Comments on: Credit Crisis Only Begins With Mortgages http://washingtonindependent.com/2340/credit-crisis-only-begins-with-mortgages National News in Context Thu, 26 Nov 2009 09:46:59 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: crmorris http://washingtonindependent.com/2340/credit-crisis-only-begins-with-mortgages/comment-page-1#comment-4589 crmorris Wed, 13 Feb 2008 15:10:15 +0000 http://www.washingtonindependent.com.php5-9.websitetestlink.com/?p=2340#comment-4589 Writedowns "And what caused the assumption the bond is risky in the first place"<br><br>Many bonds were sold backed by, eg, risky home mortgages, but with credit ratings that suggested that default rates would be near-zero. They paid interest only slightly higher than a risk-free Treasury bond. Now that we know that actual default rates are much higher, traders require much higher yields (= lower prices) to purchase those bonds. The lower price incorporates the information that the $50 payment is very much in doubt, even tho it's still being paid. Almost all the writedowns are based on some sort of a market test. There is a fair amount of evidence that banks haven't been writing down enough, altho that may now be changing because of criticisms from accounting standards bodies. Writedowns "And what caused the assumption the bond is risky in the first place"

Many bonds were sold backed by, eg, risky home mortgages, but with credit ratings that suggested that default rates would be near-zero. They paid interest only slightly higher than a risk-free Treasury bond. Now that we know that actual default rates are much higher, traders require much higher yields (= lower prices) to purchase those bonds. The lower price incorporates the information that the $50 payment is very much in doubt, even tho it's still being paid. Almost all the writedowns are based on some sort of a market test. There is a fair amount of evidence that banks haven't been writing down enough, altho that may now be changing because of criticisms from accounting standards bodies.

]]> By: warrenmetzler http://washingtonindependent.com/2340/credit-crisis-only-begins-with-mortgages/comment-page-1#comment-4588 warrenmetzler Tue, 12 Feb 2008 17:33:33 +0000 http://www.washingtonindependent.com.php5-9.websitetestlink.com/?p=2340#comment-4588 I don't get the write down example. If you say that a bond becomes risky, doesn't that mean the originally promised $50.00 per year is now suspect? So how can you tell what is the value of this bond? I do get that claiming its value is now $720 means it has lost 28% of its value, but what is the basis for that claim? And what caused the assumption the bond is risky in the first place, other than an expected $50.00 annual payment didn't arrive? And if an expected annual payment didn't arrive, whose to say the bond has any worth at all?<br><br>Sounds like most write downs are more smoke and mirrors. I don't get the write down example. If you say that a bond becomes risky, doesn't that mean the originally promised $50.00 per year is now suspect? So how can you tell what is the value of this bond? I do get that claiming its value is now $720 means it has lost 28% of its value, but what is the basis for that claim? And what caused the assumption the bond is risky in the first place, other than an expected $50.00 annual payment didn't arrive? And if an expected annual payment didn't arrive, whose to say the bond has any worth at all?

Sounds like most write downs are more smoke and mirrors.

]]> By: messels http://washingtonindependent.com/2340/credit-crisis-only-begins-with-mortgages/comment-page-1#comment-4587 messels Tue, 12 Feb 2008 16:30:21 +0000 http://www.washingtonindependent.com.php5-9.websitetestlink.com/?p=2340#comment-4587 any chance you can address the possiblity of a soft-landing? i've been thinking the goal from the massive rate cuts [and the stimulus plan] is merely to soften the blow to what is/will be a recession. perhaps our economy stays at zero growth for a while. i'd rather see a flat-line than one going down, down, down. i also think that we are still in the midst of what is going to be a major period of development as the success of previous developed nations (US, germany, japan, etc) gains momentum and transforms the rest of the world. that belief is what helps foster my belief that we're looking at a soft-landing scenario rather than a death spiral.<br><br>i'm looking forward to reading more from you. thanks, mr. morris.<br><br><a href="http://www.positionmakers.com">http://www.positionmakers.com</a> any chance you can address the possiblity of a soft-landing? i've been thinking the goal from the massive rate cuts [and the stimulus plan] is merely to soften the blow to what is/will be a recession. perhaps our economy stays at zero growth for a while. i'd rather see a flat-line than one going down, down, down. i also think that we are still in the midst of what is going to be a major period of development as the success of previous developed nations (US, germany, japan, etc) gains momentum and transforms the rest of the world. that belief is what helps foster my belief that we're looking at a soft-landing scenario rather than a death spiral.

