Two questions. In one post you posit "Pay attention to the italics; that tells us that those sub-primes, for which there is no market, may have to be written down to zero." Zero? While the loan values may have depreciated, where would one draw a conclusion that the value is zero.
Milfy says they are worth the last sale price which is incorrect but so is zero. These are physical assets sitting on earth. That have a appraiseable value at all times, variable to the circumstance of the area and economy.
Second, this ruling came 11/15/2007, nearly 18 months after the first alarm bells went off so explain how the reevaluation of a subset of assets just 2 Quarters ago set off a financial crisis that has been going on since the middle of 2006.
It is a very interesting change in the accounting system. I know it will make a difference but I can't see how it can be considered a catalyst.
What happened in 05-06 was the beginning of mortgage defaults in our neighborhoods and the systemic problem came later--07,08, this weekend.
Maybe a better way to look at it, is to remember that the original mortgage is a liability to the borrower, but when it gets traded up to Wall Street it is an asset to the investor because it generates cash flow. When the payments of the borrower stop, it becomes a non-performing asset. If it can't be sold (no market--who would buy it?),then it gets written down based on some valuation scheme, to the mortgage insurance amount, maybe to zero or somewhere in between. IRS has used mark-to-market for a long time in commodities.
I'm trying to learn whether there remains, on fore-closed properties where the mortgage has been written to zero, if there remains any paper, financial or legal connection between the house and that now-considered-worthless mortgage. With the property now through foreclosre, it may just be a lightly encumbered asset (mortgage insurance, taxes, maintenance, property insurance) on the books of the very original lender. Maybe you can help out on that part.