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As Bankers Kill Off Mark-To-Market For Good, Former FDIC Chairman Gloats
By now everyone is aware that following tremendous pressure by the banker lobby, which knows too well the Ponzi jig will be immediately up if Quantitative Easing's TBTF Madoffs are forced to disclose the true value of their worthless assets (yes, true value comes from asset cash flow generation, not from diluting money), the FASB decided to stop its push for a return to MTM. From the WSJ: "Accounting rule makers, bowing to an intense lobbying campaign, took a key step Tuesday to reverse a controversial proposal that would have required banks to use market prices rather than cost in order to value the loans they hold on their balance sheets." Transparency? What moron would propose that in an economy that is so obviously healthy and surging. After all, the only way to validate a surging stock market, er, economic recovery, is through bullshit numbers pulled out of the ass. That way they can pretend to tell us the truth, we can pretend to believe them, and everyone will frontrun the Fed who pretends not to be buying stocks. And it would have been great if it ended there. Alas no. Following the announcement, none other than Bill Isaac, current Chairman of LECG, but far more importantly, former Chairman of the FDIC under Ronald Reagan decided to send out a gloating email to his entire address book explaining what a moral victory it is to kill the MTM monster that is the sole reason for the near collapse of capitalism in 2008, and how truly wonderful it is for everyone to live in perpetual lack of knowledge of what the true value of any company's assets really is. Unfortunately, this just goes to show what the existing, extremely bribed, leaders of the nation's most vital organizations really think.
And before we present Isaac's note, here is some more on how the banker lobby scored one more over the US peasantry, from the WSJ:
The Financial Accounting Standards Board preliminary vote would allow banks to continue valuing many of their loans at amortized cost, an adjusted version of their original cost, as they do now. That backtracks on an FASB proposal last May to expand fair value to bank loans. The reversal is a victory for the banking industry, which says it would have hurt lending and unfairly reduce banks' book value. Supporters of the FASB fair-value proposal say it would have improved transparency and unmasked potential weakness at banks.
The FASB indicated the overwhelmingly negative reaction to its proposal from companies and investors played a large role in prompting the board to change its mind. The board received more than 2,800 comment letters on its fair-value proposal, most of them opposed to the move.
FASB changed direction on how to value loans because of "strong signals from the board's constituents," FASB Chairman Leslie Seidman said during a webcast Tuesday. She also noted that some loans—including those that banks trade actively instead of retaining in order to collect the payments on them—will have to be valued at market prices.
And the reason for why opacity rules:
At some large banks, their loans' fair value is billions of dollars less than their carrying amount.
That would dramatically reduce their shareholder equity—or assets minus liabilities—if the loans had to be carried at fair value.
Investors have said fair-value information is important to them even if they don't think it should be the criteria for valuing loans on the balance sheet, FASB members said.
Simply said, if everyone knew the truth, everyone would be insolvent.
And here is William Isaac's letter, which blames Mark To Market for the near end of capitalism. Conveniently his email is also provided.
Mark-to-market accounting -- a failed policy that was terminated by the Roosevelt Administration in 1938 because it was inhibiting bank lending -- was revived by the Securities and Exchange Commission and the Financial Accounting Standards Board in the 1990s over strong objections from the Fed, FDIC and Treasury.
The MTM policy senselessly destroyed some $500 billion of capital in our financial system when the markets collapsed in 2008. This destroyed some $4 trillion of bank lending capacity and was a major contributor to the financial panic and ensuing economic collapse.
The FASB, almost inexplicably, proposed last year to EXPAND mark-to-market accounting to cover all bank loans. This would have essentially shut down lending except for short-term lending to businesses with impeccable credit ratings.
See the press release below. The FASB is apparently abandoning its plan to expand mark-to-market accounting. This is an important first step improving US accounting as it relates to financial institutions.
Best regards, Bill
William M. Isaac, billisaac@comcast.net
Chairman
LECG Global Financial Services
1209 Westway Drive
Sarasota, Florida 34236
Tel: 941.388.0088
h/t A B
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You live in the Hamptons?!!
Why all the sensless debate?
