What are long term consequences of market values dropping to 1/3 or less?
March 24, 2008 Financial Armageddon.com
Oops. It looks like the dirty little secret that banks and brokers have been trying to keep under wraps is starting to slip out.
For a long time, the financial community has been doing its best to ensure that few really know the value of the dodgy paper it owns. Now, though, a legal filing in connection with a Canadian lawsuit hints at what many of us have already figured out: just how worthless this structured finance rubbish really is (the kind the Federal Reserve is swapping for Treasuries, perhaps?). And that's likely not even taking into account much sharper falls in the housing market.
I wonder if the "haircuts" cited in the following Financial Times report, "Damage to Securities Revealed in Court," are also being used to price the supposedly hard-to-value securities banks and brokers hold on their books? Hmmm....
The first public price estimates for specific structured credit securities to have emerged since the start of the credit crisis show that values have fallen sharply.
Some securities have lost almost a third of their value – even though many were considered to be so safe that they carried top-notch ratings from the credit ratings agencies.
Meanwhile, some subprime mortgage-linked securities issued by groups such as UBS have lost almost 95 per cent of their value..."
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