Actually, there is a way to value the structured finance securities within a reasonable framework. While some of the inputs are variables, such as future default or prepayment rates, there is also an anchor that is not being used. That anchor or pivot point would be the actual loan level performance detail.
Right now there are several firms attempting to get to this issue, but they don't have the technology or process to provide it on a daily basis. Fitch has their reports in the CRE structured finance field and Markit has a program that takes effect two days after the service point for European securities. Unfortunately, for valuation purposes in this market, they are not daily.
Now, if Bloomberg had the actual data on a daily basis for the underlying collateral, they would be able to produce a Bloomberg Fair Value for those securities and also bring to bear their well-known analytics. The same can be said for a number of Bloomberg's competitors as well as independent third party pricing services. Risk capital in the form of hedge funds might employ their own Ph.D.'s to run models of what they think would be appropriate prices to commit capital.
The point is simply this. With opacity, there are no models anyone trusts. They've all blown up. With transparency, the market will have dueling models, but that's a known effect and can be dealt with as each model will be using real data and pivot around that input.
If the latter sounds preferable to you, then you've got the gist of it. :) |
