So the big thing right now on the street is seeing who can write-down the most due to the whole sub-prime mortgage debacle. The media talks about write-downs like most people know what it actually means.
When you hear a bank announce a $1 billion write-down, it just means that they're adjusting their debt holdings. A bank holding on to $10 billion in debt and reporting a $1 billion write-down just means that they are now owed $9 billion. This is due to losing value in actual mortgages or in instruments like CDOs which have mortgage exposure.
Banks are always "estimating" these write-downs. They have to do this since they don't really know how much money they lost. According to accounting rules for these institutions, they have to price their mortgage holdings according to the market value. Right now though, there's no real market so banks just have to guess.
Neri Bukspan, chief accountant for Standard & Poor's credit market services, commented that it's like figuring out how much your house is worth when no one in your neighborhood can sell theirs.
So, here's the tally right now (estimated) for the big banks:
Barclay's- $2.7 billion
HSBC- $3.4 billion
Bear Stearns- $1.2 billion
Bank of America- $3.3 billion
Citigroup- $11 billion
Merrill Lynch- $6 billion
Lucky Goldman Sachs, Lehman Brothers, and Deutsche Bank seem to have escaped fairly unscathed.
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What no one does is put the subprime debacle in some sort of perspective. The problem, some have said is between $300 and $400 billion. Why not ask what amount fo the total amount of mortgage debt is to allow us to think rationally about how bad that is? We have over 71 million mortgages in place in the United States...about 2 percent of those are in some sort of trouble (late, default, foreclosure). The aggregate amount of that debt is big - but no incontext of the total market.
By the way...has any hedge fund asked their overpaid managers to return any of their ill gotten gains from 2005 to 2006? Bet not.
See my blog Real Estate Reality for more persecptive and hard info.
RE Info Geek
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