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November 03, 2008

Comments

kfizzle

"...even an undergraduate student will immediately understand that the European banks are being given a mulligan."

Just wanted to say that, as an accounting undergrad, this is the exact thought that popped into my head right before I reached this line in the post.

Eddie Thomas

Why wouldn't hold to maturity be ok if coupled with some concept of impairment? I would think that standards for determining probabilities of default are as reliable as market values, if not more so.

I fear that fair market valuations can create feedback loops where write-downs lead to an increase in selling pressure which leads to further write-downs and so on. This seems especially likely in the credit crunch we are in right now; buyers who once might have stabilized prices can't raise the capital to take advantage of the drop in prices.

Your idea of replacement cost as the standard for fair market valuation may be the right idea, but it is not the system we have. Given the system we have, I think hold to maturity has a place.

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