What happened to all the money?
09-18-2008, 11:24 AM
#1
Thread Starter
What happened to all the money?
Couldn't find the answer to my question on Google, so I thought I would try here. If these companies were holding assets in the billions, where did all the money go?And what are we actually bailing them out from? Seems to me the taxpayers are getting the shaft while the elite get richer.
09-18-2008, 12:22 PM
#2
Join Date: Apr 2007
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Originally Posted by 00S2K01S4,Sep 18 2008, 02:24 PM
Couldn't find the answer to my question on Google, so I thought I would try here. If these companies were holding assets in the billions, where did all the money go?And what are we actually bailing them out from? Seems to me the taxpayers are getting the shaft while the elite get richer.
assets are useless if you don't have cashflow to back them up
09-18-2008, 01:25 PM
#4
Administrator
I give you a silver dollar for $1 and tell you it's worth $10 because it's special. You record its value on your books as a $10 asset. You run out of money one day and the last thing you've got is that silver dollar. You take it to the store ad they give you $1 for it. You just wrote down the value of that asset and in turn your net worth by $9.
Here is another example. You buy $1000 worth of LEH stock a year ago and you record its value as $1000 on your balance sheet. Today, it still says it's worth $1000 and will continue to say so until you mark-to-market or reappraise the value of the asset. If you did that you would have to write down that asset by $999.
If you buy 1000 mortgages and subsequently 10% of them go bad you could say the value went down 10% but that is not true. What's a half rotten tomato worth? Not half I assure you. Same for a good deal of the assets on the books of the banks. When the subprime hit the fan those assets became unpriceable and therefore couldn't be sold because how much is a portfolio of loans of questionable quality worth really?
Once the value becomes unknown you can't use those assets as collateral either and you can't borrow money against the asset. Banks depend on being able to borrow money against their assets. Without it they can't originate new loans or underwrite deals or do any of the other things banks do and they eventually fail.
Here is another example. You buy $1000 worth of LEH stock a year ago and you record its value as $1000 on your balance sheet. Today, it still says it's worth $1000 and will continue to say so until you mark-to-market or reappraise the value of the asset. If you did that you would have to write down that asset by $999.
If you buy 1000 mortgages and subsequently 10% of them go bad you could say the value went down 10% but that is not true. What's a half rotten tomato worth? Not half I assure you. Same for a good deal of the assets on the books of the banks. When the subprime hit the fan those assets became unpriceable and therefore couldn't be sold because how much is a portfolio of loans of questionable quality worth really?
Once the value becomes unknown you can't use those assets as collateral either and you can't borrow money against the asset. Banks depend on being able to borrow money against their assets. Without it they can't originate new loans or underwrite deals or do any of the other things banks do and they eventually fail.
09-19-2008, 06:28 AM
#6
Originally Posted by cthree,Sep 18 2008, 04:25 PM
I give you a silver dollar for $1 and tell you it's worth $10 because it's special. You record its value on your books as a $10 asset. You run out of money one day and the last thing you've got is that silver dollar. You take it to the store ad they give you $1 for it. You just wrote down the value of that asset and in turn your net worth by $9.
Here is another example. You buy $1000 worth of LEH stock a year ago and you record its value as $1000 on your balance sheet. Today, it still says it's worth $1000 and will continue to say so until you mark-to-market or reappraise the value of the asset. If you did that you would have to write down that asset by $999.
If you buy 1000 mortgages and subsequently 10% of them go bad you could say the value went down 10% but that is not true. What's a half rotten tomato worth? Not half I assure you. Same for a good deal of the assets on the books of the banks. When the subprime hit the fan those assets became unpriceable and therefore couldn't be sold because how much is a portfolio of loans of questionable quality worth really?
Once the value becomes unknown you can't use those assets as collateral either and you can't borrow money against the asset. Banks depend on being able to borrow money against their assets. Without it they can't originate new loans or underwrite deals or do any of the other things banks do and they eventually fail.
Here is another example. You buy $1000 worth of LEH stock a year ago and you record its value as $1000 on your balance sheet. Today, it still says it's worth $1000 and will continue to say so until you mark-to-market or reappraise the value of the asset. If you did that you would have to write down that asset by $999.
If you buy 1000 mortgages and subsequently 10% of them go bad you could say the value went down 10% but that is not true. What's a half rotten tomato worth? Not half I assure you. Same for a good deal of the assets on the books of the banks. When the subprime hit the fan those assets became unpriceable and therefore couldn't be sold because how much is a portfolio of loans of questionable quality worth really?
Once the value becomes unknown you can't use those assets as collateral either and you can't borrow money against the asset. Banks depend on being able to borrow money against their assets. Without it they can't originate new loans or underwrite deals or do any of the other things banks do and they eventually fail.
Thanks.
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09-19-2008, 07:45 AM
#8
Registered User
Here's another answer, a very simplistic one - the money went to the folks who sold their houses for way over market value during the bubble(including the house flippers,) and the mortgage brokers.
It'd be like buying an S2000 for $40k on the assumption the price would rise, and putting the future profits of that appreciation out on the market. Then when the S2000 turns out to actually be worth $10k, you're out money, the investors are out money, and AIG who insured the investment is out money. The big winner is the person you bought the car from, and the person who arranged the sale.
It'd be like buying an S2000 for $40k on the assumption the price would rise, and putting the future profits of that appreciation out on the market. Then when the S2000 turns out to actually be worth $10k, you're out money, the investors are out money, and AIG who insured the investment is out money. The big winner is the person you bought the car from, and the person who arranged the sale.
09-19-2008, 12:03 PM
#9
Administrator
I sold my house in So Cal on Feb 15th 2007 to someone with 110% financed sub-prime mortgage for asking price. 7 days before the first subprime crap came down.
