Here is an idea

This asset transfer idea from the government that might cost 1T dollars, why not turn it into a publically traded, liquid ETF or Holders fund that would represent a 50% ownership of these illiquid mortgage investments, that way ANYONE could purchase including you and me and hedge funds etc etc..and the eventuality of the fund is that it has an endpoint where it would liquidate when the investments mature or that the ROR objective is met..meaning this would unfreeze the CDO market and also remove tremendous pressure from AIG since that obligation is removed and could be negociated with the government and this "fund".

I would buy in if they would open the books completely and the institutions would transfer the assets at current book value, removing them from their balance sheets at reasonable valuations and also rip up the insurance contracts AIG gave and any responsibility on AIG ends with such transfer, meaning there cannot be any litigation on AIG for any discrepancy between transfterred value and purchased price.

I forgot to add..

This also gives a HUGE bump to the government and taxpayer..it would move the banks higher, and that increases the value of our "investment" and it would increase the value in AIG IMMEDIATELY, to cut down the obligations on those insurance claims might turn that stock into a 3 bagger overnight. It also would alleviate pressure on Fannie and Freddie and immediately transform the credit markets and give the potential for huge returns for investors.

Get a clean firm like Vanguard or Fidelity to run this MF-er and I dont see how this isnt a monster win-win for everyone involved.

I have a question for you . . . you know how people have stated "mark-to-market" is the downfall and has apparently caused all of these so called problems.  Senators have claimed "we must remove mark-to-market accounting."

What are these critics solutions?  If we don't mark these assets to market what do we do?  If we remove mark to market accounting don't banks become less transparent?  I mean if something is only worth 50 cents on the dollar and that is what the market is willing to pay how can someone put it on their books at 70?  How is that a solution?  I realize no market exists for these things, so they are tough to price, but I don't see how removing mark-to-market works.

Hey VH2,

Funny you mention that..I have a brother in-law who is currently involved in U of A accounting program and he mentioned to me that FASB is going to eliminate mark-to-market and my first thought was "WHAT the HELL"?? and my second thought was that this is yet another intervention mistake that is being used to save bad business practices by these investment firms and banks.

They overleveraged themselves and now they dont want to mark their assets to market and write them down.

Part of me agrees that the market is frozen and that unfairly has made the bid spread wide, thus forcing banks to write these assets lower and lower and lower but part of me (the bigger part) thinks that they PUT themselves in this pickle from overleverage and it is on THEM not the accounting standards board and they should live with what they created.

Removing mark-to-market only helps these banks from being forced to write down the assets and it is yet another mistake just waiting to happen. If ANYTHING and I mean anything, the FASB needs to give a TEMPORARY allowance to these illiquid assets or make some exclusion if the spread for the investment/asset is deemed too wide, using standards created by the FASB, not the government or the companies who are complaining.

I hear ya Wall -

At my company I get involved with the impairment process on our toxic assets (and we have our fair share).  Our once high yielding AAA MBS bonds which were backed by alt A collateral are now rated A or B and falling fast. 

Here is the funny thing.  For US GAAP you need to recognize impairment once you determine credit impairment exists (other than temporary impairment or OTTI).

But you don't just recognize the OTTI . . . you need to write the whole damn bond down to fair value.  So if you have a bond at 30 cents on the dollar, and only 10 of it is credit impairment you need to write the whole damn thing down to 30 . . . just not down to 90.  It is ridiculous.  So basically you should only write 10 down but you are taking the additional 60 as well.  Now that is something I feel they should fix.  And they are . . . I think.  FASB might be passing a law that says you only need to take the credit impairment if you show the intent and ability to hold . . . i think that is needed.  Why take the other stuff if it is not other than temporary?

Of course that impairment you take that is not credit related you accrete back into income over the life of the bond . . . so you get a steady income stream, but the initial one time hit is a bit much.  it is funny though . . . our "yield" on our bonds the first few months this year are incredible.  Why?  Because we took non credit related impairment that we are now adding back into income.

So when you see a C or BAC saying they are making money in the first 2 months . . . well guess what . . . a lot of that is phony money because these written down assets to FV are now being accreted back in.  Very sneaky . . . but it is GAAP and you must follow.

VH,

See I have mixed feelings about this..from that perspective yeah the GAAP rules seem tough and out of place, like they are hindering the company...but if the company hadnt gone in like a HOG and leveraged themselves to hell then would the market be frozen and the bid be so low?

These GAAP rules are created over decades of business and evaluation, this current condition was brought on by the greed of the investment firms and with such greed comes the sword, and in this case the sword has stabbed the greedy.

I think the FASB needs to make a temporary rule modification in which THEY assess which assets fall into the category for different accounting treatment and TEMPORARY reclassification.

What will happen is the government and thus the businesses will dicate the change and the regulatory body will not be able to function as it needs to. Ive often thought the FASB is influenced by money just like the government is and I am sure I will be proven correct when they drop or disable mark to market to save these greedy firms who werent following regulations in the first place (bank margin regulations, not FASB).

Interesting article-

link

Front running is hilarious, these banks are trying to prop up the prices pre-plan so the government has to pay higher prices, thus more benefit to them if the plan happens.