Regulators sniffing around fantasy bond/CDO valuations?
A few days ago, I asked whether this whole "Maybe if we pretend this stuff isn't toxic and we keep it from trading at market prices, nobody will notice and everything will be fine" approach made sense. Specifically, I wrote ...
"My question is simple: If everyone knows this stuff is dreck, shouldn't firms just go ahead and write the value of their holdings down already? Sooner or later, someone is probably going to blink and start dumping in order to be the first person out the door. Anyone who's at the back of that seller's line is going to regret it. Alternatively, regulators could start applying pressure on firms to revalue their holdings at something resembling reality. Either way, it seems to me that Wall Street is just postponing write-downs that are all but inevitable."
Turns out, the regulators may now be on the case. Here's an excerpt from an FT.com story this evening mentioning that the SEC could be looking into the mis-valuation of junky securities. Things get curiouser and curiouser:
"The SEC has sent informal letters to Bear asking for details on how its two hedge funds fared so badly, sparking heavy redemption demands from investors and demands for repayment from creditors. Bear last week agreed to extend $3.2bn in loans to one of the funds. The other larger and more levered fund is still negotiating with creditors. Bear shares closed at $139.10 on Monday, a nine-month low.
"The SEC inquiry is at a very preliminary, information gathering stage, people familiar with the matter said. It is also said to be part of a broader inquiry by regulators into the way banks and other publicly-traded companies are valuing their holdings of subprime loans at a time when losses appear to be rising quickly."
"My question is simple: If everyone knows this stuff is dreck, shouldn't firms just go ahead and write the value of their holdings down already? Sooner or later, someone is probably going to blink and start dumping in order to be the first person out the door. Anyone who's at the back of that seller's line is going to regret it. Alternatively, regulators could start applying pressure on firms to revalue their holdings at something resembling reality. Either way, it seems to me that Wall Street is just postponing write-downs that are all but inevitable."
Turns out, the regulators may now be on the case. Here's an excerpt from an FT.com story this evening mentioning that the SEC could be looking into the mis-valuation of junky securities. Things get curiouser and curiouser:
"The SEC has sent informal letters to Bear asking for details on how its two hedge funds fared so badly, sparking heavy redemption demands from investors and demands for repayment from creditors. Bear last week agreed to extend $3.2bn in loans to one of the funds. The other larger and more levered fund is still negotiating with creditors. Bear shares closed at $139.10 on Monday, a nine-month low.
"The SEC inquiry is at a very preliminary, information gathering stage, people familiar with the matter said. It is also said to be part of a broader inquiry by regulators into the way banks and other publicly-traded companies are valuing their holdings of subprime loans at a time when losses appear to be rising quickly."
posted by Mike Larson at
7:35 PM
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