Can't we just cheat & get along?
Will this lying ever end. So sad.
"At some large banks, their loans' fair value is billions of dollars less than their carrying amount.
That would dramatically reduce their shareholder equity—or assets minus liabilities—if the loans had to be carried at fair value."
Question: these loans are on WHOSE BOOK? The servicers like BAC, JPM and WFC? But most likey they sold off those loans to REMICs. On REMICs' books, then? But we're finding out that there was no proper transfer of loans from the banks to the REMICS.
That's right. All these sophisticated investors, pension funds, hedgies, sovereigns, etc. are holding nothing but air. The lawsuits are really just starting. I can see now that FASB might just get subpoenaed over MTM in relation to some of these suits. If that happens it might wrth some popcorn.
Did you see yesterday's Max Keiser discussing with Reggie Middleton the fact that institutions are still trading MBS/CDO/CDS Derivatives that have no (as in zero) basis other than fraud! I couldn't stop laughing. The financial institutions are now trading PURE FRAUD! This MTM abandonment by the FASB?! WTF do we find ourselves that our Institutions, the Pillars of our Society are all just a bunch of WHORES... Moral Hazard has - LEFT THE BUILDING! and Elvis is surely dead! Abandon all hope - Ye that enter here.
We should just put red lights in all the exterior light fixtures at the White House, Congress and at FASB HQ there in Norwalk, CT. Oh Yeah, don't forget the Moodys, Fitch and S&P's HQs with huge neon signs you could see from space that flash WHORE on and off 24/7/366. Couldn't Congress do that - pass a law or something? US Congressmen would be required to wear one of those FlavaFlav giant necklaces with diamond encrusted WHORE visible to the public at all times 24/7/366. They'd have to sleep with them on.
Max and Reggie - http://www.youtube.com/watch?v=8a6NdwORK5g
OT:
We have Dow 12,000! The economy is recovered! Pack it up and go home! </sarc>
Oh, and Kent Conrad on cspan just said that there is no choice but to raise the debt limit. Don't worry, they have a long term plan, but they must keep short term deficit spending for the next two years in order to not jeopardize the continuing recovery....
...more deficits for two years, what else happens in two years?..hmmm....
Hey who's got the link for the bookies action on the "New Debt Limit" number? If the US was savvy they'd have friggin' video kiosks taking action. I'm going for the Over on the 18Trillion Over/Under. Hell if it's good enough for Greece then the US should at least let "The JP Morgue" and "The Goldman Sachs" to put them in every public school and government and military facility in the US!? "Hey Johnny, let's stop by the video bet machine on the way to lunch. I've got to pick my ticklers for tonite's action!"
UPDATE 1-Greece to licence online betting by end '11-* Greece to award up to 50 internet gambling licences-source
We are a country run by evil men.
Our government has become criminal, corrupt and illegitimate.
What do we do? Where do we run (Iceland??)? How do we fight?
All you can do is try to figure out how they'll cheat, and then visualize the reality and results of that cheating. Then act accordingly.
I remember there was a time when my investment decisions were made on the basis of good sound research and fundamentals that included financial statements, prospectuses, historical financial and market data, competitive analysis. Thorough research would generally lead me to make smart investment decisions. That was how I invested for 20 years, with good success.
Now all I do is sit around all day and try to figure out how they're going to cheat! I rarely look at financials and I haven't read a prospectus since 2007. Of course, "The Bernank" is central to all of my cheating analysis lately, but its not limited to "The Bernank." The CFTC, CME, NYSE, OBOT, LBMA, Congress, Treasury, IMF, EU, Parliament... whatever institution is the most connected to the issue at hand.
An anti-thesis of my Cheating Studies occured just last year. Tue, Jan 5, 2010 - Reykjavic: Iceland's President, Olafur Grimsson, said on Tuesday he would not sign into law a bill to repay more than 3.1 billion pounds lost by savers in Britain and the Netherlands when the island's banks collapsed. He has called for a referendum on the Icesave bill...
My god, the importance of that. The one single time that cheating didn't win out in recent memory. I offered Olafur my Crazy Sister-in-Law (who's pretty good lookin' 25 yo), but he said he was already married. Integrity man... dig that crazy thing called integrity! WOW!
