.

  11. mtrain40 says:

    All I thinks this does is show how bad the numbers are going to be tomorrow morning. Trying to put a little hope in the markets that all will be better come monday so dont worry about all the job losses.

  12. jason says:

    it is still shit on a stick

  13. Lancair360 says:

    Does overturning mark-to-market even fall under the SEC’s authority? I was under the impression this had to come from FASB.

  14. call me ahab says:

    @ Mannwhich-

    So true. Mark to market I guess is great when assets are appreciating but not so great when they are depreciating- bunch of damn babies if you ask me- whining until they get what they want. I hope the rumor is not true.

  15. kfunck1 says:

    @Lancair360:

    FASB forms GAAP, which is approved by the SEC. The SEC enforces (or does not enforce) those GAAP rules.

  16. Katie says:

    So fantasy accounting will solve the mess we are in? Too funny.

  17. Lancair360 says:

    @kfunck1:

    Thanks. Suppose the SEC chooses to overturn/not enforce mark-to-market and FASB leaves GAAP as is. Does this leave a company who chooses to ignore mark-to-market and revalue their assets open to potential litigation should a problem arise down the road? In other words with one agency approving a valuation change and an advisory panel with congressional authority keeping the status quo it seems to me one would be creating a potential conflict. Just curious.

  18. johnhaskell says:

    mikesic-

    Please send me a list of CUSIPs of LEH securities which are both performing and “valued at zero due to mark to market.”

    I would like to buy the entire inventory.

    Just attach contact details in your reply and I’ll get in touch with you. Thanks.

  19. Urkel says:

    Change you can believe in…once liquidity returns of course.

    Which it won’t.

  20. Offtopic: Citigroup Hides Mystery Meat in Balance Sheet:
    The $44 billion [in Deferred-Tax Assets (DTAs)] is roughly equal to the taxes that would be owed on about $125 billion of income, assuming Citigroup had a 35 percent rate. Citigroup reported an $18.7 billion net loss for 2008. It’s hard to say when the bank might make money again.

    Here’s a Q.. Could Citi spin out a number of entities that would take on portions of those DTAs (AKA CitiDTA1/2/3/4 Corp, each with $11B), then sell them to highly profitable businesses at pennies on the dollar just for the tax writeoffs? Or would the price or value actually be so low (as there are so many other corporate writeoffs available) that it’s just not worth it for either party..

  21. Hal says:

    I am trying to sell my mothers condo in florida–its a small one inland-nothing special about it.

    Whats the value–the 29,500 I am asking, the 20k I think I should get if I wanted to sell in a hurry, or zero because nobody is looking.

    Somewhere between zero and 29,500 is the right value–but very subjective. until I actually find a willing buyer.

    If a Lehman bond is selling at zero since there are no takers the value is zero.

    The problem is–well take BAC–it has 1.6 trillion of assets and a net worth of 80 billion–if they write down 5% of assests they are in deep doo doo. You tel lme if the assets are worth 95% or less of what they are valued at.

    If so, thats a material difference and I always thought materiality counts–ie–if it would change an investor mind you need to disclose or adjust.

    thats the mark to market. What we have is a huge shell game or ponzi scheme.

  22. Andy Tabbo says:

    The Plunge Protection Team alive and kicking….

    Just when it looks we’re about to make like a clavadista and cliff-dive….BAM.

    Love it. (snark)

  23. jason says:

    BR you have it wrong they are modifying the rules so that assets are valued in $ and liabilities in pesos. Get your facts straight man. Iraq invaded America and Iran has always been on our side.

    I can’t figure out why the NASDAQ is doing so well. I would think with no need for accounting the need for computers and technology would be dry up. Or is it that we will need more powerful computers and more sophisticated software to help maintain the mirage.

    Why do I feel the need to just start smashing sh$t?

  24. Mannwich says:

    The leaks are out in full force today because they have to know tomorrow’s numbers are going to be horrific. PPT, PPT, PPT…..

