Thursday, September 25, 2008
Those toxic assets can be valued, it’s just that banks can’t sell at those prices
Bank's say they cannot value their troubled mortgage assets and that they're gumming up the system. This is just plea for bailouts to 'free up' lending again and 'get the economy going'. In fact there is a market for these assets. Hedge Funds and others regularly offer 55-60 cents on the dollar for them but banks hold out for an unrealistic 75-80 cents. Given bank's 30:1 leverage they cannot sell for 55-60 cents without destoying shareholder capital (even though maybe only 15% or less of that capital is in Level III junk). Another possibility is to allow the Saudis or the Chinese to take control of the failed banks - they'd pay the premium to have an insiders view of the inner workings of America.