Posted on 04/02/2009 10:59:22 AM PDT by TenthAmendmentChampion
WASHINGTON -- The only thing worse than bankers making up accounting rules is members of Congress making them up.
Repeating its blunder from the 1994 battle over stock options, the staid Financial Accounting Standards Board has buckled to political pressure demanding that it change accounting rules. The FASB voted Thursday to ease the interpretation of rules requiring banks and other big institutions to value their assets on a reasonable basis.
The value of the banks' assets is a huge issue for the global economy right now, because banks are required to have a certain amount of cushion to back up their loans. No cushion, no new lending.
(Excerpt) Read more at marketwatch.com ...
One line of thought (not originated by me) is “Don’t Mark-to-Market if you don’t want to, but if you don’t, reveal whatever model you’re using to actually do the ‘marking’”.
If they replace it with the “old” rules (i.e. pre M2M) = good.
If they make up some “new” rules = bad to catstrophic.
The auditing firm has to attest to the financial statements so how do they do it?
No, it has to do with the trade value of the mortgage and the underlining property.
He explained it this way: If you are a borrower who pays your mortgage every month right on schedule regardless whether the market value of your property has dropped or not, then you are not a risk to the bank, but Mark to Market requires the bank to retain more money just because your property is worth less, thus depressing money available for lending. Changing this rule will open up the lending spigots again.
Here’s the problem as I see it. Let’s say a bank buys a bunch of lottery tickets. How does the bank value this kind of “investment”? Does it book the sale value of the tickets, the full value of the lottery jackpot, or some model which takes into account the probability of winning the jackpot? It’s a problem inherent in valuing assets which don’t have a fixed value and the more and more meddling in trying to fix a problem like that doesn’t help investors.
Wow. Great take.
The timing of this move is somewhat suspect due to the fact that the Fed is fixing to buy up “toxic assets” in their new public/private partnership. Before they supposedly did not know what these assets were worth or they were worth only pennys on the dollar. Now they get to set their own price and get paid that price by the Fed. It will also create a false bottom in the real estate market. These little regulatory mechanisms are the devices the string pullers use to game the system so the can milk it on the upswing and the downswing.
True, those in the know, are the political connected will milk this program like a herd of Holsteins. That is what they are designing it for.
Shouldn’t be long, my property will be 3X it’s actual value again.
Right. The true value is the net present value of the anticipated income from the loans, which takes into account both the good payers who will more than likely pay in full and those with poor credit and unlikely to pay and will have to be written off - and the value of some of those holdings will be close to zero once you figure in the management fees, cleanup, and taxes. That is why some of the banks are stopping the foreclosures.
So the question is how do we know what percentage is “bad” (given the fact that 0 is screwing things up more each day which translates into more unemployed people)and HOW MUCH these properties will eventually be worth.
Whatever happens, it is beyond our control anyway.
Could be higher than that, but then no one will buy it at that price either. Supply and demand determines value, not the government!
It is very GOOD!
The MBS's are valued at 0 right now even though they are producing 70-90% of the anticipated cash flow. IOW, only 10-30% of the mortgages that are bundled together are non performing. If a mark to model approach is taken it would make a lot more sense.
Based on cash flow.
10 years from now I’ll be worth $100 million. Really. And if I’m not, the taxpayers can bail me out. Does THAT sound like a good idea to you?
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