November 06, 2007

Mark to Market


Want to experience mark to market?

Go out and try to sell everything you own by tonight for cash.

Everything.

That's mark to market.

Meanwhile, homedebtors, lenders, investors and bankers are still marking to fantasy. Why? Because the truth is too ugly for them to comprehend.

As if there was anything they could do about it.

33 comments:

bradinsb said...

What is that a dead Deer in that picture? Nice!!

Frank@Scottsdale-Sucks.com said...

Yesterday, someone in Scottsdale posted on my blog, insisting that her home is up 10% in the last quarter alone.

I'm guessing she's yet another person who can't distinguish average asking price from real market value. Where did people get the idea that you judge property values by what the homedebtors are asking for them???

If I put my car up for sale for a million dollars, it doesn't make my car worth a million dollars. It's worth whatever it will fetch on eBay.

But, in Scottsdale and other bubble fantasy lands, homedebtors still don't get it.

Anonymous said...

As with anything that is not fungible, you must market the goods and find a specific buyer who wants them. Then based upon supply & demand the amount of "consumer surplus" one can extract from the buyers you find in the spectrum of demand (i.e. all the buyers). Right now every seller wants to find the buyer that is willing to give up all the surplus, but those buyers are gone. The only buyers that remain are those that want to keep the entire surplus for themselves, i.e. educated, prime buyers who drive a hard bargain. The fools that were willing to overpay for the goods/assets/investments etc are all gone.

Sellers (of homes, MBSs, CDOs etc) all need to realize the HUGE value that exists in getting a non-performing asset off the books!!! Vulture investors should be welcomed with open arms, just make sure you take your pain killers first because the pecking and ripping of the flesh from your bones does tend to hurt. However, once its done you will feel much better!!!

Boom2Bust.com said...

"The truth will set you free, but first it will make you miserable."
-James A. Garfield, 20th U.S. President

Anonymous said...

ha ha ha, how true.....what is the market value on junk debt that will not be paid off by anyone? what is it worth? who wants it? who would buy it in a real market? and there is goldman sachs lying their asses off saying ......who me? we don't have any junk on our books...naw....ok goldman, let us see your books and see what kind of games you are playing with your junk. we all know it is there.....and someday real soon the world is going to know too. and all of that rubbish cramer was talking the last few weeks about how goldman sachs is the greatest of the greats will find its true market value as well and perhaps many of those who call themselves cramer devotee's will suddenly realize this stock pumper is the biggest liar on television (when bush or anyone in his administration is not speaking)...

keith said...

Another example - go take a dump, put it on ebay, and see what someone will pay you.

Similarly, there are no buyers they say for toxic mortgage crap. Well, if that's true, the market price is zero, and that's what should be reflected on the books.

Like the dot-com collapse, we'll be asking - "where were the auditors".

Especially when it comes to Fannie, Freddie, Countrywide, IndyMac, First Fed, Washington Mutual, Merrill Lynch and CitiBank

And maybe China too

Anonymous said...

Keith,

FYI, e-bay is one of the greatest innovations to match up buyers and sellers of goods and to establish market price, i.e. the optimal price that reflects the amount of consumer surplus a seller can obtain and the price point of willing buyers.

Flea markets are going under because of the efficiencies e-bay provides. Except for shill bidding as fraudulant listings its a pretty good mechanism achieve an efficient market. Many sellers in low cost markets can now sell goods to people who otherwise were confined by geography to their higher cost markets, e.g. flea markets.

Anonymous said...

Go out and try to sell everything you own by tonight for cash.

Everything.

"That's mark to market."

No it's not, that's a garage sale.

Mark to market would be having your possessions appraised and marketing them to select buyers who find value in the item.

Art for instance: you have a rare painting from a well known artist. You have a garage sale, it goes for 18.50. You market it on Ebay, you get 652.00. You market it to renown Art dealers, they give you 2423.25 wholesale. You market the painting to collectors and bid up the price and get 6524.00.

Anonymous said...

HEY IVE GOT 200,000 CASH I AM WILLING TO SPEND ON A TRUE HERITAGE PROPERTY, LIKE THE ONE I LOST ONLY NICER, AS IN MORE SELF SUSTAINING AND SELF SUFICIENT AND WITH MORE PROTECTION OF PROPERTY OWNERSHIP RIGHTS, AS IN LESS TAXATIONS OF THAT WHICH ENSURES SDURVIVAL IN HARD TIMES, NOT THEFT OF LAND AND PROPERTY..........

