We've been here before. The stock market is apparently surging on the news that UBS and Deutsche Bank have announced a fresh $19 billion in losses. How can this be construed as good news? It's hard to understand, but luckily the New York Times explains:
But despite the discouraging numbers — $19 billion in write-downs at UBS and nearly $4 billion at Deutsche in the first quarter alone — investors hoped that the bad news could signal the last of Wall Street’s subprime woes.
They've explained this before:
Investors took the disclosures [of $5.9 billion in writedowns at Citigroup and $3.4 billion at UBS] as a sign that the worst may be over for the banks and that any losses may be contained.
That passage was in the New York Times on October 2, 2007. Since then we've seen well over $100 billion in writedowns by major financial institutions, one of which (Bear Stearns) essentially went belly up, and the Dow has dropped over 10%.
In October, Barron's offered a more colorful explanation of the strange Wall Street calculus that sent stocks soaring upon the disclosure of bad news:
What turned the market from a swamp of warty toads into a pristine lake filled with wondrous creatures was the sweeping application of the new calculus. That the banks chose to make public confession of the horrendous errors of their ways, Wall Street reckoned with eyes agleam, meant they were confident that the worst of the subprime fiasco and the credit crunch were over, the formidable pile of leveraged-buyout loans gone sour was no big deal, and, from here on, it was all blue skies.
Meanwhile, Goldman Sachs is projecting $1.2 trillion in global credit losses, ten times what has already been accounted for by Wall Street.
