正文
Many analysts are wondering why Merrill and Citigroup first stated losses to be one amount and then came back a few weeks later with another much larger amount. Looking at the above graph makes it at least partially clear. While the above chart is the steepest in terms of a drop in the last month, all the other indexes showed similar volatility in October.
Quite simply, assets that had one value at the beginning of the month had another value at the end. Further, many of those assets have fallen further in the last week. This suggests that further write downs are around the corner. There is still pain in the days and weeks to come for many of the best known financial names.
Remember that net cap issue we discussed earlier? Now we come to the relevance of what would normally be an arcane and uninteresting subject. When you submit your net cap reports, you have to justify the value you place on the assets.
It used to be (and not so long ago) you could play some games, like taking the bid price on an asset one quarter and the ask price the next, depending on whether you wanted to increase your earnings or "bank" some earnings for the future. It allowed for some gaming of the numbers. Now you have to show a consistent methodology. Further, the accounting firms are far more rigorous in a Sarbanes-Oxley world. They are far more insistent that clients show realistic numbers.
You cannot go to a regulator and say, "We think the market is crazy and we are not going to mark this asset down." As my Dad used to say, "That dog won't hunt."
The ABX indexes create a price comparison that cannot be ignored when you are putting together your accounting for your net cap reports. If the index is dropping, you are going to have to mark your assets down if you have similar assets on your books. Period, end of story. You can lose a great deal if you don't. It is not worth it.
Quite simply, assets that had one value at the beginning of the month had another value at the end. Further, many of those assets have fallen further in the last week. This suggests that further write downs are around the corner. There is still pain in the days and weeks to come for many of the best known financial names.
Remember that net cap issue we discussed earlier? Now we come to the relevance of what would normally be an arcane and uninteresting subject. When you submit your net cap reports, you have to justify the value you place on the assets.
It used to be (and not so long ago) you could play some games, like taking the bid price on an asset one quarter and the ask price the next, depending on whether you wanted to increase your earnings or "bank" some earnings for the future. It allowed for some gaming of the numbers. Now you have to show a consistent methodology. Further, the accounting firms are far more rigorous in a Sarbanes-Oxley world. They are far more insistent that clients show realistic numbers.
You cannot go to a regulator and say, "We think the market is crazy and we are not going to mark this asset down." As my Dad used to say, "That dog won't hunt."
The ABX indexes create a price comparison that cannot be ignored when you are putting together your accounting for your net cap reports. If the index is dropping, you are going to have to mark your assets down if you have similar assets on your books. Period, end of story. You can lose a great deal if you don't. It is not worth it.
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