i'm looking forward to reading more from you. thanks, mr. morris.

http://www.positionmakers.com

]]> By: crmorris http://washingtonindependent.com/2340/credit-crisis-only-begins-with-mortgages/comment-page-1#comment-2048 crmorris Wed, 31 Dec 1969 19:00:00 +0000 http://www.washingtonindependent.com.php5-9.websitetestlink.com/?p=2340#comment-2048 Writedowns "And what caused the assumption the bond is risky in the first place" Many bonds were sold backed by, eg, risky home mortgages, but with credit ratings that suggested that default rates would be near-zero. They paid interest only slightly higher than a risk-free Treasury bond. Now that we know that actual default rates are much higher, traders require much higher yields (= lower prices) to purchase those bonds. The lower price incorporates the information that the $50 payment is very much in doubt, even tho it's still being paid. Almost all the writedowns are based on some sort of a market test. There is a fair amount of evidence that banks haven't been writing down enough, altho that may now be changing because of criticisms from accounting standards bodies. Writedowns "And what caused the assumption the bond is risky in the first place"

Many bonds were sold backed by, eg, risky home mortgages, but with credit ratings that suggested that default rates would be near-zero. They paid interest only slightly higher than a risk-free Treasury bond. Now that we know that actual default rates are much higher, traders require much higher yields (= lower prices) to purchase those bonds. The lower price incorporates the information that the $50 payment is very much in doubt, even tho it’s still being paid. Almost all the writedowns are based on some sort of a market test. There is a fair amount of evidence that banks haven’t been writing down enough, altho that may now be changing because of criticisms from accounting standards bodies.

]]> By: warrenmetzler http://washingtonindependent.com/2340/credit-crisis-only-begins-with-mortgages/comment-page-1#comment-2049 warrenmetzler Wed, 31 Dec 1969 19:00:00 +0000 http://www.washingtonindependent.com.php5-9.websitetestlink.com/?p=2340#comment-2049 I don't get the write down example. If you say that a bond becomes risky, doesn't that mean the originally promised $50.00 per year is now suspect? So how can you tell what is the value of this bond? I do get that claiming its value is now $720 means it has lost 28% of its value, but what is the basis for that claim? And what caused the assumption the bond is risky in the first place, other than an expected $50.00 annual payment didn't arrive? And if an expected annual payment didn't arrive, whose to say the bond has any worth at all? Sounds like most write downs are more smoke and mirrors. I don’t get the write down example. If you say that a bond becomes risky, doesn’t that mean the originally promised $50.00 per year is now suspect? So how can you tell what is the value of this bond? I do get that claiming its value is now $720 means it has lost 28% of its value, but what is the basis for that claim? And what caused the assumption the bond is risky in the first place, other than an expected $50.00 annual payment didn’t arrive? And if an expected annual payment didn’t arrive, whose to say the bond has any worth at all?

Sounds like most write downs are more smoke and mirrors.

]]> By: messels http://washingtonindependent.com/2340/credit-crisis-only-begins-with-mortgages/comment-page-1#comment-2050 messels Wed, 31 Dec 1969 19:00:00 +0000 http://www.washingtonindependent.com.php5-9.websitetestlink.com/?p=2340#comment-2050 any chance you can address the possiblity of a soft-landing? i've been thinking the goal from the massive rate cuts [and the stimulus plan] is merely to soften the blow to what is/will be a recession. perhaps our economy stays at zero growth for a while. i'd rather see a flat-line than one going down, down, down. i also think that we are still in the midst of what is going to be a major period of development as the success of previous developed nations (US, germany, japan, etc) gains momentum and transforms the rest of the world. that belief is what helps foster my belief that we're looking at a soft-landing scenario rather than a death spiral. i'm looking forward to reading more from you. thanks, mr. morris. http://www.positionmakers.com any chance you can address the possiblity of a soft-landing? i’ve been thinking the goal from the massive rate cuts [and the stimulus plan] is merely to soften the blow to what is/will be a recession. perhaps our economy stays at zero growth for a while. i’d rather see a flat-line than one going down, down, down. i also think that we are still in the midst of what is going to be a major period of development as the success of previous developed nations (US, germany, japan, etc) gains momentum and transforms the rest of the world. that belief is what helps foster my belief that we’re looking at a soft-landing scenario rather than a death spiral.

i’m looking forward to reading more from you. thanks, mr. morris.

http://www.positionmakers.com

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