Charticle: The Art Of Pricing Illiquidity

Published Wednesday, April 01, 2009

More writedowns on the way. Since the ending of the credit bubble in the summer 2007, the major brokerage firms and banks have been dealing with the accounting aftermath. To minimize (or hide) the damage they did to their own balance sheets, these firms have been using “Level 3” accounting standards — a GAAP-approved method (Generally Accepted Accounting Principles) to account for hard-to-value assets. Level 3 assets are essentially assets for which no market price exists, and, therefore, are valued at whatever level the financial institution deems most reflective of underlying value. Table 1 lists the gross (un-hedged) ...

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