Comments on: Dead Bank Walking http://www.shandyking.com/2007/04/13/dead-bank-walking/ Obsessive Compulsive Entrepreneur Sat, 30 Aug 2008 00:01:27 +0000 http://wordpress.org/?v=2.3.3 By: shandyking http://www.shandyking.com/2007/04/13/dead-bank-walking/#comment-82185 shandyking Fri, 02 May 2008 02:04:42 +0000 http://www.shandyking.com/2007/04/13/dead-bank-walking/#comment-82185 Yup, seems like a vicious circle. Yup, seems like a vicious circle.

]]> By: Chris http://www.shandyking.com/2007/04/13/dead-bank-walking/#comment-82181 Chris Thu, 01 May 2008 23:24:01 +0000 http://www.shandyking.com/2007/04/13/dead-bank-walking/#comment-82181 You wrote: "the government was forced to crack down and institute a policy where all loans were no longer valued on their future valuations after development but marked at what one would get if they had to sell today." This is called "Mark to Market." This had to be implemented because the entire system was goosing up the appraisal on projects to a number that made the project viable. Regulators implemented the Mark-to-Market so that everyone (shareholder, management and regulators) could understand the value of the bank/S&L's assets. Once the regulators determined the current/market value of the project they could/would require the institution to add addtional capital to their balance sheet. We are seeing this movie all over again with the demise of Bear Stearns. Regulators required them to reprice certain assets (which is hard to do when there is no market for the product) and when they did Bear's lenders asked for additional collateral to make up the difference and when they couldn't Ben Bernanke had no choice but to step in. You wrote:

“the government was forced to crack down and institute a policy where all loans were no longer valued on their future valuations after development but marked at what one would get if they had to sell today.”

This is called “Mark to Market.” This had to be implemented because the entire system was goosing up the appraisal on projects to a number that made the project viable.

Regulators implemented the Mark-to-Market so that everyone (shareholder, management and regulators) could understand the value of the bank/S&L’s assets. Once the regulators determined the current/market value of the project they could/would require the institution to add addtional capital to their balance sheet.

We are seeing this movie all over again with the demise of Bear Stearns. Regulators required them to reprice certain assets (which is hard to do when there is no market for the product) and when they did Bear’s lenders asked for additional collateral to make up the difference and when they couldn’t Ben Bernanke had no choice but to step in.

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