Posted: Mon Jun 02, 2008 5:15 pm Post subject: New Rules Turns Banker Coal Into Diamonds
Quote:
``They can post substantial gains as a result of a decline in their own creditworthiness,'' said James Cataldo, a former director of treasury risk management for the Federal Home Loan Bank of Boston and now an assistant professor of accounting at Suffolk University in Boston. ``It's completely legitimate, but it doesn't make sense by any way we currently have of thinking of net income.''
Posted: Mon Jun 02, 2008 9:49 pm Post subject: Re: New Rules Turns Banker Coal Into Diamonds
This is part of the 'mark to market' rules that recently went into effect. The banks are supposed to take the market value of their assets instead of the imaginary one. This is the flipside. The banks argued that if they have to mark assets to market, they should be able to mark liabilities to market as well. Makes some sense.
If a bank is holding 100 million in mortgage debt that becomes worth 70 million, they take the 30 million as profit. That's the wrong part. That's not profit, that's just a reduction of liabilities. It's like having a $1 off coupon for some grocery item. "I'll buy 50 of those and save me up a new coat." _________________ Civilization is a personal choice.
Posted: Tue Jun 03, 2008 1:37 pm Post subject: Re: New Rules Turns Banker Coal Into Diamonds
SchroedingersCat wrote:
If a bank is holding 100 million in mortgage debt that becomes worth 70 million, they take the 30 million as profit. That's the wrong part. That's not profit, that's just a reduction of liabilities. It's like having a $1 off coupon for some grocery item. "I'll buy 50 of those and save me up a new coat."
Maybe its just me but how does that equal a profit?
The bank paid out 100 million, out of their pockets/investors pockets. Now it is only worth 70 million. That is a capital loss of 30 million. No they can use it to show a loss and claim it on their taxes as such, which is beneficial. But they dont take 30 million profit, they still have to recover 30 million.
Or maybe I'm not understanding it. _________________ Tired of high gas prices? Then stop driving to work, duh..... Learn to Work from home
Posted: Tue Jun 03, 2008 1:38 pm Post subject: Re: New Rules Turns Banker Coal Into Diamonds
SchroedingersCat wrote:
If a bank is holding 100 million in mortgage debt that becomes worth 70 million, they take the 30 million as profit. That's the wrong part. That's not profit, that's just a reduction of liabilities. It's like having a $1 off coupon for some grocery item. "I'll buy 50 of those and save me up a new coat."
Maybe its just me but how does that equal a profit?
The bank paid out 100 million, out of their pockets/investors pockets. Now it is only worth 70 million. That is a capital loss of 30 million. Now they can use it to show a loss and claim it on their taxes as such, which is beneficial. But they dont take 30 million profit, they still have to recover 30 million.
Or maybe I'm not understanding it. _________________ Tired of high gas prices? Then stop driving to work, duh..... Learn to Work from home
Posted: Tue Jun 03, 2008 3:32 pm Post subject: Re: New Rules Turns Banker Coal Into Diamonds
So the less creditworthy the bank is, the more profitable it is? Ah, of course, makes total sense. Not much conflict there.. _________________ "Who knows what the Second Law of Thermodynamics will be like in a hundred years?" - Economist speaking during planning for World Population Conference in early 1970s
Joined: Sep 29, 2004 Posts: 2330 Location: Pennsylvania, USA
Posted: Tue Jun 03, 2008 3:57 pm Post subject: Re: New Rules Turns Banker Coal Into Diamonds
Let me get this straight, I owe $15K on my car loan. The car right now is only worth about $8K, so I can say that the liability for my car loan is just $8K? Damn, my financial health just got a shot in the arm! Wait a minute, the bank I have the loan with doesn't seem to see it that way! _________________ "That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money
Posted: Tue Jun 03, 2008 3:57 pm Post subject: Re: New Rules Turns Banker Coal Into Diamonds
So all they are doing is taking the money that they would usually find ways to spend and take it as profit? Is that what I'm hearing?
I dont know why anyone is surprised, they are financial experts, their job is to make money.... _________________ Tired of high gas prices? Then stop driving to work, duh..... Learn to Work from home
Posted: Tue Jun 03, 2008 4:04 pm Post subject: Re: New Rules Turns Banker Coal Into Diamonds
Kingcoal wrote:
Let me get this straight, I owe $15K on my car loan. The car right now is only worth about $8K, so I can say that the liability for my car loan is just $8K? Damn, my financial health just got a shot in the arm! Wait a minute, the bank I have the loan with doesn't seem to see it that way!
I dont know why, but when you put it that way I understand.... Thats messed up _________________ Tired of high gas prices? Then stop driving to work, duh..... Learn to Work from home
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Then stop driving to work, duh..... 
