2 years, 10 months ago
Did Mark to Market affect banks by lowering book valuations?
Is the purpose of finance the study of valuation?
Paulson claims that auctions are the means to determining housing valuations. Is this an accurate method for determining valuation?
Paulson claims that auctions are the means to determining housing valuations. Is this an accurate method for determining valuation?
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M$1 Answer
the banks held the loans at 100% of face value because as long as the loan is paid off that's what it's worth...however, many of the loans traded at 65% of face value or less so the debate is whether the bank should reduce the value of the holdings on their book to 65% of face value or wait until they know for sure whether they will pay off...marking to market would make them reduce the value of the loan on their books to 65% of face value
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M$
The financial hemmoraging occurred when Banks had to raise the other 35% in loans to cover the potential loss because of the drop in face value.