Ever tried to value a bi-lateral illiquid derivative?
Well you try and get some broker quotes for starters. You may do some theoretical modelling. You may just take a Directors' valuation. It is near impossible as their is no price discovery and no real market value.
How about valuing real estate in Spain? Or forests in China? Or long dated Greek debt?
It is a perennial problem and since Lehman many banks and private equity funds are sitting on assets that are seriously over-valued. Regulators and Auditors have turned a blind eye because there is enough gloom and doom and tax authorities like profits. Bad debt provisions have been so low. But this starting to change.
Take these recent new stories...
Lloyds and the tax payer wake up to negative equity and empty commercial property (bloomberg)
KPMG gives up valuing trees (businessweek)
KPMG berated for not being able to add up (wsj)
Irish fantasy real estate valuation (irishtimes)
French run IMF riddled with corrupting influences.