Out at the peak said...

Dumps on eBay are against TOS. ;-)

Awesome picture today. I felt like there were more garage sells this summer than normal, but you have to take that with a grain of salt since I moved about 10 miles to a different neighborhood.

Anonymous said...

i'm still shocked by how many people, from individual home owners to wall street mogals are denying the biggest housing bubble in world history. They will get slaughtered (financially)

Anonymous said...

From the Marin Independent Journal:

"The 58-year-old former banker lost his job and, last fall, began falling behind on mortgage payments on the Mill Valley house he grew up in on East Manor Drive.

He tried to refinance but said the lender that held the second mortgage refused to sell the note. Despite having plenty of equity, he was unable to restructure his payments, which forced him to default on his loans. Foreclosure proceedings began.

Desperate, he sold the home - appraised at $1.2 million - for about $300,000 less than it was worth. He is now suing to get his house back."

1) Well, if is "worth" $1.2 million, why did t not sell for $1.2 Million? It is like the "mark to make belive" problem with level 3 asssets - these homeowners are living in la-la land. This reporter or homeowner do not draw the obvious inference that if a home sold for $900,000, maybe hat is what it is worth.

2) This does not relate to the topic of this thread, but why in the name of all that is holy would a 58 year old man have 2 mortgages on the home he grew up in!?!?! He MUST have used his home as an ATM machine to finace whatever it si he feels entitled to, and now he wants to sue someone becasue he borrowed more than he can afford?

Anonymous said...

Man that gold elephant would look SWEET in my love shack. Will you sell it for a dolla'?

Anonymous said...

Small town broker says.

Now everybody is on the inflation bandwagon. Oil, Gold, Silver, currencies are bid up. Hmmm.

Back when the mortgage pools were worth something they were used as collateral to borrow more money to buy more mortgage pools and so on and on.

Now that the mortgage pools cannot be sold to payoff the loans against them don't the big banks have to sell other things like oil, gold, currencies, commodities, blue chips and such to raise cash?

Shouldn't we be seeing some liquidation pricing on blue chips, commodities and anything else of value?....deflation?

August 2007. Wasn't that when the 1st cracks appeared? Wasn't there a sell off before this run up?

Is this latest run up a pump before the dump operation?

Help me out here folks. Am I over thinking this?

borkafatty said...

hahaha! dollar just went 75....oh this is going quite well...and oil is going up in tandem..lets see do we eat this month honey or do we heat the house...oh the pain.

Anonymous said...

Goldman Sachs claims no more write downs. CNBC is eating this shit up.

Looks like a good point to buy some more SKF - ultrashort financials ETF

Anonymous said...

AHA!

Keith is wrong about this. That is called fair market value in liquidation. A calculation of "fair market value" allows for some time to find a buyer in a market that is not perfectly liquid.

Stock market -- perfectly liquid.

Real estate market, market for other goods (though getting closer to liquid with Ebay), and market for debt -- not perfectly liquid.

That's the way the law views it.

Sorry buddy.

Anonymous said...

1 trillion in losses becomes a part of the reporting on the financial crisis -- about time:

http://tinyurl.com/3ydkbp

Anonymous said...

Anonymous said...
Small town broker says.

Now everybody is on the inflation bandwagon. Oil, Gold, Silver, currencies are bid up. Hmmm.

Back when the mortgage pools were worth something they were used as collateral to borrow more money to buy more mortgage pools and so on and on.

Now that the mortgage pools cannot be sold to payoff the loans against them don't the big banks have to sell other things like oil, gold, currencies, commodities, blue chips and such to raise cash?

Shouldn't we be seeing some liquidation pricing on blue chips, commodities and anything else of value?....deflation?

August 2007. Wasn't that when the 1st cracks appeared? Wasn't there a sell off before this run up?

Is this latest run up a pump before the dump operation?

Help me out here folks. Am I over thinking this?

November 06, 2007 7:35 PM


There are some beliefs that deflation will eventually happen once the economies really start to slow down. The credit crunch grows - less lending and money supply and productive assets switch to agriculture thus lowering food prices and a slower economy would be less demand and lower fuel prices.. just one possible scenario / cycle to come.

