Tuesday, November 25, 2008

The Debts of The Spenders: Financial Leverage Ratios

We are not out of the woods yet. Plenty of hungry bears remain lurking. Unfortunately, it looks like the taxpayer will be eaten while the ones responsible for this whole mess get to run away.

But what happens if the mark to market rules are changed? Banks have been lobbying regulators for the past few months to change the accounting rules to reflect financial modeling valuations. Numerous banks and industry analysts are writing non-performing assets down to zero and this is reflected in their share price.

The asset writedowns are also angering government regulators because it allows the banks to qualify for free taxpayer money from the TARP and various other federal assistance programs.

IF the government waives the rule changes this could spark a large bear rally in financials and the greater market. Savvy traders would merely fade the rally though. When market valuations are completely abandoned opacity increases and confidence decreases.



Tock said...

opacity and confidence would have an inverse correlation.

In Debt We Trust said...

You are right. I missed that typo. I'm changing it now.