re: #334 quickjustice

But isn’t it true that you’re merely changing the definition of “toxic” to accomplish this result? The fantasy remains that as the market rebounds, a toxic asset will suddenly become performing. That’s what many banks are clinging to, not to mention the Treasury.

Not really, I don;t think.

Here’s the problem. When you use “mark to market” valuation, you are using a moving market number to put a value on a 20 or 30 year loan. Most of these loans are actually good and will pay off in the long run. But because of the “mark to market” requirement, the banks have to write down the theoretical value loss in the “market value” of the house as if you had to sell it today.

This then creates a wicked downward spiral, that banks don;t want to make loans that they then may have to write down regardless of the loan performance, the real estate values then drop cause of the lower traffic ion sales deals and the values deteriorate even more.

The real estate is not going away, it is just being artificially undervalued today, as it was overvalued before.

If you sell these loans now, they are probably going to yield 20 cents on the dollar due to the mark to market requirement.

Actually, the deals are worth more like 60 to 70 cents on the dollar.

So the write down amount and the size of the problem to be tackled would be much smaller without the mark to market valuation requirement.

Given “mark to market” valuations, we have a hole in the banking system of about $2 trillion to fix. Get rid of “mark to market” and that drops to about $1 trillion instantly, plus you then stabilize real estate values cause banks now have a solid value to base deals on.