The current runnup could be a last gasp tech pump. Apple, google, amazon, rimm? Soo 2000.

Anonymous said...

-------If I put my car up for sale for a million dollars, it doesn't make my car worth a million dollars. It's worth whatever it will fetch on eBay.------

------------------------------

Sorry, but e-Bay is not a good barometer for what a used car is worth. I sold my car online (but not e-Bay) three months ago for several THOUSAND dollars more than it would have fetched on e-Bay. Do a search on e-Bay for what cars actually sell for (not what the high bids are, or the reserve price, or the Buy-it-Now price) on e-Bay. They are typically much lower than what you can sell it for private-party through other means (online enthusiast forums, the local newspaper, etc.). I know this from recent experience.

Anonymous said...

Last year wall street handed out ~24 billion in EOY bonuses.

CNN Money article indicates that this year some on wall street are "nervous" yet it will only be the MBS/CDO brokers that will get hosed and other brokers may get even larger bonuses!! the are predicting a 10% decline.

Forgive me if I do not even shed a crocodile tear.

Wall street just wrote down collectively over 20 billion in loses for this most recent quarter. Well, if you do not give out ANY bonuses, guess what YOUR EVEN!! You only take a real loss when you write down the predicted 10 billion for the 4th quarter.

Anonymous said...

The bubble that is deflating and drifting downward all around us, whether housing, credit, or manic enthusiasm, was based on fear and greed. Those buying for a place to live over-paid in fear that prices would go up forever. Those who bought to flip bought in speculation that prices would go up forever.

Many, on the downside of this hill, will sell for the same reasons. But those who need a place to live anyway can sit tight and hope that they'll get a bit more sometime in the future. It's as reasonable a hope as anything else. No one really knows what we're heading into. Inflation, deflation, stagflation, financial armageddon ... absolutely everyone is guessing based on their psychological world view and school of economic thought.

Those who must sell now or who can't make the payments are, obviously, the truly screwed. I wonder if a bad credit score from a housing foreclosure is going to be as black a mark on one's credit in the future, given that it's becoming fairly common?

Perhaps that's how The Government can help foreclosees; by decreeing that the foreclosure can't be held against them when they apply for an apartment.

And in the next boom not even the mortgage brokers will hold it against them. If this whole mortgage mess gets bailed out, it will come around again, and probably in our lifetimes. S&L, CDO, life goes on, Brah.

Frank@Scottsdale-Sucks.com said...

You market it on Ebay, you get 652.00. You market it to renown Art dealers, they give you 2423.25 wholesale. You market the painting to collectors and bid up the price and get 6524.00.

Actually on eBay it would fetch what it would get on the open market from collectors. Who do you think watches eBay like hawks? And thanks to free markets like eBay, the disparity between wholesale and collector is far less than you make it out to be.

The internet (eBay as one example) has destroyed the "hide the real value" fraudulent pricing scheme you just laid out.

Anonymous said...

Keith said "Another example - go take a dump, put it on ebay, and see what someone will pay you."

Scatological products aside, it may be this is exactly what eBay needs to revive it's stagnant business.

Buying your necessities used is a good hedge against inflation and stagnant wages. Maybe selling our stuff to each other instead of buying new from retailers will be a way to get what we need while we let over-expanded strip-mall retailers sort themselves out.

keith said...

The point of this thread is to get you to think about raising cash fast, and what you could get today - right now - for your stuff

Get that idea in your head. The computer you're typing on. The couch you're sitting on. What could you get for it tonight.

Now think of yourself as a banker who's about to default tomorrow, unless he can raise cash tonight.

Think Northern Rock. Think Countrywide soon.

The last part of the Great Unwinding will be the rush out of assets and into cash at lower and lower prices. It hath been foretold. So think about it.

Anonymous said...

keith... are you offering... deflation?

brokersleaveyoubroke said...

Holy $hit, oil is pushing the 100 dollar mark. Six months ago people who predicted that oil would reach $100 this year were laughed at. Record high oil prices ALWAYS signal the start of a recession but I guess nobody will believe that until it happens. And then the headline will read "Economists surprised by sagging economy" or something like that.

AndyfromSimi said...

