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To me, CDOs and SIVs are banks. They may not look like a bank but they sure smell like one.
And what I really, really don't understand is how banks managed to keep off their balance sheets contingent lines like many of the SIVs and conduits seemed to have (ie, the banks had no legal choice but to refinance, if all else failed and the conduit chose to exercise it) - and for pretty damn huge amounts. A contingent commitment is still a commitment. How on earth did these disappear?
In the long run, we're all dead. John Maynard Keynes
How on earth did these disappear?
It's the biggest bank robbery in history, with the banks as the criminals.
The write-offs revisions came from the fact that everybody wants to exercize the clause, and Citi's risk management staff did had not even realized the clauses where in the deals when they were made.
Note that we have no way to be sure that all the shit is back into the books, only what Citi will want to tell us: since the only risk for the holders is the counterparty risk on Citi, their best strategy is to keep some of it as long as possible to cash in the high-yield coupon, and send it back when the default is effective or just before Citi actually goes belly up.
The total absolute super cluster fuck.
Now THAT was funny :))
A contingent commitment is still a commitment. How on earth did these disappear?
Footnotes [to financial statements] also contain disclosures relating to contingent losses. Firms are required to accrue a loss (recognize a balance sheet liability) when both of the following conditions are met:
It is probable that assets have been impaired or a liability has been incurred.
The amount of the loss can be reasonably estimated.
If the loss amount lies within a range, the most likely amount should be accrued. When no amount in the range is a better estimate, the firm may report the minimum amount in the range.
SFAS (Statement of Financial Accounting Standards) 5 defines probable events are those "more likely than not" to occur, suggesting that a probability of more than 50% requires recognition of a loss. However, in practice, firms generally report contingencies as losses only when the probability of loss is significantly higher.
Footnote disclosure of (unrecognized) loss contingencies is required when it is reasonable possible (more than remote but less than probable) that a loss has been incurred or when it is probable that a loss has occurred but the amount cannot be reasonably estimated. The standard provides an extensive discussion of loss contingencies.
I think I'm developing a taste for dark humour.
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