To: TobagoJack who wrote (24897 ) 11/8/2007 1:34:49 PM From: carranza2 Read Replies (2) | Respond to Not all Level 3 assets are garbage. But it may not matter.Recent calculations by the Bank of England, for example, show that if tiny changes are made to the type of model typically used by banks to value mortgage-linked debt, the implied price of supposedly “safe” assets can suddenly change by as much as 35 per cent. ft.com This is indeed the message that comes from true market prices that are now indirectly available via the ABX indices. Those prices tell you not only that the mezzanine and equity tranches of subprime CDOs are now worth close to zero; they also tell you that prices for the AAA and AA tranches – that until recently were hovering near par of 100 – are now down to 79 and 50 respectively. Hundreds of billions of subprime RMBS and senior tranches of CDOs are still being evaluated as if they are worth 100 cents on the dollar. What the ABX is telling you is that they are worth much less; thus the losses from subprime alone are an order of magnitude larger than recognized by most firms. But most firms are not using such market prices – or their proxies – to value their illiquid assets.
