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**MzTT** · 02-18-2009, 08:49 AM

Yep. Otherwise, investors panic and get out of solvent banks. Hopefully, that's the secret plan with Geithner's stress test. Figure out what's what, and then nationalize the insolvent banks.

If that's the case, however, how will they go about figuring out what's what? Outside auditors or just relying on the companies to do it themselves? I assume the boards & managers wouldn't be all that cooperative in finding out for Uncle Sam just what their MBS assets are actually worth, since that would actively assist in what's anticipated to be a total wipeout of their shareholders, exposing to fiduciary liabilities, not to mention a risk to their own jobs. Unless the TARP conditions have very rigid requirements of audits and what they'll consist of, which would legally trump any obligations to shareholders.

Do any beancounters here know what the actual auditing method will be here, and by whom? I'm genuinely curious.

Seriously, as a practical matter how would they even conduct these audits? Literally send an inspector out to a home to determine condition, get a local realtor to adjust that appraisal for local market conditions (both present and projected), hire a lawyer to re-check title encumbrances, conduct a CBR check to reassess likelihood of the mortgagor's default (taking into account projected job losses generally), and repeat ad nauseam until every single mortgage in every single security has an accurate present and future value to reflect on the balance sheet?

There's more than enough talented people out there to do the legwork but the costs would be utterly insane; it wouldn't surprise me if each $100K that the asset side of the balance sheet is nudged toward accuracy would be coupled with $10K in administrative costs expended just to ascertain that fact, and that's a $10K the bank probably doesn't, in actual fact, have. It's this simple paradox that makes temporary nationalization sound A-OK to me, if for no other reason then to gradually get these assets off the books in the way that TARP was originally supposed to do but had no time to do.

02-18-2009, 08:49 AM	#22
MzTT Join Date Oct 2005 Posts 665 Senior Member	Yep. Otherwise, investors panic and get out of solvent banks. Hopefully, that's the secret plan with Geithner's stress test. Figure out what's what, and then nationalize the insolvent banks. If that's the case, however, how will they go about figuring out what's what? Outside auditors or just relying on the companies to do it themselves? I assume the boards & managers wouldn't be all that cooperative in finding out for Uncle Sam just what their MBS assets are actually worth, since that would actively assist in what's anticipated to be a total wipeout of their shareholders, exposing to fiduciary liabilities, not to mention a risk to their own jobs. Unless the TARP conditions have very rigid requirements of audits and what they'll consist of, which would legally trump any obligations to shareholders. Do any beancounters here know what the actual auditing method will be here, and by whom? I'm genuinely curious. Seriously, as a practical matter how would they even conduct these audits? Literally send an inspector out to a home to determine condition, get a local realtor to adjust that appraisal for local market conditions (both present and projected), hire a lawyer to re-check title encumbrances, conduct a CBR check to reassess likelihood of the mortgagor's default (taking into account projected job losses generally), and repeat ad nauseam until every single mortgage in every single security has an accurate present and future value to reflect on the balance sheet? There's more than enough talented people out there to do the legwork but the costs would be utterly insane; it wouldn't surprise me if each $100K that the asset side of the balance sheet is nudged toward accuracy would be coupled with $10K in administrative costs expended just to ascertain that fact, and that's a $10K the bank probably doesn't, in actual fact, have. It's this simple paradox that makes temporary nationalization sound A-OK to me, if for no other reason then to gradually get these assets off the books in the way that TARP was originally supposed to do but had no time to do.
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