Tufar on Finance and Economy

Bob McTeer quotes William Isaac, FDIC testimony on Mark to Market accounting. William Isaac was FDIC Chairman in 1980s. Here is a chart showing the difference between actual losses and the losses that need to be reported under Mark to Market accounting rules.

Mortgage Based Securities Losses

MBS description:

• The Bank holds a pool of MBS totaling $3.65 billion as of December 31, 2008.

• The underlying loans are not sub-prime and are generally quality loans (average of

approximately 17 months of seasoning, original FICO scores of 749, and original loanto-

value ratio of 73%).

 

Losses based on MTM:

• The MBS has subordinated collateral of $172 million. The amount of subordinated

collateral exceeds the worst-case loss projections, which means the Bank does

not expect to incur any losses on its senior MBS positions (positions that MTM

rules have required be written down by $913 million).

• The MTM write-down required on this pool is more than nine times the maximum

estimated lifetime losses.

Source: http://www.bob-mcteer-blog.com/william-isaac-on-mark-to-market/

Original Testimony: PDF

Since Obama mentioned it, here it is:

S&P 500 Price Earnings Ratio

Source: Babak

1932 - 2007 Fibonacci

Source: Brian Shannon

Dow at 7,000

Dow and S&P 500 Broke 8,000 support and plunge down. Dow is at 1997 level now. Way to go, maybe even to 6,000. Obama and Geithner are either hiding something or are failing miserably. No light at the end of the tunnel. Everyone just gave up, no enthusiasm whatsoever.

Market is at a crossroad now. Tight range it has been following since the beginning of the year, or even since December 2008 is closing up. The market should get out of the range. Judging by the ineptitude of Obama cabinet it should break down. If it breaks down it will be the time I will put my idle capital at work.

Bankruptcies, collapses, loss, death, fraud. Housing bust. Liquidity Crisis. Credit crunch. Commodities prices bubble in the first half and bust in the second. This is how we will remember 2008.

What will await us in 2009?: Continuation of this year’s tendences, stagnation, or a swift recovery? The stock market is trending sideways since October 20 and refuses to go any lower. Bonds see unusual demand due to investors requesting their advisers to get out of stocks and into bonds. Corporate bonds are deemed to risky for investment. The Fed is taking care of this by dropping the interest rate to make it meaningless to invest in treasuries. Soon all this money will be pushed out of treasuries into corporate bonds and equities.

The problem remaining: toxic assets on the ballance sheets of the banks. Because of them, banks refuse loan. The Treasury is addressing it with TARP. The economy gave a little bit of slack? Unemployment figures start to worry us? Obama’s infrastructure spending program will take care of it. Every aspect of crisis is taken care of and I am positive that in 2009 we will see the early sings of recovery and with oil and commodities prices at record low, the economy will gain speed quicker than in other recessions.

What will fuel recovery and growth?: Zero interest rates and inflationary Fed policy. It is just a matter of time when the gears of economy get back to full speed. Demand for oil and commodities will rise again and we will back to speed by the fall ‘2009.

Everything is going to be alright.

Merry Christmass and a Happy New Year!

Comparing Stock Market Crashes

http://calculatedrisk.blogspot.com/2008/11/comparing-stock-market-crashes.html

Four Bear Markets

Dow Jones Crashes