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Friday, November 30, 2007

Something Golden This Way Comes

Stock traders' bonuses are calculated on the basis of profits made up to... NOW. And perhaps not entirely by coincidence, the Dow has clambered back up to 13,300 and the FTSE above 6,400.

So the books close, the champagne flows and the rest of us can start doing our own accounts. Where are the customers' yachts?, as the naive investor asked.

Karl Denninger looks at E*Trade's difficulties and reckons the 70% mark-down of their home equity lending portfolio implies a loss of $1.5 trillion on HELOCs (home equity line of credit) alone. The bad news hasn't all come out yet.

Perhaps we entering the period of "dawning realisation".


James Higham said...

We wait with bated breath.

fake consultant said...

there is a second way to view the data:

it could be that etrade is looking to avoid "doing a merrill" and taking a writedown so great that there will be no more to reveal...and there's a strong potential for the actual losses to be much less than the current "marking".

after all, the likelihood that 70% of loans will go nonperforming is rather low-and if only 10% of loans fail (and no recovery is possible) that's a $150 billion hit...but like reinsurance, the loss has been spread around and may be surivable.

of course there will be more losses in the industry, but this looks like an attempt to reaaly mark low so as to prevent any further writedowns for this company.

Sackerson said...

FC: yes, I'd think they've taken the decision to get all the bad news out of the way in one go - rip the plaster off fast.