本文发表在 rolia.net 枫下论坛1, Nobody knows exactly how much "toxic waste" there are on the Bank's balance sheet among US Banks or around the world. Some banks are not forth coming on their exposure, others are financed through off-balance sheet funding vehicle, therefore, the the exact number is a mystery. However, according to Mr. Bill Gross, another $500billion seems to be need to calm the market.

2, In terms of US housing market. There are two things need to be considered. a) the Asset value keeps falling. When the asset value reaches the bottom, that's when we will start seeing the recovery of the debt/credit related financial crisis. b)stress tests on existing mortgage debts, two street conventions are based on UBS and JP Morgan methodology, Intex and Markit seems to be the only two data source provide necessary data for analysis. However, due to complexity of the underlying asset classes are not simply subprime, alt-a or prime mortgages, but also include RMBS, CMBS, CDO, CDO Squares. Information related to complex ABS are difficult to help analyst to figure out whether these are subprime, alt-a or prime related products. Different assumptions are utilized for delinquency rate, and default rate. However, honestly speaking, when Merrill sold their "toxic waste" for 22cents on a dollar back in Aug, everyone was shocked on the street. Fortunately, no such fire sales were followed by other banks.

3, Seems like the trouble related to the Mortgage related ABS has spilled over into other asset classes. GM selling GMAC, big three suspended their leasing options for new vehicles. The ripple effect is yet to be seen on the main street.更多精彩文章及讨论，请光临枫下论坛 rolia.net

本文发表在 rolia.net 枫下论坛Like Zuluking mentioned, no one know the exact size of the taxic waste. Two reasons: 1. The complexitiy of the securities. For many MBS, CMBS, CDOs, they were sliced and re-packaged N times that nobobody knows exactly what's the underlying assets are, let alone the intrinsic values. 2. The disfunctioning markets makes valution extremely difficult if not impossible.

Two methods of valuation: intrisic value approach that discounts future cash flows to the present value. For a MBS, for instance, as you said, future payments are unpredictable because of the unknown default rates and delinuent rates. Those inputs are contingent on the economy - on a macro level, the GDP growth rate, inflation and unemployment rates; on a micro level, how consumer feels of their pockets, therefore the willingness to spend, as well as how corporates feels of the profit prospects in intermediary or long term, hence the willingness to invest/expand. In short, in a world filled with high uncertainty, the best maybe creat senarioes to get a sense of how bad it could be.
Even the discount rate is changing dramaticlly because of the dramatic change of availability of liquidity and the degree of risk aversion of the market. Therefore, intrisic valuation even using complex simulation models do not work well in current situation. Garbage in, garbage out.

The market relative valuation works only if market is functioning. In fact, asset pricing is a pivatal role of capital markets. but now markets totally disfuncting - no liquidity, no flow, no trade, no financing. Everything is still, no trading to give a fair market value of assets. What a terrible situation it is. JP Morgan acquired WaMu. The latter has $176 billion exposure to mortgage markets, including more risky ones with payment deferral options . JPM write them down 31 billlion. This latest transaction will provide a benchmark to gauge the value of similar assets. JPM may derived the 20% mark down based on current available information. But things will and are changing. Maybe 40% write down is appropriate 3 months from now.

Back to your topic, is $700 billion enough?　Some say the first tranche may be $350 bn that's far from enough. Like you and Zuluking said, if mortgage trouble spill over to other security classes via the deterioration of economy, this could be only the begining of the end.

we are in an uncharted era, everthing is experimental in nature. Let the smart guys like Paulson and Benanke to cope with the tough situation. We just carefully observe, think and learn.更多精彩文章及讨论，请光临枫下论坛 rolia.net