[Kimberly GG]

Wish I weren’t so clueless....this is all ‘french’ to me.

[hoosier hick]

Banks were using accounting standard loopholes to hide non-performing assets— about 6.8% of the total, and probably the worst 6.8%. A bank could report non-performing assets of 1% (and commonly did), while keeping the rest of the bad loans somewhere else. Reality was that they were running close to 8+% as non-performing....

hh

[erikm88]

Kimberly, Investment banks and commercial banks created subsidiary companies that would buy securities (i.e. stocks, bonds, but mostly bonds) that were backed (supported by) pools of residential mortgages. As we all know, a good deal of these mortgages were undertaken by people who had no ability to pay (subprime mortgages). These banks would keep these worthless securities off their balance sheets (that are to be disclosed to the SEC and the public).

The Financial Accounting Standards Board (FASB) released a statement that requires these banks to account for these investment "vehicles" (the subsidiary companies created by the banks, described above) on their balance sheet. Basically, if the bank was financially healthy before the FASB required this accounting rule, they are pretty mcuh going to be in trouble now, since these bad assets (securities) are performing badly (i.e. losing value).

This type of covering up, and bad accounting is exactly what Sarbanes-Oxley (SOX) legislation of 2002(?) was supposed to stop. Government intervention at its finest!