Jump to content
House Price Crash Forum
Sign in to follow this  
wizzstick

Anthony Holden - Evening Standard

Recommended Posts

Anthony Holden is a pretty clued up guy - so he's not likely to do scare stories:

The reason banks don't “fess up”, and politicians do not know the size of the problem, is that the sums beggar belief. Those of you of a strong disposition might care to share in the back- of-the-envelope calculation handed to me yesterday by one of those few people in London who was in the thick of the boom and really does understand what was going on.

His starting point is that about 20 banks in the world (still) have more than $1 trillion of assets, and there are a further 40 banks with more than $500 billion each. So the biggest banks in the world have an asset pool of at least $40 trillion between them. This is a conservative figure, the more so because it ignores all the stuff owned by smaller banks, insurance companies, pension funds, hedge funds private-equity houses and end investors.

Asset values have dropped by at least 25% across the board — which is again being conservative, given that some of this toxic stuff will be worth a lot less than that. That means those big banks have to grapple with writedowns of about $10 trillion. So far, the sums injected into the banking system in cash or by way of guarantees and insurance by governments and everyone else are estimated at about $2 trillion. On that basis, we are a mere fifth of the way there.

Bank's rescue has barley begun

This is really getting astonishing now.

Share this post


Link to post
Share on other sites

Increasingly I am beginning to hear the 'repatriation of assets and liabilities' as the solution to this crisis. In an international finance centre such as London there is no way that the local economy can be expected to bail out a banking system that has taken on assets and liabilites around the world. This is why the US and UK and Iceland and Ireland have suffered so badly in thsi crisis. The more open an economy the mor elikely it is to have toxic debt in its banks that far exceed the capability of he local Govt to sort it out.

Each country needs to sort out its own mess, indeed the Netherlands seems to be proposing this with the ABN Amro part of RBS. In effect the biggest Dutch bank would be nationalised by the Netherlands Govt and sorted out by them and not teh Uk Govt. It seems the only way forward but I fear that it will lead to trade barriers being erected around other goods and services as well - after all once one has nationalied and protected ones own national capital market it is but a short step to nationalising and protectng the rest of your economy.

Edited by Wad

Share this post


Link to post
Share on other sites
Anthony Holden is a pretty clued up guy - so he's not likely to do scare stories:

Bank's rescue has barley begun

This is really getting astonishing now.

That doesn't look accurate to me.

Because assets (houses, commercial property etc) have fallen 25% does not mean the banks write off 25% of all their assets i.e. the loans they have made as they haven't always lent 100% on those assets (houses etc)

Example - mortgages that were written at <75% LTV do not need to be written down. The mortgage (banks asset) has not fallen in value (yet!)

They do have to write down all the mortgages written over 75% LTV and this is where their losses are.

Edited by munimula

Share this post


Link to post
Share on other sites
I would have thought that the scale of the losses are in the order of the scale of the profits and bonuses on the way up. I cant see how that could get to tens of trillion £/$.

VMR.

Profit and loss are not linked at all

The banks were reduced to making tiny profit margins thanks to banks like Northern Rock that went for volume sales with small margins. They might have been making 1% profit on their loans but the assets backing those loans (e.g. houses) are now down at least 25% which would be the loss on any 100%+ mortgage

Share this post


Link to post
Share on other sites

Sorry but this is bo11ox. The mark to market value may have fallen 25% (I don't know the actual figure) but if the asset continues to perform and is held to maturity, the mark to market figure today is an irrelevance, and many/most of the assets to which Holden is referring were bought by banks/insurance companies/pension funds with the intention of being held to maturity, as the maturity profiles of the assets concerned are a rough match with the maturity profiles of the liabilities these institutions have. Non-performance on US mortgages is about 1.8% IIRC but far lower than that in other jurisdictions, which should mean that, for now, the $2trn is about right. If we have worldwide mass unemployment triggering massive defaults, then he may have a point, but we aren't there just yet.

Share this post


Link to post
Share on other sites

You are correct that mark to market will undervalue an asset if it returns to a higher value later. Yet it should be clear that although it may rise, it may fall too. Thus the price it is now has some merit.

In proposing an alternative you are allowing the asset holder to name a price at random. An optimist saying "I think this will be xxx in ten years" is no more valid than a pessimist saying it. All asset holders will value their assets as highly as possible.

Someone that bought a house at the peak will still tell you that their house is worth what they paid for it. Yet it is not. It is worth only what other people will pay for it. They simply don't want to admit that they were wrong and overpaid and so assume it has this phantom price and everyone else is wrong.

If you truly believed that those CDO's were going to return to their previous value, then you would be buying them right now. So would everyone else, since its free money. The fact that they are not suggests that the market, most people, do not think this.

Share this post


Link to post
Share on other sites
You are correct that mark to market will undervalue an asset if it returns to a higher value later. Yet it should be clear that although it may rise, it may fall too. Thus the price it is now has some merit.

In proposing an alternative you are allowing the asset holder to name a price at random. An optimist saying "I think this will be xxx in ten years" is no more valid than a pessimist saying it. All asset holders will value their assets as highly as possible.

Someone that bought a house at the peak will still tell you that their house is worth what they paid for it. Yet it is not. It is worth only what other people will pay for it. They simply don't want to admit that they were wrong and overpaid and so assume it has this phantom price and everyone else is wrong.

If you truly believed that those CDO's were going to return to their previous value, then you would be buying them right now. So would everyone else, since its free money. The fact that they are not suggests that the market, most people, do not think this.

The point that I am trying to make is that, if an asset is bought with the intention that it is held to maturity, then provided it performs as required throughout its tenor, its market value at any one point is irrelevant, unless the holder happens to be forced to sell before maturity.

Share this post


Link to post
Share on other sites

Isn't it the case that banks, businesses and even entire governments are constantly assessing one another's worth on the basis of these 'assets' and the ratio of their value to debt. The whole machinery of global economics, from foreign debt to an individual householder's credit worthiness, is premised on net asset value - daily. These losses may be 'on paper', but they are measured and decisions are taken on that basis.

And on that basis, we are fooked.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 285 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.