When Citigroup announced on Nov. 4 that it anticipated the fair value of approximately $55 billion in subprime exposures would decline somewhere between $8 billion and $11 billion, the imprecise estimate highlighted a problem faced by participants in the structured debt market. It also underscored the need for a better way of valuing certain asset- and mortgage-backed securities.
The challenge faced by Citigroup and other brokerages, as well as their customers, is the inability to value those securities. This is partly due to their complexity and the fact that too few deals are getting done today to establish reliable pricing benchmarks. Furthermore, information about transactions is not available to most market participants, in good times or bad.