05 April 2009

Yes We Can - Value Mortgage-Backed Securities

I can't tell what exactly the FASB (Federal Accounting Standards Board) did about "Mark to Market" valuation. (Earlier I wrote about how Mark to Market is destabilizing, making up markets go up too fast, and down markets go down to far.) Not even the Wall Street Journal seems to be able to report in any detail on what they've done. But it seems that firms can now mark assets to what some sort of extrapolated market would do, if the market were functioning "normally."

Bullshit. That's make-believe. If the actual market is non-existent, just make one up. There is no justification for this nonsense, because there is a real way to value assets, which I've also written about earlier. It's called expected discounted cash flow.

Let's pick what the Wall Streeters claim is the hardest of all assets to value right now - mortgage backed securities. For each one of them, an electronic and/or written trail exists to track down each mortgage and mortgagee that is bundled into each one of those securities. It is therefore possible to track down each mortgagee and do the due diligence (check his/her credit history, income, employment stability, loan amount, monthly payment, payment history, historical and present market value of the property that is mortgaged, etc.) and make a probabilistic determination of his/her likelihood of continuing to pay that mortgage. That probability times the number of payments, times the value of the payments discounted for inflation (again estimated from the historical moving average of the Consumer Price Index over any n-year period, where n is the number of years left on the loan) is the expected discounted cash flow from that mortgage - that mortgage's value.

Now if a non-accountant like me can figure out how to value mortgage-backed securities, you can be sure that the Wall Street accountants know how to do it. So why don't they do it? Because they already have a pretty good estimate of the answer and they don't like it. They don't want to know. And more importantly, they don't want you and me to know.

In other words, they're lying. They're still trying to keep from having to come clean and do business the right way.

It is not conceptually hard to value mortgage-backed securities. It is conceptually easy. The only hard thing about it is that it is tedious. A lot of people are going to have to hit the streets and do a lot of due diligence that was not done when these things were bundled up and sold and bought in a vast game of financial musical chairs.

Well, get to work all you lying assholes in the financial industries. I'm a taxpayer, and I want my chair back.

01 April 2009

Why Hospitals are Dangerous for Old People

Every time she is hospitalized for a major adverse event (stroke, breaking a hip, heart attack, etc.) she shuts down for a while. By which I mean she is overwhelmed by her own anxieties about death and dying, winding up in a nursing home for the rest of her life, losing control of her fate. Alright, I'm guessing. She rarely speaks directly about such things. And when her anxiety gets too high, she doesn't speak at all. She breathes through her mouth until her mouth is so dry that she can neither speak nor swallow.

The staff at every hospital she has ever been in (except one) interprets this as some severe neurological insult that must be evaluated thoroughly before anything else can be done with her. Up goes the sign over her bed, N.P.O. Medical jargon for Nothing by Mouth. Don't give food or water. She seems semi-comatose, and only groans when stimulated. The staff leaves her alone. Even with an IV, dehydration and starvation begin. Whatever the original condition that brought her to the hospital was, things get worse, by neglect. Neglect which only increases her own anxiety that she is really dying this time. The people who do speech and swallow evaluation won't be in until after the weekend, and all they'll find is that she can't speak or swallow.

"It's fairly common for old people to go into decline like this," says the physician on call. "We really can't give you a prognosis at this time."

What to do? Get there from wherever you are as fast as you can. Fly 3000 miles, call a cab, dump the suitcase at a hotel, get to the hospital. Walk into the room. Observe for a while to see if this is like the other times. Call the nurse. Describe the hospitalization syndrome in this patient. Ask for a sponge swab. Do what the nurse is forbidden to do. Swab the inside of her mouth with water. Rub her arms and shoulders. Speak to her. Swab some more.

An intelligible phrase comes out. Swab again. Another phrase. Conversation begins. Get a straw and give her a sip of water. She chokes and coughs a bit, but she swallows most of it. More conversation. Another swallow of water. The nurse begins to believe the narrative of hospitalization syndrome.

The next days are spent training the staff to hydrate and feed her like an infant. She cannot feed herself. Yes, maybe she did have another stroke. But we had to do this for the hip and the other things, too. It happens every time. The anxiety will keep her brain unwired until she gets out of the hospital, out from under the shadow of death. And unless she is fed, she will not get out. Really fed. Even when the staff learns that they must hand feed her, the shift change brings on a new person who brings in a meal and asks if she wants to be fed. She says no, and he leaves. Eventually someone comes to take away the untouched tray.

So one must check, every meal, every day, except for that one remarkable hospital. The one that can be trusted to really take care of old people. The one that lets you take a night off, or even a day. The one that even checks for the usual infections without being told.

Otherwise, generally, hospitals are dangerous places for old people. Without an assertive advocate, elderly patients can die from what is effectively neglect by a well-intentioned staff. That's what I've been re-learning the last couple of weeks. Oh, there was a new twist this time. A change of blood pressure medicine that left her slipping into and out of psychosis for days, even after it was changed back.