  25. call me ahab says:

    @ jason

    Exactly- I have the same urge. I already punched the screen to my laptop.

  26. mark mchugh says:

    After yesterday, I would think that the only action the SEC would be considering is sneaking out of the country.

    What today tells me is we are not done trying to manipulate markets.

    True or not, don’t forget, “…..sell the news”.

  27. harold hecuba says:

    another miracle save just as the market is once again poised to crack. one should of course have noticed when goldman stack rises in a bad marekt that news is forthcoming. how anyone even plays in this sleazy market is incredible. why would anyone buy US assets when fraud and corruption is rampant. and don’t tell me our markets are the most transparent in the world. that is pure poppycock. The US was the architect of the financial destruction securitization product. well now we know the taxpayer ias going to get cornholed again by mr.CHANGE in the oval office. didn’t this plan just not work a few months ago. i am of the opinion that the two sleazy parasites that being morgan stinky and goddamn sak are being run up in anticipation of doing secondaries. as they desperately need to raise capital.

  28. Jim C says:

    It has been fairly obvious that MTM would need suspended or revised or something at some point in this debacle.

    When it happens, you will see the short squeeze of the century.

  29. jpm says:

    By suspension of M2M, then the gov’t purchase can occur below carrying value, but the banks don’t have to treat that purchase as a new valuation for their crap. Solvency is therefore maintained without new capital being injected. (ha ha).

  30. Andy Tabbo says:

    This is very reminiscent of back in September. We were poised for a third extension lower when suddenly Gasbagarino comes on to tell us about some RTC like program coming….BAM…limit up on the futures that night…then we get the mother of all sell offs.

  31. karen says:

    Andy, did you see the yen? : )

  32. Boomer says:

    From CNBC:
    http://www.cnbc.com/id/29029912

    “That approach will likely placate both taxpayer and Congressional concerns about the government over-paying for the assets. But, the source noted, it could “trigger an accounting problem for the banks,” presumably because the institutions will have to report a loss on the transactions.

    The Obama administration is now working on ideas to address that, which might entail a temporary suspension of certain accounting rules. “

  33. DKTrader says:

    That 849 on the S&P is wicked! We need to break through that soon. These tests/fails can only go on for so long.

  34. call me ahab says:

    And this helps how . . . I see it being a temporary blip if it is true because all it will do is prolong the agony.

  35. Andy Tabbo says:

    karen. yeah the yen is abysmal. the weakness of the yen and my bearish view of it is the one thing thats been holding me back from being really bearish the stocks. i’ve had one client in a short SP500/short yen trade that did really really well the last few days…. the thesis behind the trade is that the japanese yen cannot trade much higher because of the crippling of the japanese economy but that the sp500 can continue to deteriorate.

  36. KidDynamite says:

    I’m still waiting for someone to explain to me how well NOT using mark-to-market accounting worked for State Street.

    STT doesn’t recognize losses – they just informed the street how much their “unrealized losses” were – but was anyone fooled? just because they have them in a hold-to-maturity portfolio doesn’t mean the stuff isn’t worth less – and the street CLEARLY knows this. So why does everyone think abandoning mark-to-market rules will change anything? if you need capital, you need capital – regardless of how you semantically describe your losses.

    for the record – i’m a FIRM believer in mark-to-market.

    and for those complaining about illiquidity: Yves Smith at Naked Capitalism quoted John Paulson as saying that there is plenty of liquidity – the problem is just that the banks don’t want to sell at the market’s valuation – because they are holding out some hope and a prayer (my words, not Paulson’s) that the assets are worth more.

  37. Mannwich says:

    Bingo KidD. Doing this kind of thing doesn’t magically bring back “trust” or “confidence”. Nobody trusts each other anymore and with good reason. They all know what the own themselves, which is likely crap, so they figure the other guy owns the same or worse. That cat is out of the bag and ain’t coming back until FULL transparency (and then some) comes back. Until then, we wait and quietly seethe.

