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Politics : The Obama - Clinton Disaster -- Ignore unavailable to you. Want to Upgrade?

To: pompsander who wrote (8642)	3/7/2009 12:46:43 AM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 103300

You're a quick reader! :-) (I have always been very resistant to the idea of just tossing the baby Mark-to-Market rules out with our currently very polluted economic 'bath water'... just to suspend the accounting principle for some arbitrary statutory period of time because of the extremes of our distress seemed... somehow... too problematic for the longer-term to really be the best idea we could come up with. Too much 'harm' mixed in with the bit of 'good' that suspending the rules would achieve.) But I certainly agree with the concept (which, unfortunately, F.A.S.B. hasn't fully fleshed-out the Mark-to-Market rules with yet...) that "When there is no normally functioning market", the rules themselves can bring about the same sort of magnitude of harm that they were designed to preclude. (Just in an unintended direction. <g>) This seems to be a more reasonable proposal. Not a full-frontal assault on the useful principle of Mark-to-Market... but rather a helpful examination of of the lack of utility in applying Bond Rating Systems (designed for corporate bonds with a one-to-one typical provenance) to the MULTI-to-one multi-obligor securities, the world of asset-backed securities. After all... what does a Moody's or S&P rating of "BBB" REALLY tell us about a particular MBS traunche??????? What do we then know if long rates move? If the geographic risk dispersion models invoked at the MBS pools creation prove be be off in their risk projections? Now, classic corporate debt ratings are easily understood when applied to a single company's bonds... but, applied to asset-backed securities they tell the investor PRACTICALLY NOTHING! (And, I imagine that is by design. It keeps people having to go back to the ratings agencies again to get re-ratings... not only was the concept of 'triple A' and 'BB minus' an easy marketing sell for the Agencies, but it also promotes a recurring revenue stream for their business models.) Still... it's butt-ugly from the point-of-view of the investor. I LIKE Mauldin's idea of something like an "Impairment Factor, or I-Factor. If a bond is likely to lose 10% of its capital, then it would have an I-Factor of 10%. An I-Factor of 0% would mean the bond should expect to see all its capital returned, and an I-Factor of 100% would mean that all the money will be lost." I agree with him that such a rating system would be very much more useful to the investor. It could tell them something valuable. And 'Mark-to-Market' would be PRESERVED. It would not be under pressure to dump it... yet much of the artificial (there, I said it!), pressure on bank's balance sheets caused by the application of this rule during a downward spiral could be reduced. More normal markets in mortgage-backed would swiftly emerge (because buyers would be back, the market depth would grow rapidly). HELL of a GREAT IDEA: "the Federal Reserve should call in the rating agencies and have a "come to Jesus" meeting. They are at the heart of the problem, and they need to fix it. They need to change their ratings system for packaged securities like RMBS's."