Will MBSes, CDOs, etc get marked-to-market due to Indymac?

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Submitted by TheBreeze on July 14, 2008 - 4:11pm

So what's going to happen to all the mortgages, MBSes, CDOs, and other junk on Indymac's books? Doesn't the FDIC have an obligation to sell this stuff immediately? If so, does this mean there will be some actual market-based prices for these things?

I think if the FDIC actually sold the stuff on Indymac's books in the open market, this could cause a cascading line of bank failures due to other banks having to mark their junk to market.

However, I doubt that a free-market sale of Indymac's assets is going to happen. Instead, I think the Fed will buy the Indymac assets at inflated prices. Alternatively, the Indymac stuff could get sold on the open market, but I think there is some accounting rule that says banks don't have to use marks that are a result of "distress sales" or something like that.

Does anyone have any insight into how the FDIC is supposed to handle bank failures? Or any insight into how the FDIC plans to handle the sale of Indymac?

On a somewhat related note, Lehman is looking to set up a "dark pook" called "Baikal" to try and dispose of their mortgage-related crud:

http://www.ft.com/cms/s/0/79a6c9b8-513c-...

I suspect this dark pool will be used by the participants to pass mortgage-related crud back-and-forth to each other at inflated prices in order to keep up the appearance of solvency.

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NO sales will occur. FDIC
Submitted by equalizer on July 14, 2008 - 8:41pm.

NO sales will occur. FDIC top exec on CNBC stated that home price are lower than Indymac ($15B held on hand by FDIC now) mortgages so FDIC will lower rates on owner occupied rather than foreclosure. If FDIC takes over a few more banks, FDIC will become bigger holder of mortgages and will do ANYTHING to protect value of homes.

Ron Insana has been the only level headed guy on CNBC who has been screaming deflation and today stated that reflation is the only way out of this mess. Forget fed increase in rates for years. May even cut rates.

Is it legal for the FDIC to
Submitted by TheBreeze on July 14, 2008 - 9:00pm.

Is it legal for the FDIC to hold mortgages? It just seems like things keep getting crazy and crazier.

If any government agency had
Submitted by temeculaguy on July 14, 2008 - 9:16pm.

If any government agency had the power to save the r/e bubble from bursting they would have already done it. They may do what they can to keep rates steady but the new laws passed today banning stated income and adjustable loan qualifying just took the legs out from under any short term recovery. Even if they slow the supply, decreasing the demand still has the same result, lower prices.

It's all noise at this point, they will liquidate indymac or liquidate it's assets to free up the cash to save the other 300 banks that they will need to cover losses for, they can't lock up their cash trying to prop up prices with others working in competition for those same few buyers. The invisible hand is almost visible.

Um, by law the Fed has to
Submitted by kewp on July 15, 2008 - 9:04am.

Um, by law the Fed has to *raise* interest rates to cover FDIC insurance.

So they may not have a choice.

The FDIC website lists
Submitted by cooprider on July 15, 2008 - 10:22am.

The FDIC website lists properties for sale.

My guess is they will either find a buyer who is (foolishly) willing to pay an inflated value for them in exchange for "special favors", or even more foolishly they will hold onto them and try to sell them when they go back up.

Everyone on CNBC is as fickle as a clock with pom poms. When Bernanke addresses credit issues they say inflation is not a problem, but when he says something brilliant like inflation concerns are becoming significantly monitored, they cheer for his rate hiking policy.

Same with Kudlow. They're just pawns in the game designed to keep people comfortably scared.