Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

The models are down less than 50%?

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

If the buyer buys at $70, why isn't that then the market price? Because it's determined by what the buyer could resell it for?

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

I thought TM proposed that they be reported as book less impairment, at least in the short term. If he didn't, I will. Banks shouldn't be getting "earnings" when the "value" of bonds go up and shouldn't be getting "losses" when they go down.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

No. When I said, "I'd like to see that," what I meant was, I'd like to see that. Because the alternative is that we're all more fucked. Your telepathy is on the fritz -- get it checked out.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Then what was the crux of the initial dispute? TM arguing an easing of MtM would be welcomed by the markets and you saying it wouldn't be?

That's not even debatable among serious people.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Better than mark-to-market?

TM

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Buyer doesn't buy. Why would he buy an asset for $70 that he has to put on his books at $30?

TM

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Okay, tough guy.

TM

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

I think Burger was asking why $70 isn't the new market price if he buys at $70, which would mean he could book it at $70.

Perhaps the answer is that he isn't confident that anyone else will buy at $70, so he anticipates a write down in short order.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

The moment there is a distressed sale of the same asset at $30, they have to mark it back down.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Good question. Didn't think about that. And that makes more sense. Will have to look into this.

TM

Re: We will never agree on this and therefore it is pointless to talk about!
 

There is more discussion on volokh and elsewhere, but for those that are interested, the Iowa gay marriage decision is an interesting read. http://howappealing.law.com/07-1499.pdf . Unanimous, and they refute on the government's positions under even a rational basis test.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

I think it's the difference between buying a portfolio or a bank as a whole and buying the asst.

If you're looking to pick up a portfolio of assets, you'll end up marking the individual ones to market even if you are paying more as a group. You pay more as a group because you look at value at maturity and it's a deal, even discounting for impairment.

One bank rarely buys an asset from another bank in a negotiated sale (you buy and sell those on the market), so conversations like this only happen when buying a bank or a portfolio. These sales are stymied right now except (1) where the selling party is dead in the water and has no options or (2) where a private equity player has enough cash and wants to speculate, since they don't have to deal with either regulatory capital or public markets and their pricing. But if you're a small, strong bank and want to grow, and have the capital, taking over the weaker fish out there and consolidating isn't as attractive as it should be. Because of regulatory capital constraints.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

I think Less probably already answered the question. But I'm not sure I follow your point. Are you saying that you would pay more for a diversified portfolio than the sum of your best estimate of the values of the individual assets? I'm not sure that is right, particularly when the individual assets are already based on pools that are supposed to be diversified (like CDOs).

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

TM quoted the NYT to the effect that the morning's gains on the stock market were attributable to FASB's action, and I responded that I doubted that the one explained the other.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Well, the moves causing the initial uptick in the market were made by people getting the info on FASB early, so the argument that the market had already started positive before the FASB announcement fails. That being the only defense to the inescapable conclusion that the FASB announcement did cause the upswing, it's pretty clear one caused the other. Why has this debate lingered for dozens of posts?

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

I'm saying that if I am going to buy 10 securities that will pay me $1 million in one year total ($100,000 each), and I believe there is a 1 in 10 chance that each of the securities would default and be worthless, I will likely conservatively offer about $700,000 to $750,000, maybe more, hoping to make good money and get $900,000 a year out. Even in a bad economy.

But if I have to mark those to market and their market price is $0.30 on the dollar, I'm not going to pay that much. With a 10:1 ratio for loans to capital, marking the investment down by $400,000 is going to cost me 4 million in ability to lend until I get the payout.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

At least mark to market is objective (not necessarily objective in terms of valuation, but objective in the sense that there is an external benchmark). Many companies already pull enough schenanigans, I'd rather limit the instances in which they can do that. Can you just see the discussion now.

Accounting: Here is where we are carrying the assets, which is based on our model, and here is what the result in on our FS.

CEO: What happens if we change our model like this?

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

So what does that have to do with distinction between buying one asset vs. buying a portfolio of assets?

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

The sun came up yesterday morning, and the market opened much higher. Since the market likes sunshine, which causes crops to grow and makes people happy, obviously the one caused the other.

I'm not trying to have an argument about the wisdom of marking-to-market anymore -- been there, done that. But the idea that news such as this can explain stock market moves is a fallacy. Yes, the market opened much higher yesterday than it closed the day before. But if you look back, you'll see that happens all the time. The market is, more or less, a random walk. Right now it's a random walk with really high volatility. But the desire of people -- and, in particular, business reports -- to impose a narrative on this random movements leads people to find a story where there isn't one.

Political journalism is the same way, BTW. There are lots and lots of polls, and political journalists construct a narrative out of minor movements in them -- people didn't like Michelle Obama's comments! people didn't like McCain's latest ad! -- when the movements are better explained as predictable variation. Indeed, many polls are taken with smaller sample size, and not coincidentally this produces more variation from poll to poll, a good thing for journalists. It's also cheaper.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

I agree. I always find it laughable when the media tries to tie and event of the day to the movements of the market. Now, on occassion, there is a direct causal relationship (e.g., 9/11). But most days it is how Ty suggests. The political surveys are a great analogy.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

The walk isn't entirely random though, and it is reasonable to assume that a given piece of news that is consistent with a given movement may have contributed to it. You can't say that it explains it all, but you also can't say it's unrelated.