  38. E says:

    Today’s market action at first just totally discouraged me about participating in this rigged game. I just about squeezed myself out of some shorts.

    I’ve now got myself together and am about to go all Steve Barry on this market’s ass. I will buy every single QID share I can afford. This is a gift.

  39. DL says:

    If going back to a “mark to model” standard means less taxpayer money going to the banks, then I’m all for it.

    And for those who oppose “mark to model”, bear in mind that that’s exactly the standard the government will be using when it values the bank assets that it will be buying.

  40. call me ahab says:

    @ KidDynamite

    if the government buys the assets they are worth more- that’s the point of the government’s purchase- $$$ for illiquid assets.

  41. TPC says:

    I don’t see how this is a psitive development. All it does is turn us more Japanese….
    http://www.pragcap.com

  42. mikesic says:

    John Haskell,

    i was wrong. it was the bear toxic assets that are currently run by Blackrock.

    http://seekingalpha.com/article/106492-toxic-bear-stearns-mortgage-paper-performing-well

    I have no idea how to purchase these items. But I still think that a lot of these items can be valued at something beside mark to market or mark to model etc. Some sort of income valuation would make sense. If they have no income then they should be marked at zero.

  43. mikesic says:

    Regardless of the accounting issue, I still think prepackaged bankruptcies for the Too big to succeed Banks are in order. The faster it is done the better.

  44. “If they have no income then they should be marked at zero.”

    Or less. Sometimes they come with carrying/servicing costs and other liabilities, like lawsuits. Then they operate sorta like Detroit real estate, where the city isn’t far from having to pay people to own property.

  45. I-Man says:

    @ AT:

    Think we can break it this time??? If there is a PPT, they should be hitting the buy button right about now…

  46. I-Man says:

    There is no way we are going to clear 849 without the financials… they seem to have stalled… look at GS… its the tell.

  47. Todd says:

    I’m waiting for the 3 o’clock witching hour where the market goes all crazy. I’ve actually started missing its regular occurrence.

  48. mlomker says:

    @E, “I will buy every single QID share I can afford.”

    lol. I’m up to my ears in SH and I’m holding onto it for now. If the market goes up after tomorrow’s NFP then I need whatever they’re smokin’.

  49. Moss says:

    What is the international standard on MTM.. anyone know?

  50. Todd says:

    on the PPT, I think there’s been a change in ownership. They are still taking it out on a test drive. Don’t want to make the tires squeal when you punch the gas.

  51. DKTrader says:

    That was a quick fallback. Who thinks we’ll go back up to test and break through 849 again? The market wants to go higher but the NFP is a huge risk…not that it’s not expected to be horrible.

    AT – Any thoughts on where we end up today and going into next week?

  52. Todd says:

    @moss
    Fail value, unless you can find a price.

    http://www.nysscpa.org/ezine/ETPArticles/ML110608.htm

  53. Todd says:

    Whoops should have been fair. fair/fail slip of thought. ;)

  54. aperian says:

    so if i need a loan and use my car as collateral…you idiots that think mark to market is wrong can loan me some money based on my valuation…..right…i need $100k and i think my old pinto is worth it. please send me my cash please…

  55. willid3 says:

    how will hiding the banks problems help them? they are already down and nobody is going to feel any better because they don’t know how to value them? if they hadn’t treated the mortgages as if they were securities (buying and selling to them to each other) they probably wouldn’t be in such trouble

  56. natoK says:

    How predictable that some sunshine pumping news (if you can call, ‘people are tossing this idea around’, NEWS) is ‘leaked’ before a devastating economic number. Everyone knows it will be bad, and add in the revision that is done at this time of year – look out below!

