from Patrick McKenzie | by Patrick McKenzie

Interesting fact I never knew, per Matt Levine, with relevance to bank rescues: acquiring a bank will result in new bank needing to mark the acquired assets (loans et al) accurately, which semi-artificially realizes the problems which have been a bit swept under the rug.

One wonders if there will be a proposal for relief where large banks buy up the troubled banks but are, by special dispensation, allowed to ignore the reality of their assets being underwater in the same fashion the troubled banks were able to ignore it for so long.

Accounting: far more fun, and subjective, than people realize.

Less fun: specter of $13.5 billion of capital needing to be injected to get a bank back to zero. One single bank, and generally considered to be a well-operated one. (Yes, not naming the bank intentionally, though identity is well-known publicly, including through that column.)

“What problem does that solve?” Restores capital backing the troubled banking operations (by diluting capital of the rescuing bank across the now-wider set of risks) and gives the assets time to age. This decrease in outstanding duration with cause value to recover towards par.