The SEC has got its spade out.
The WSJ reports that the US regulator is on the hunt for subprime losses and is checking the books of the Wall Street’s finest to make sure that no mishaps in the subprime mortgage market have been inadvertently mislaid.
The checks, expected to kick off with Goldman Sachs and Merrill Lynch according to the WSJ, will look at whether the firms are using consistent methods to calculate the value of subprime assets in their inventory, as well as assets held for clients. The concern is that the firms may not be marking down their inventory as aggressively as assets held by clients.
Through the latest earnings round, few big Wall Street firms reported big subprime losses despite the turmoil, notes the WSJ. In fact, comforting words were the order of the day, on both sides of the Atlantic.
Anyone looking for further clues to buried subprime losses elsewhere also should understand that many institutions do not “mark to market” complex derivatives to reflect changes in value over time, as Frank Partnoy writes in Friday’s FT. “Many pension funds and insurance companies hold subprime-linked derivatives, but have not yet recorded losses. Others have recorded some, but not all, losses.”
As for the SEC, the ultimate reason for its involvement might have something to do with the fact, as the Guardian’s Viewpoint column puts it, that “bad numbers are always harder to add up than good ones”.