    The PPT M.O. is pump up the market before the terrible news so the net effect is a market that doesn’t plunge as far. e.g. Up 200 today, down 500 tomorrow = Net 300 point drop —although the market may rally at 3 pm tomorrow b/c pundits will say this will be the absolut nadir of job losses!

    DELAY, DELAY, DELAY is the current plan when shining a light, taking the bad news and moving on is the best way to enact a lasting recovery.

  57. mikesic says:

    aperian,

    there are a lot of non-idiots who think suspending, reforming, re-evaluating M2M makes sense. not just some random (me) person who checks out this blog on occassion because of BR.

    your car analogy doesn’t make sense because no income is being generated

    NOW if you wanted to use say a rental property as an example then we can talk. So let’s say that own a $100k (purchase price) rental that yields you $500 per month. In today’s current market how much is that property worth. Definitely less than $100k. But is it worth zero? I would say no but if I put it on the market and i don’t get an offer, my understanding is that under M2M it would be valued as zero. That doesn’t make sense in my book. But like I have said in previous posts, those that are not performing need to be marked to zero but for those that are and just are illiquid there has to be another way to value them…some sort of discounted cash flow model.

    I come to this website to learn from others, so if someone can elighten me as why I am wrong or off base, I’m all ears.

  58. call me ahab says:

    @ E

    you’re expecting a sharp pullback in tech?? Why not SH or SDS instead?

  59. danm says:

    I think that mark to market is WAY too punitive.
    ————–

    How can it be too punitive? They marked all the crap up as it was going up, thus helping to juice the market even more. Had they not marked-to-market, they would not have those make believe values in the first place.

    The longer it takes for them to mark-to-crap, the longer it takes the market to have faith. Of course in the short run the market will go up on the news but as time goes on, it will realize that the stuff is still not performing.

    They can dress up their BS as much as they want, there’s still more stench to come: Alt-A, RE and credit cards.

    I call for a bubble in perfume stocks in 2009.

  60. danm says:

    for RE I meant CRE

  61. Andy Tabbo says:

    DKTrader. Tough one to figure out. These sorts of sharp moves out of nowhere on government rumors always cause me to go back to the drawing board to rethink some things….

    Just some bigger picture stuff, though…really simple charting here…You can draw a down trendline from the January highs that has not been violated yet and you can see a shallow rising trendline from the lows on the Cash SP. Just standing back you can sort of see a triangular formation. I’m not saying it’s a triangle at this point but price action is certainly converging. You can almost see the tension building up in the chart.

    For bears, the wisest course of action may be to just wait for a break of the 800 level on the cash SP500. If we break down below 800 in the next few days, the picture looks quite bleak. It’s worth noting that the 61.8% of the recent down leg from 877 – 813 has not been broken, keeping the door open for a violent move down in the next few days.

    At this point I’m not sure about the precise count. Wish I knew more. The collapse in the Yen and triggering of a clear head and shoulder pattern “should” be a headwind for stocks.

  62. Broken says:

    Hedging my accounts mainly with short SSO and a little bit of short TNA (3x bull small cap).

  63. AGG says:

    Barry,
    Please read this article in counterpunch. People need help and you can and should help. It’s the right thing to do for the Madoff victims who weren’t rich and are decent, hard working people.

    So, testify about the SEC’s examination of Madoff? No. Testify about “how we dealt with Mr. Markopolos’ complaint and the investigation we began and then closed?” No. Testify about questions regarding Madoff’s auditor? No. Testify about the question of a custodian for Madoff? No. Testify about who in the SEC saw Markopolos’ complaint? No. Testify about whether the bad consequences the SEC was warned of by Markopolos came true? No. Testify about other pertinent matters? No.

    You know, I think these two officials, who each are likely to share in responsibility for wrecking the lives of thousands but now won’t tell Congress what they or their colleagues did, should do the decent thing, the honorable thing, and commit suicide.

