[quote=analyst]
The ever-worsening default rates, now common knowledge to all who are interested, render the mortgage-backed securities unsaleable, because the price the market will pay would result in losses and markdowns of asset value that would render the selling organization insolvent and out of business. This is the state, variously called inactive or illiquid, which is addressed by the Financial Accounting Standards Board in FSP 157-e, which effectively allows the MBS holder to value the securities according to some “internal model” instead of looking to the market.
The internal model is whatever the MBS-holding organization chooses, until the newly identified 29-year old SEC Chief Enforcement Officer decides to push the issue. Since he is an ex-Goldman Sachs employee, I am not expecting much enforcement.
So while you could argue with the absoluteness of my response to AN which triggered all this, it is true that, for the moment, the big players have been given a reprieve by the revised mark-to-market rules, and can hold up foreclosures, and get to choose how much effect it has on their books. Why else do you think Congress threatened to legislate FASB into at least irrelevance, perhaps oblivion, if the rules were not revised?[/quote]
That’s right, the big assist with the suspension of MTM is with the illiquid mark-to-model MBS. However, recall that… the “big players” can’t really “hold up foreclosures” for their own benefit. If Citi owns a bunch of exotic MBS, it’s the SERVICERS of the MBS – likely not Citi in most cases – that holds up the foreclosure process, not Citi itself. And this applies to the other big banks as well. Although most of the big banks are in the servicing business, to one extent or the other, it’s not as if Citi, for example, can just call up the servicers of MBS that they own and tell them what to do. But, MTM suspension does give them more leeway in how they value these piles of shit. No doubt about that.
Another thing to keep in mind is that a huge pile of the trillions in shitty MBS aren’t owned by US banks – this crap is spread among myriad institutions all over the world. So, the domestic banks have a lot of really horrific MBS to work through, but they own a fraction of the total.
