I know it’s an odd diversion but I was reading “A Walk on the Wild Side of New Age Finance from Financial Armageddon this morning. They detailed the concept of Level 3 Assets: Level 3 assets are those that trade so infrequently that there is virtually no reliable market price for them, and valuations for … Continue reading “Hustling a quick buck…”
I know it’s an odd diversion but I was reading “A Walk on the Wild Side of New Age Finance from Financial Armageddon this morning.
They detailed the concept of Level 3 Assets:
Level 3 assets are those that trade so infrequently that there is virtually no reliable market price for them, and valuations for these assets are based on management assumptions.
So, these are things the bank owns but has no idea how much they are worth in any real sense so….they just make them up.
In other words, the value of 55 percent of Goldman’s assets depends on “internal models” or “management assumptions,” rather than market prices. I wonder if that played a role in the much better-than-expected quarterly results they reported recently?
Is it only investment banks which are allowed to play this game? I own a few pieces of crap which I’d possibly be able to sell on eBay because they’re pretty rare. Can I value them at £194 million and therefore laugh all the way to the bank? I think not. It’s a scam.
But there’s more.
…from 2004 to 2006, when conventional lending slowed and subprime lending accelerated, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit, fall into this basket.
Makes it hard to be sorry for banks who are reporting losses and instability when they frankly were lying and cheating their way to insane profits over the last couple of years. Ethics, it seems, is always secondary to profit. Makes you wonder what sort of scam they’re running to make the balance books look better in future? Oh, yes, we spoke about that earlier – they’ll just revalue crap in their garage based on internal models.
I guess in today’s financial world small means big and prudence means shoveling scads of money to borrowers with reckless abandon.
Whether the borrowers can really afford it or not.
My entrepreneurial policy was always: there’s no shame in making a mistake or taking a risk, even if it doesn’t always pay out.
However there is shame in hawking loans to low-income families which have low introductory rates at the start and which then increase rates dramatically in order to milk every last penny from people who can’t afford to keep a financial advisor in their retinue.
Shame on you. Every one.