    To Be Continued

    Lawrence Velvel, dean of the Massachusetts School of Law, is the author of Thine Alabaster Cities Gleam and An Enemy of the People. He can be reached at: Velvel@VelvelOnNationalAffairs.com

    http://www.counterpunch.org/velvel02042009.html

  64. aperian says:

    mikesic,

    you are placing value on a real asset that will always have some value…….the banks have trillions of dollars of synthetic assets that have zero market value EXCEPT for the fees generated when they were originally sold. what other assets do they have that have real value….who knows because they wont show us….why…..maybe because it is all a shell game.

    i trade for a living and have been shorting financial/housing/emerging markets for about 2 years. i would never go long financials with the info available right now. i wouldnt go long any related business. i have found when companies hide info it isnt just bad it is usually worst case……the banks are insolvent along with most of our major companies that ran their companies by borrowing short to finance long term expenses.

    mark to market, mark to model and mark to make-believe are all delay tactics………… level3 assets are worthless EXCEPT to barney frank and paulson who plan(planned) on reselling this crap to the tax payer. now obama will push this stuff off on the tax payer.

    i bought most of my real estate when the RTC was dumping assets. my relatives(owned savings and loans) when to the federal pen doing what the banks have been doing the last several years. i dont see how we can even begin to think bank assets have any value…?

  65. aperian says:

    ‘when’ = ‘went’…they spent a few years behind bars

  66. E says:

    I’m buying QID because the Nasdaq is going to collapse when ORCL earnings come out in March.

  67. philipat says:

    And I had assumed that nobody listened to Steve Forbes anymore!

    Surely (Although I do actually know better) if they replace M2M they would not trust individual Banks to use their own models, aka Mark to solvency?

  68. mikesic says:

    aperian,

    i agree with you that i would not be buying any bank stocks (i do hold ms at $8 & $16 and gs at 100, 80, 60, 40). i think they should be bankrupt, their assets sold to solid banks, shareholders wiped out and debt holders become the new shareholders. purge the system. my only point on those assets is some of them are worth something and M2M make them all worth zero.

    i think you might have another opportunity to expand your real estate holdings.

  69. buzzsrk says:

    Can someone please answer Mikesic’s question – if the assets being marked to market are throwing off any income? If they are, then they are worth something, but if they’re not, then they truly are worth zero (right now)

  70. tommyp says:

    BR from an earlier post about TARP II:
    “The plan I put forward is merely less crappy than the..”
    applies here too, do something other than give my money away/flush it down the toilet. Mark-to-whatever-makes-you feel better, and give my federal income tax back from the previous year or two. I would save a little in a bank checking or savings (who cares if I saved it all, it’s going to a crappy bank who could use a nice deposit) I would pay down some debt ( who cares what kind of debt, again, helping some crappy bank ) I would invest some in my IRA (might even buy some bank shares) and I would spend some on whatever else I saw fit… why, because it’s my money, and by the way, consumer confidence would get a nice boost, hell, that might even help the housing market.
    If moral hazard is not in the conversation anymore (it’s not) than mark-to-whatever-who-cares-anymore, just give me my money back. I don’t love my plan, it just seems less crappy than others.

  71. aperian says:

    mikesic

    i am tracking real estate in californa, arizona and florida….can you believe there are foreclosures for $199k in ‘southeastern’ san francisco (not south san francisco). bad area but still a refurb for $199k….! i dont feel prices have even really started to fall yet..?! california may be too dangerous to invest in til they get a budget.

    your GS will probably make you some money but i am too nervous to buy anything long! if any of the bank assets have value GS will probably find it and exploit the situation (they are the smatest guys in the room)…good luck.

  72. cs says:

    Accounting beyond bookkeeping is just an opinion. it has contributed to this mess as much as anything else.
    As usual, the inertia to change it is great, partly because nobody wants to accept blame for this. The intentions were good, but the consequences severe. Another form of unfortunate intellectual ignorance, which has probably harmed more people than wars. (history of medical science is full of this)