I can play too: How much money did GM lose the last n yrs?

Post #306,662 by Another Scott 4/3/09 9:52:09 AM Reply	I can play too: How much money did GM lose the last n yrs? Accounting rules for multinationals are a big hairy mess. They can play with the numbers, even without the M2M changes. GM had to write off $xxB due to changes in accounting rules. I guess if they didn't have to do that, they'd still be profitable, huh. BOA is a dead man walking, while Citi is a corpse. I'm no expert on this stuff, but a quick glance at http://www.federalre...eases/h8/Current/ gives an indication that something is terribly wrong with the existing accounting: Feb 2008 US Commercial Banks (Seasonally Adjusted): Total Assets: $11,050.3 B Total Liabilities: $9,859.5 B Net: $1,190.8 B Feb 2009 US Commercial Banks (Seasonally Adjusted): Total Assets: $12,051.1 B Total Liabilities: $10,831.1 B Net: $1,219.9 B I don't know how the TARP funds figure into this, but these numbers are clearly not a true reflection of the state of the US commercial banks. We'll see if BOA announces a profit, and whether the market believes them, soon enough. As for a run on the bank, sure that can happen and it can happen quickly. With the Fed guaranteeing everything, that's not very likely though. And presumably once the Stress Test results are announced, there will be a methodology in place to restructure the corpses. Cheers, Scott.
Post #306,665 by beepster 4/3/09 10:09:15 AM Reply	How do you know this? Because the press is TELLING you that the banks are failing. What the banks are asking for is the ability to apply a bit more logic to the valuation of their assets than the blind panic of the market..which you seem to be participating in. One of the principle necessities of the banking system (not just ours) is confidence. Its how the money multiplier works. Banks take everyone's assets, have a certain retention limit, and loan out the rest. So, if 10 people run on the bank...they are only holding enough hard asset to pay one of them back. That does NOT mean the system is broken. That means the system is working as intended. What the mass writedown of assets did was create a liquidity crisis. Because they had less assets, they had no money to loan. Not loaning money created, in some cases, an inability for existing loans to be be paid. TARP funds are, IIUnderstandC being used to bolster assets in order to create that liquidity. Allowing assets to be valued in a more logical fashion than a panicked market will also help create more liquidity. I will choose a path that's clear. I will choose freewill.
Post #306,671 by Another Scott 4/3/09 10:17:07 AM Reply	There have been real losses, not just paper losses. I don't have time to dig up links, but when houses that sold for $2M 2 years ago are now priced at $1M or less (cf. Jim the Realtor), then real losses have occurred. It's not just a M2M problem - those houses aren't ever going to be worth $2M again. Paper built on the assumption that that home is always going to increase in value suffered a real loss. Banks have a lot of crap like that on their books, and changes in M2M isn't suddenly going to make it valuable. We'll see how solid the major US banks are when the Stress Test results are made available.... Cheers, Scott.
Post #306,681 by beepster 4/3/09 10:36:55 AM Reply	Those home value losses don't belong to the banks. they belong to the people. the valuation of the investments was given aaa status based on the thought that home values always go up. The assets themselves are based upon the loans made to PEOPLE to buy those homes. And yes, some of those houses will be worth 2M again. Some won't. The only impact that has on the paper in question is how it impacts the default rate. And how much of that paper is actually left in banks hands. I will choose a path that's clear. I will choose freewill.
Post #306,687 by drook 4/3/09 10:45:13 AM Reply	No, no and no You've already argued that corporations can't pay taxes, because corporations are really the people who are shareholders. So you don't get to argue about what belongs to the banks. The banks are people, remember? Second, a loan is how a bank invests its money. When I invest in a company and they lose money instead of making it, that loss belongs to me. So if a home that is collateral on a mortgage (investment) loses value, that investment has lost value. That belongs to the bank. "But the mortgage holder owes the bank that money!" So? A balance sheet should reflect what investments are actually worth, not what you think they're suppose to be worth. Finally, "the only impact that has on the paper in question" is how much it will eventually return. You do realize that's the outcome of the default rate, don't you? -- Drew
Post #306,691 by beepster 4/3/09 10:53:00 AM Reply	In a fashion, one of your nos is correct the banks are a portion of people. Home value (equity) is NOT part of the banking equation...its part of a persons net wealth. Not all of which goes to banks. If I loan money against a collateral item, my return is NOT the collateral. Its the payments on the loan. I only lose based on the value of the collateral if the payer defaults. So the valuation should NOT be the valuation of the home...its the value of the future payments. The RISK assigned to that investment is the default rate and that is where the valuation of the cbos is a problem. Because it is discounting these values far above even the most pessimistic default rates. I will choose a path that's clear. I will choose freewill.

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