First 100 Days: The financial rescue

The New York Times takes a look at the difficulty of valuing the bad assets. "Administration and Congressional officials say it will give the government flexibility to buy some bad assets and guarantee others in an effort to have a broad impact but still tailor the aid for different institutions. But getting this right will not be easy. The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.” “The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is  worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of  defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors." In ... (link)