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Strategies & Market Trends : Waiting for the big Kahuna
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To: Hawk who wrote (86956)4/2/2009 3:03:11 PM
From: carranza2  Read Replies (1) of 94695
 
Not necessarily false.

Because no one will buy a security does not mean it is worthless.

The issue is how to assign value to it.

I think that if some sort of objective measure of value is available, such as the sale of an analogous instrument, then there is a basis for setting a value. Otherwise, there are other measures, some of which, like discounted cash value, are more iffy.

I think the best value of something is what a buyer dealing with the seller will pay for it. If there are no buyers, then obviously other measures will have to be used.

The danger is that banks will use the alternative measures of value to play accounting games. What has taken place is an attempt to allow banks to make their balance sheets look healthier than they would otherwise be if M2M were used. It doesn't necessarily mean that the values are false.

At some point, the 'true' values of a security will become known when they are sold or as they produce a regular (or irregular) income stream. No amount of accounting games will prevent that. Thus, if the banks play games within the new rules today, they may very well be setting themselves up for more pain later.

But isn't that what the policy response to the crisis has been, kick the can down the road, let someone else clean up the mess?
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