What can be done to solve crisis without Congress - Sep. 30, 2008
"The SEC has destroyed about $500 billion of capital by their continued insistence that mortgage-backed securities be valued at market value when there is no market," said William Isaac, a former chairman of the FDIC. "It's way below their economic value. And because banks essentially lend $10 for every dollar of capital they have, they've essentially destroyed $5 trillion in lending capacity."
I don't get this supposed expert at all.
When there is no market, there is no value. I'll say my basic economic principal once again:
White elephants, 2 for a quarter - is only a good deal when you a) have a quarter to lose, and b) need two white elephants.
Market Value: (wiki)
Market value is a concept distinct from market price, which is “the price at which one can transact”, while market value is “the true underlying value”. The concept is most commonly invoked in inefficient markets or disequilibrium situations where prevailing market prices are not reflective of true underlying market value. For market price to equal market value, the market must be informationally efficient and rational expectations must prevail.
Pricing a MBS at economic value - the supposed return if life is hunky dory and the pre-calculated defaults and pre-payments occur, what the underlying loans will pay over the maturity - is a much higher amount and therefore would cause even greater losses.
Where did I miss on that?