Via Barry Ritholtz at Seeking Alpha comes this quote from Bloomberg regarding Merrill Lynch's sale of Bear Stearns' mortgage securities:
A sale would give banks, brokerages and investors the one thing they want to avoid: a real price on the bonds in the fund that could serve as a benchmark. The securities are known as collateralized debt obligations, which exceed $1 trillion and comprise the fastest-growing part of the bond market.
You see, it turns out that the securities' price figures really don't reflect their true value.
Because there is little trading in the securities, prices may not reflect the highest rate of mortgage delinquencies in 13 years. An auction that confirms concerns that CDOs are overvalued may spark a chain reaction of writedowns that causes billions of dollars in losses for everyone from hedge funds to pension funds to foreign banks. (Bold type is mine)
I guess that's why JP Morgan canceled a Bear fund asset auction. There is a needed price correction in the CDO market and it will happen eventually. Until then, high level executives will do everything in their power to delay the inevitable.
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