Marking to market assets that can be held to recovery or maturity is a rather arbitrary excuse to take over a private enterprise.

While it may be arbitrary, it doesn’t seem unfair. Banks derive economic gain from a public entity, the Fed. In return they are held to a well known standard of capitalization. Fannie and Freddie benefited from public backing, in return they are also held to capitalization standards. Yes, conservatorship is harsh but these entities have footings in excess of a trillion dollars.

I’m not suggesting that mark to market is the best way to handle things. However, financial institutions lobbied strongly for this treatment when the weather was sunny and management profited handsomely. And if mark to market isn’t an appropriate treatment for capital requirements, why wasn’t the Fed and other bank regulators promoting alternatives at the time? Perhaps I missed it. But it strikes me that to move forward, regulators need to engage in some collective soul searching about their role in this dangerous and difficult time.

That is the real issue — in effect, FNM and FRE bribed politicians (of both parties) for years.

i cover non-bank financials for a large money manager. i have known all the principals in this drama for years. Dick is a good man, who was trying to do what he thought was best for home owners & the country. same with buddy piszel, dan mudd, tim howard, frank raines, leland brendsel, greg parseghian, etc. etc. i’d even include kerry killinger, herb sandler, maurice mcallister, curt culver and jay brown on that list. the common denominator among all these folks is that starting in 2005, they all became very nervous about the froth in the market and tried to pull their institutions back from the brink.

if you take a look at the data the companies provide, you can see that they did in fact cut originations and tighten standards in 06 and 07. but it wasn’t enough. basically, the entire 2007 book of business – across all market segments – is rife with adverse selection. the collapse of home prices since the non-agency market shut down in july of last year has only exacerbated the problem. add to that 14 months of terrifying headlines, and i suppose it it only natural that we should be seeing these large failures.

the irony is that when you analyze the financial positions of the afflicted companies and make an educated guess about the range of outcomes on credit, there appears to be enormous value across the financial landscape. that is true both for the common equity securities of distressed institutions, as well as the underlying structured securities that were the initial catalyst for the meltdown.

the fact that no bank, though, wants to step up to clean up this mess in the absence of government support is troubling. at some point, the greed phase of the cycle should kick in. the fact that it hasn’t yet – when base case, un-levered returns pencil out into the high teens / low 20’s on senior bonds backed by mortgage collateral – suggests to me that something is going on that none of us truly comprehend.