ETA: Which is not to say that you aren't right about the general point. CNBC declaring that a 50 point gain in the down is because of factoid X is a joke.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

In this limited circumstance, to piggyback on Adder's point, yes, the news can predict why, and yes it rightly did so.

However, I agree with your meta point. It is unquestionable that the news often runs a dim, flippant narrative as a hard analysis and conclusion on why the market did something. A scenario such as this, where the circumstantial evidence is so overwhelming that the newspeople can't get it wrong, is the exception.

ETA: I am heartened, however, to see your embrace of Taleb's theories. Now if we litigators could only apply them to our court system, to bar "advocates" from exploiting jurors' and judges' affinity for easy, explanatory narratives, we might also have an honest criminal and civil justice system. "Tell a story. Juries want stories..." Recall that from Trial Advocacy class? In other words, "Exploit humans' desire to make sense of what's usually random. Give them an easy conclusion that appeals to their simple sense that there is an efficient order at work in our universe..."

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

"Then we have to report it and explain the change, sir. And you have to sign that report."

I'm with you and Ty on the shenanigans. But am willing to trade the possibility of future shenangins to help ease our current situation because I am hoping that people better than me will be focused on this stuff going forward. Yes, that makes me a naive fool.

TM

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Because you say so? OK, I'm convinced then. I wish you'd shared this yesterday morning; we all could have talked about something else. Next topic?

On a different subject, Evan Bayh can kiss my ass.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

No, you obtuse prick. Because the totality of the circumstances dictate that unless you're a total idiot, it's pretty goddamned clear one followed the other.

I gave you an out here and actually agreed with your greater point. What the hell is the matter with you? Can you ever gracefully concede anything? Can you ever be rational about something or is every fucking exchange here a zero sum game where you have to sit behind your computer and crown yourself "winner"? Jesus Fucking Christ. I bit my lip from ripping into this conversation yesterday by saying, "Holy fucking shit! Ya' think maybe you ought to shut the fuck up because TM and Cletus clearly know more about this than the rest of the board combined, and they're making a whole lot of sense?"

I agree with you. I. AGREE. WITH. YOU. When someone does that, you do not fight them on it.

Re: We will never agree on this and therefore it is pointless to talk about!
 

God fucking dammit. I knew something like this was going to happen.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

I'm just citing this again because it needs to be repeated.

Now... Let's see how long it takes for someone to reply with, "Yes, but Adder didn't say it definitely caused ALL of the uptick. He said it merely may have been a contributor!"

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

I used to think of Ty as this guy in torts who always asked pretty good questions, even if a few too many and occasionally off topic.

After this conversation he reminds me more of my mother-in-law as I mumble "get down off the cross Ty, we need the wood" far more often than is healthy.

That is all.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

The random walk theory doesn't ignore new information. It suggests that given the same information, no one investor is likely to do better than another. The FASB decision was new information.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

You asked me to repeat myself, and then summarily told me I was wrong. Then you complain I won't shut up and differ pointlessly. Yours is truly a marvelous contribution to the useful exchange of ideas.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Investopedia, whatever that is, disagrees. It's published by Forbes, so how wrong can it be. It says: "In short, this is the idea that stocks take a random and unpredictable path." This is what I was trying to get at. Whether or not you agree with the more aggressive formulations, stocks prices clearly have a lot of random movement in them. The market has been particularly volatile lately, so there is a stronger urge to create a narrative, but business reporters do it every day because they have to say something.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

You have said this several times as though it supports your point. Volatility is about the magnitude of price changes. It says nothing about direction. TM is saying that the news correlates with the direction of the price change.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

So the 50% decline over the last 6 months is just random variation, and has nothing to do with new information?

Here's the problem with that entry. It only links to, rather than specifically referencing, the efficient market hypothesis. EMH says that the market processes all new information instantaneously so that no person can profit. The Random Walk hypothesis surely incorporates this principle. If it doesn't it makes no sense.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Get this: I actually understand that TM was saying that the market liked the FASB news and so stock prices moved up! Now try to figure out what I might say in response. You have a whole day's worth of posts to find the answer in.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

On a six-month basis, I think changing stock prices mean something. On a daily basis, I think they don't.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Maybe they're not always right, but what was the new information yesterday that made the market go up, as opposed to down or flat? Or are you saying it was all random variation? Yesterday before the market opened, the financial press was reporting that the market would likely be up because of the FASB rules. It went up. Perhaps that was just narrative, or perhaps those rules matter to the underlying value of various stocks, and with new information reflecting their value available to investors, those investors bid up the price of the stocks.

Re: You can't spell v-o-l-a-t-i-l-i-t-y with a "why?".
 

Sure, there's more noise day-to-day. That is, a higher percentage of the variation in one day's prices is due to randomness than the variation in one year's prices. But I have a hard time believing a 3% increase in the overall market is purely random. Did the FASB change increase the value of all stocks 3%? No. But it could just as easily have increased it 6% as 0%, with random variation explaining the rest.

Re: We will never agree on this and therefore it is pointless to talk about!
 

In Iowa.