4 ms·

No, you can't negotiate that. The problem is that the bank is carrying the loan on its books and pretending it has full value. Negotiating that improves their

by btilly 3y ago

No, you can't negotiate that. The problem is that the bank is carrying the loan on its books and pretending it has full value. Negotiating that improves their actual financial position, but requires recognizing the loss that they are trying to ignore. If the stop ignoring it then they are possibly going to fail. That is why the banking sector badly needs such a giant bailout right now.

HWR_14 3y ago
It's not that they are pretending it has full value. They keep (some) loans on their books valued at "to maturity" not "to market". That's perfectly reasonable. The main problem is if they switch any loan from "to maturity" to "to market", every loan has to switch or none.
- toast0 3y ago
  It's a units problem. Dollars today are not worth dollars tomorrow, there needs to be a conversion. You can argue about what the conversion should be, maybe mark to market isn't right for reasons, but it's a reasonable baseline guess. If you want to estimate current dollars, and forecast dollars at the end of the month, quarter, year, etc; that's fine too, and would probably give a better picture of the books than wrong math where current and future dollars are compared directly as if they were the same.
  - HWR_14 3y ago
    The thing is most of the time current dollars don't matter to a bank. They get money over a long period and then pay money out to account holders over a long period as well.
- Cullinet 3y ago
  Book value accounting only works if you have matching regulatory or matching duration capital for the original loan. Mortgage banks drove the UK bankrupt cap in hand to the IMF in 73 with far far less of a rates delta than is happening now. Edit : there was a similar breakdown of society as is happening already today almost everywhere , back in 73 in the UK. The main difference is that the banks managed to put much more of the pain onto the common man since then.
  - HWR_14 3y ago
    There is ample reason to believe that banks will be fine and the future will continue without random bank runs, SVB was an outlier. But even if that happens, the delta between book value and market value for the banks is mostly covered by shareholder equity, so banks may fail but the system should be fine.

by btilly 3y ago

HWR_14 3y ago

It's not that they are pretending it has full value. They keep (some) loans on their books valued at "to maturity" not "to market". That's perfectly reasonable. The main problem is if they switch any loan from "to maturity" to "to market", every loan has to switch or none.

toast0 3y ago
It's a units problem. Dollars today are not worth dollars tomorrow, there needs to be a conversion. You can argue about what the conversion should be, maybe mark to market isn't right for reasons, but it's a reasonable baseline guess. If you want to estimate current dollars, and forecast dollars at the end of the month, quarter, year, etc; that's fine too, and would probably give a better picture of the books than wrong math where current and future dollars are compared directly as if they were the same.
- HWR_14 3y ago
  The thing is most of the time current dollars don't matter to a bank. They get money over a long period and then pay money out to account holders over a long period as well.
Cullinet 3y ago
Book value accounting only works if you have matching regulatory or matching duration capital for the original loan. Mortgage banks drove the UK bankrupt cap in hand to the IMF in 73 with far far less of a rates delta than is happening now. Edit : there was a similar breakdown of society as is happening already today almost everywhere , back in 73 in the UK. The main difference is that the banks managed to put much more of the pain onto the common man since then.
- HWR_14 3y ago
  There is ample reason to believe that banks will be fine and the future will continue without random bank runs, SVB was an outlier. But even if that happens, the delta between book value and market value for the banks is mostly covered by shareholder equity, so banks may fail but the system should be fine.