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Archive for November 13th, 2007

Paper Banking

Bank of America reported that it will take a $16bn profit in the 4th quarter as a result of a unrealized gain from its stake in China Construction Bank. This is interesting because this will become increasing common as banks who helped price Chinese IPOs will likely have positions as a part of the deal. As sub prime losses mount, that’s a quick way to make up for the large write down.

But wait, these are position which they won’t be selling to the open market for another 2-3 years. The profit booked are just paper gains on arguably a bubble market. Sure, why not use it as collateral and cut another CDO out of it?

Time to position for liquidating another 10%.

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