Great picture and good post... I never thought of Marking to Market that way... Luckily for the banks, the writedowns our only paper... not paper money, as yet. When it's real dollars... as in auctions, low-ball sales and fire sales then I'll be really scared.

Stuck in So Pa said...

"Frank@Scottsdale-Sucks.com said...

..... Actually on eBay it would fetch what it would get on the open market from collectors. Who do you think watches eBay like hawks?"

That is so true. When Ebay was in it's infancy, my wife and I used to get away with murder, as it were, finding antiques and collectables that we fancied, for pennies on the dollar.

It was simple. If you were looking for "green widgets", for example, you would fine-tune your search category to look for everything around, close, and approximate to "green widgets," without actually looking FOR "green widgets!" Most people were too lazy (or inexperienced) at the time, to search for their prized items with anything but the items proper title!

NOT ANY MORE!

To find a "steal" or even a bargain, on Ebay has become down right impossible. The collectors are very, very savvy, and getting that great buy is becoming virtually impossible.

Anonymous said...

Anonymous said...

-------If I put my car up for sale for a million dollars, it doesn't make my car worth a million dollars. It's worth whatever it will fetch on eBay.------

------------------------------

Sorry, but e-Bay is not a good barometer for what a used car is worth. I sold my car online (but not e-Bay) three months ago for several THOUSAND dollars more than it would have fetched on e-Bay. Do a search on e-Bay for what cars actually sell for (not what the high bids are, or the reserve price, or the Buy-it-Now price) on e-Bay. They are typically much lower than what you can sell it for private-party through other means (online enthusiast forums, the local newspaper, etc.). I know this from recent experience.

November 06, 2007 8:54 PM
-------------
Agreed, e-bay is still looked at by many as a place for the purchase of goods at a steep discount. I put my car out on e-bay after carmax gave me an offer that was an insult. Yet, on e-bay I had morons think they were doing me a favor offering "cash" at amounts that were even lower than the carmax offer. I put it on all the internet car sale sites and said I am going to enjoy this car until the right price/value comes in. I was under NO pressure to sell. Thirty days later I found the buyer who was willing to give up the most consumer surplus, almost 5k more that what carmax was offering and right at KBB private party value. He obviously also did his homework and new the private party price.

Anonymous said...

In a boom economy garbage chattel does not fare well. As the dollar shrinks this changes and consumers seek their gratification at garage sales, swap meets, antique shops, etc. where the dollar has power.

In the 1991 California crash this happened. As jobs and money got tight, citizens flocked to the low entry level occupation of flea market/ antique dealer. These green horns typically lasted about two month’s before seeking other employment.

I have been at it since 1973 and can tell you it isn’t easy.

Common collectables and antiques have been deflating since the peak of eBay. Supply has met demand and bargains prevail. There is absolutely NO FURNITURE BUSINESS in my retail shop AT ANY PRICE.
Business on fine and rare antiques is brisk and stable as it was in the previous crash.

I am being offered many fine things as I am one of the few with any money in my venue.

My experience has insulated me from this catastrophe as I have planned based on past experience.

Good luck greenhorn.

Anonymous said...


Art for instance: you have a rare painting from a well known artist. You have a garage sale, it goes for 18.50. You market it on Ebay, you get 652.00. You market it to renown Art dealers, they give you 2423.25 wholesale. You market the painting to collectors and bid up the price and get 6524.00.


Just go try it greenhorn. Go see what dealers will help you on it. They are in business to take your money. Sure, you may get lucky but this is not the norm in the business of pirates. In my experience it stinks from top to bottom.

We are like realtors. We are here to make money.

The truth will set you free, but first it will hurt.

Anonymous said...

AHA!

Keith is wrong about this. That is called fair market value in liquidation. A calculation of "fair market value" allows for some time to find a buyer in a market that is not perfectly liquid.

Stock market -- perfectly liquid.

Real estate market, market for other goods (though getting closer to liquid with Ebay), and market for debt -- not perfectly liquid.

That's the way the law views it.

Sorry buddy.


There are cash buyers for every object. The elephant on the table is made of brass which is a commodity. The metal you’d be paid instant cash for at the scrap yard. The antiques will bring instant cash at an antique shop. The remainder can be sold for instant cash to a swap meeter or clean out specialist.

The "laws" view is narrow and corrupt and physically wrong.