Level 1 means the values come from quoted prices in active markets. The balance-sheet changes then pass through the income statement each quarter as gains or losses. Call this mark-to-market. Level 2 values are measured using "observable inputs," such as recent transaction prices for similar items, where market quotes aren't available. Call this mark-to-model. Level 3. Under Statement 157, this means fair value is measured using "unobservable inputs." While companies can't actually see the changes in the fair values of their assets and liabilities, they're allowed to book them through earnings anyway, based on their own subjective assumptions. Call this mark-to-make-believe.
When I read stories like the following i'm ready to jump out the the top floor window. It looks like it could get really bad. http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/11/06/ccciti106.xml Plunging markets fear a meltdown By Ambrose Evans-Pritchard Last Updated: 1:35am GMT 06/11/2007 The peak pain for America's sub-prime debtors will hit next spring as interest rates jerk upwards with venomous effect on all those "teaser" loans taken out at the height of the property bubble in 2005 and 2006. The losses are already bad enough. A study by Barclays Capital found that 16pc of sub-prime mortgages taken out in January 2006 are in default, and 28pc are in arrears beyond 30 days. Struggling to catch up, the rating agencies downgraded a further $100bn of mortgage debt in October alone. This mortgage debt â mostly packaged into collateralised debt obligations (CDOs) and sold to banks, hedge funds, insurers, and pension funds across the world â is tracked by the ABX index. This shows that some of the AA tranches have lost 20pc of their value, while the "toxic" BBB tranches have lost almost four fifths. While it is hard to calculate the damage, it is clear that roughly $2,000bn (£1,000bn) of sub-prime debt and related 'Alt-A' debt is worth far less than book value. Some can disguise these paper losses. Others are not so lucky. Those that rely on short-term funding in the US commercial paper market can no longer roll over loans, forcing them to sell assets into a sliding market. The asset-backed commercial paper market has contracted for 12 weeks in a row, cutting off $300bn in funding. Deutsche Bank chairman Josef Ackermann warns that total sub-prime losses are likely to be $150bn to $250bn, triple the bank's estimate in July. While Citigroup has come clean with write-down of up to $11bn in mortgage loans, few lenders have stepped forward to take their punishment. The suspicion is that banks in Germany, Spain, and Britain are still trying to muddle through in the hope that the market for CDOs will recover enough to bail them out. Suki Mann, a strategist at Société Générale, said the credit markets feared an "Armageddon scenario" once again. "We're back to pre-September risk-aversion mode," he said. Hans-Redeker, currency chief at BNP Paribas, said the banks could not easily reveal their true losses. "Our view is that these losses are so substantial that it puts current business models at risk," he said. The Federal Reserve has slashed interest rates from 5.25pc to 4.5pc since September but this comes too late to head off what is now the worst property crash since the Great Depression. The Case-Shiller index of house prices in the 10 biggest US cities fell 5pc in August from a year earlier, and the downturn has since accelerated. Sales have collapsed to the lowest levels since modern records began, while the glut of unsold homes has reached a record 10.5 months supply. "The data has been much worse than people realized," said Huw van Steenis, chief bank analyst at Morgan Stanley. "There will be further write-downs. The liquidity problem of a few months ago has now changed into a capital problem, which is more difficult to solve. Banks have chewed through their capital ratios and this is going to put a brake on lending." he said. Until now, the US economy has held up remarkably well. The US October employment report showed a gain of 166,000 jobs, but this tends to be a lagging indicator. A clutch of consumer surveys now point to a sharp fall in confidence. It is far from clear that Europe and Asia shake off a cold as America sneezes. Japan â still the world's number two economy â has tipped abruptly into recession. Housing starts fell 43pc in August and 44pc in September, touching a four-decade low. Japanese wages have dropped in nine of the last 10 months, and unemployment has jumped to 4pc, from 3.6pc in July. Eric Chaney, Morgan Stanley's euro-zone economist, said there was now a risk of a manufacturing recession in Europe. "Production has fallen off a cliff in Germany and has slowed in The Netherlands, France, and Belgium. Something has happened. We take the warning seriously," he said. Ultimately, the US Federal Reserve can slash rates back to 1pc again â or even to Japanese-style zero rates â if need be. But it cannot re-open the floodgates of liquidity at a time when oil has reached $94 a barrel. Nor can it easily act alone while the dollar is sliding to all-time lows, and risks a rout. The Fed is hemmed in. This is the price America must now pay for mortgaging the nation.
Ok lets be clear. These level 3 values are based on throwing in the kitchen sink, the worst possible case. A new CEO wants it all clean when he starts. BUT THIS IS ONLY NOW when house prices are down only 7%. What if house price fall to 14%....or 25%. More level 3 increases next year.
Totally agree. What good is GDP growth of 4% if your currency is collapsing 30-100% against the World? Basically, we have the WORST economy on a dollar comparison ever right now. I don't think your average Joe is basking in wealth.
FUCK AMERICA, Yes I said it. FUCK AMERICA. It is not the country that was founded by the great thinkers anymore. Capitalism is no longer part of our thinking process nor taught in our Universities. A moral thoughts, mulitculturalism, socialism and dumbing down teachings are now the driving force in America. We are nothing but a paper tigher and the world has set fire to our tail. American's make nothing, manufacture very little but spend 4x what they earn. Chumps, 99% 9 to 5w]ers who are fucking robots. True capitalist have been sold down the river by the politican's and public. America needs to collapse in order to rebuild. Hopefully, most of you will prosper from the event.
Mate I am not an America. I have the utmost respect for the men who foundered America. Before you so harsh on yourselves remember one thing, America is the engine of the world, if America sneezes the rest of the world will get flu. Or in other words if America is stuffed, the rest of us are far far worse off.
I do have a lot of respect for the founding fathers. However, I do not think you know of what you speak about. I do not have time to go into details but you my friend are living in the past. Wake up or you too will fall to the way side, much like the US dollar and soon, the over all US economy. There will be a great buying opportunity for the entire world in the in the coming years. Hopefully, you will keep that faith in the face of the abyss that is coming. Don't fool yourself, it isn't a crash that is coming. It is a decade long bear that will hit harder than anyone has ever felt in the past 50 years.