Econ Links II

Financial Crises:  US v. Emerging Markets:

http://blogs.cfr.org/setser/2008/07/24/too-big-to-fail-or-too-large-to-save-thinking-about-the-us-one-year-into-the-subprime-crisis/

Part of me wonders whether we would’ve been better off taking our pain early.

Inflation & Stocks:

http://www.valueinvesting.de/en/inflation-equity-investor-by-warren-buffett.htm

Worth noting, particularly in the event the Fed is behind the ball when monetary velocity rises again.

Walkaway Mentality:

http://www.chumpchanger.com/2008/11/morally-conflicted-about-walking.html

Walkaway Myth:

http://online.wsj.com/article/SB122583941535198573.html

Rollover Crisis?:

http://econlog.econlib.org/archives/2008/11/why_i_am_parano.html

http://www.rgemonitor.com/roubini-monitor/91179/liquidityrollover_risk_on_us_assets_a__nightmare_hard_landing_scenario_for_the_us__and_the_us_bond_market

Magnitude of Deleveraging:

http://online.wsj.com/article/SB122611122832410627.html

http://www.forbes.com/2008/11/12/recession-global-economy-oped-cx_nr_1113roubini.html?partner=daily_newsletter

Samurai Rescue?:

http://www.csmonitor.com/2008/1115/p07s01-woap.html

Mark to Market Accounting:

http://bigpicture.typepad.com/comments/2008/10/mark-to-market.html

http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/02/guest-post-mark-to-market.html

http://www.nakedcapitalism.com/2009/02/mark-to-market-rip.html

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_reilly&sid=aD11FOjLK1y4

http://www.forbes.com/2009/02/23/mark-to-market-opinions-columnists_recovery_stimulus.html

http://www.ritholtz.com/blog/2009/03/stress-test-zombies-not-too-big-to-fail-tough-tootsies-little-banks/

http://angrybear.blogspot.com/2009/02/suspend-mark-to-market_25.html

http://baselinescenario.com/2009/01/03/sec-report-mark-to-market-accounting/

http://baselinescenario.com/2009/04/02/the-mark-to-market-myth/

The key question, methinks, is this:  does M2M, or accrual accounting (effectively) via mark-to-model, produce a more accurate & reliable picture of a bank’s current & probable future condition?  In theory, the latter might be more useful than the former, since it would allow banks intent upon holding assets to maturity to actually account for them as such.  However, even determining the hold-to-maturity value of an asset requires some idea of quantities like the probable cumulative principal losses upon said asset, as well as the effect of such losses upon the cash flow generated by said asset.  And, frankly, I simply don’t trust the same banks which, thus far, have handled themselves rather incompetently, to accurately project such quantities.  In which case, M2M, while it remains less than ideal, also becomes the lesser of evils.

Granted, in times of panic, markets can (and do) become irrational, and can thereby generate market values that are, indeed, well below an (accurately-assessed) hold-to-maturity value.  But it’s also entirely possible that the market will be correct, and the bank will end up being wrong, in the valuation of an asset.

In any event…at this point, even if one suspended M2M, methinks people (investors, creditors, etc.) are so untrusting of banks’ balance sheets that such “relief” would do nothing to restore confidence.  Indeed, it might make people even less trusting, since they already have doubts re. the ultimate value of banks’ toxic assets.