“Mark to market” continues to rule the day

And the world’s financial problems will continue to sour until true value is found

Greenspan says that there was a flaw in his economic theory.

Alan Greenspan says that he had “shocked disbelief” that financial companies failed to execute sufficient “surveillance” on their trading counterparties to prevent surging losses. Actually, I don’t think that he can be faulted too much for that assumption. The expectation would be that financial companies would do their own underwriting and not rely on others’ statements. As I have said before, greed entered the picture in relation to home mortgages packaged into debt sold on to other investors. The originators took the position that they wouldn’t have to worry about potential defaults and investors thought that the securities had been vetted by the offerors. An irresponsible position for both that was the root of the current worldwide situation.

So, what now?

Again, it’s been pointed out that investors have lost faith and trust. And for good reason. Mortgages need to be repriced to reflect the reality of the the underlying real estate’s value and the ability to the borrower to repay. No, I’m not suggesting “rewards” for people who took on more than they could afford. Of course, some people who gamed the system will come out better than they deserve, but overall, the market will become healthy again. That’s something that we need desperately in order to restore confidence.