Posted on 03/30/2009 9:02:05 PM PDT by TigerLikesRooster
Letter to FASB: Don’t Change Mark-to-Market!
March 29, 2009 – 3:49 pm
John Gavin of Disclosure Insight has written a letter to FASB opposing its proposal to refine mark-to-market rules. Like John, I hope FASB sees the light.
It has been said that changing MTM rules would be like giving inmates keys to their own prison. Seems to me banks already have keys—to their own cells certainly, and to every other door inside the prison. After all, they have wide latitude to mark most assets to model (level 2) or to myth (level 3). Modifying mark-to-market gives them the key to the front gate as well.
From John:
Our letter includes…a study we published only about 10 days ago entitled, “Bank Goodwill Impairment Study.” Using goodwill as a proxy for overall balance sheet integrity, we found reason to question the…balance sheets for at least 70% of 50 of the largest banks trading in the US. That’s largely because a full 70% did not impair goodwill (at all) at year-end despite a significant percentage of them trading below book and even tangible book values (we called Bank of America the poster child in that regard and provide analysis of why their $80+ billion in goodwill is desperately in need of impairment).
This is the list of all the people/entities that have submitted comments to the FASB thus far. No surprise here, the majority are from the banks who have clearly organized themselves to keep the heat on the FASB.
Ours is letter #38. It appears we are the only independent investment research firm taking a stand on this.
The study attached to the letter (pages 4-15) includes some great data tables. I highly recommend it. The pdf format is easier to read than Scribd’s version, a link to it here.
http://www.fasb.org/ocl/FSPFAS157E/53706.pdf
Ping!
Why would we want to change a rule that allows the government to value paper backed by real estate and paying borrowers at 0? This rules makes it so much easier and cheaper to confiscate private property.
....change will coming and coincide with Geithners big-rigged auction of toxic assets
If the following is accurate, the FASB slipped yet another mark-to-market extension to the banks sometime last week:
Mark to Market Slip Slides Away
“...it is quite possible that the financial stocks see an improvement in earnings this quarter. The US Financial Accounting Standards Board (FASB) changed the mark-to-market rules last week, which many (including your humble analyst) thought was needed. First, they suspended the mark-to-market rules for assets in distressed markets. Second, they widened the definition of “temporary” impairments of troubled assets, which will “allow banks to write up the value of some troubled assets if these have been hit by falling markets without (yet) suffering any significant credit losses.” (www.gavekal.com)”
http://www.gold-speculator.com/thoughts-frontline/5981-why-bother-bonds.html
But this three-pointer at the buzzer might be a moot point anyway, as of today, as far as giving a pop to prices of financial stocks. Today’s GM (Government Motors, nee General Motors) action has really changed the game.
They will try every possible rigging imagined before they quit involuntarily. They would reach a point where they can't possibly pull another trick. To them, just letting things go now is worse than death. All grand fantasy of financial globalization and unending growth and prosperity to which they threw so much intellectual and political capital into would go "poof," leaving nothing.
There is more than staggering loss of money in this crisis. It is the end of their collective vision(fantasy) of history, and as a corollary, their raison d'etre.
The old military maxim that one should never reinforce a failure, comes to mind.
This is unfortunately what these smart boys usually do when faced with the crisis of their vision(fantasy.) Because it is worth more than any real world. That is the fatal weakness for these folks.
I wrote here on FR some time ago that the Fed, Treasury, et al, would start changing the "rules" in ever more random and impossible to predict ways, a la the way the last fifteen minutes of a kids' Monopoly (tm) game inevitably play out.
I might have added then, or perhaps I came to this secondary observation after I posted, that the horrifying aspect of the comparison is how the kids make crazier and crazier changes to the rules, forgiving sums of money orders of magnitude larger than what had initiated fights to the death mere minutes earlier, just to keep the game going -- and there was absolutely nothing at stake!
That is a good description.:-)
Obviously, the political axiom is the opposite. Especially, when it is someone else's blood, sweat and tears you are expending. Would Obama put his millions into GM stock?
You’ve perfectly described the situation, down to the children, not adults, running the game.
Interesting stuff...
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