Something I can't recall having seen in the two years of following the markets happened yesterday. JPMorgan reported a $1.5B writedown to the SEC based on their valuations of their MBS portfolio. Apparently when Merrill Lynch completed sale of their mortgage securities to Lone Star Capital at 22 cents on the dollar (it was essentially a call option sold to Lone Star for 7 cents on the dollar when the details are considered), the rest of the MBSs were marked down to similar levels. I would like to say that I think that the Merrill was quite foolish for the brokerage. But the real story here is JPMorgan's mid-quarter write down. I think that the bank is using the relative strength in the market to get away with this writedown, so at the end of the quarter (when I am assuming they think financial stocks will be much weaker), this writedown will be no surprise to the market. Sneaky, but my interpretation does not bode well for financials. But when you are a bear, you see bearish explanations for such moves.

Also, Wachovia joined Citi and Merrill in taking losses on sales in the auction-rate securities markets. The writedowns just do not stop. Not to mention the implications of the business practices for these institutions. I should wouldn't be bringing my business back to a firm who told me that the securities I am buying would always be liquid, then having to file a lawsuit in order to resell my securities because the market completely dried up. The whole system needs some work. Even my sector favorite Goldman Sachs was selling MBSs to their clients while quietly shorting the MBS market. At least Goldman had the foresight not to be holding that garbage...

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