Mark to market is stupid if you're the only one doing it, and while it sounds reasonable, in practice it's like watching sausages get made (i.e., your assets are worth what Goldman thinks they are at 4:00p.m. today). Why don't we mark the whole world's assets to market at once? Because, as fast as the central banks are creating it, there is still not enough money to cover way too many global asset holdings. At least let the Bernanks et al inflate the crap out of the world's money supply first. Then everything will be worth par...except par will be worth zero...
The hope that they succeed keeps me going to my day job. The risk that they might fail -- or, for that matter, succeed -- keeps me interested in shiny things.
so 9 years after the crash of 1929 and mark to market was eliminated. what about all the keynesianism between 1929 & 1938 to turn the economy around? and even then changing mtm didn't turn the economy until 1942 when millions of boys were removed from the economy, and the war machine got cranking.
I wonder if I would have realized this by the end of the week without ZH. I doubt it. The internet, and ZH in particular, are accelerating the recognition of the fraud. I know this would all be clear in a book like "The End of Wall Street" three years from now - but I don't think there is any time prior to now where it is clear to some substantial portion of the middle class as it is happening.
I think the assumption of many politicians and bankers is that the fiat currency crisis is going to take years to realize and they have time to "muddle through". I wonder. I wonder what the growth rate is on the ZH daily hit count. I wonder when we reach a critical mass of people who understand their government has gone in to the business of fraud to encourage them to commit what's left of their wealth to saving Wall St. I have very few friends who don't believe that today.
Reminds me of Andersen's decision to allow Enron to use MtM, except in reverse...
http://www.youtube.com/watch?v=tXu1QiTha18
HYPOTHETICAL FUTURE VALUE ACCOUNTING
I disagree with TD's perspective on this, and I do so respectfully because I believe ZH is on the right side seeking reform and justice in the financial sector. The FASB Rule 157 was instigated, I think, by influence of the Vampire Squid and its big boy wolfpack of investment bankers and hedge fund managers, and it was definitely a part of the grand design for destroying the private mortgage industry and certain major players in banking and finance.
The mark-to-market rule 157 of FASB became effective in 2007, requiring for the first time since 1938 that certain financial assets be adjusted in value on a quarterly basis according to market pricing of the assets, and that the change in value be run through the P&L statement as if the loss or gain was realized, regardless of whether the owner held the assets for sale. My belief is that certain large investment banks influenced adoption of Rule 157, and simultaneously participated in setting up an "index" to value sub-prime mortgage MBS by means of tracking a small number of identifiable MBS whose "market prices" could be easily manipulated. Once Rule 157 was effective, the index was driven down sharply, which made the MBS owned by many banks appear to be losing value. These "losses" had to be reported on P&Ls quarterly, which made the banks appear to be heading to bankruptcy. This was the cover story for driving bank share prices down by use of similar manipulative tactics; namely, naked short selling of their shares, sometimes done by buying credit default swaps on the bank's bonds with the point in mind that the seller of CDS was allowed by the SEC the hedge by naked short selling the shares of the banks targeted.
Validation of my analysis then and now came in 2009 when much of the "toxic" MBS sold by banks such as Bear and Lehman recovered much of their values. In fact, some of the same hedge funds who made billions shorting those banks to destruction then bought up the MBS as fire-sale prices and watched their prices go back up. The hustle is on-going, but FASB backing off of extending the hustle to all bank assets is progress in pushing back at the hustlers. http://classicalcapital.com
"controversial proposal"
Because honesty is so controversial.
Thanks ZH and well said Wayne Jett. What's been said all along is we need definitive instruction on how to account. Holding assets at cost is a tried and true way to value less depreciation. Should you sell an asset at some point, you get what the market offers. M2M only works in a deep pool that cannot be manipulated to favor vulchers. And in no way does anyone actually mark the assets they own to what Might be paid "should" one party try to sell. The price comes on the bidding table and that's that....
http://research.stlouisfed.org/wp/2011/2011-002.pdf
From the perspective of this calculation, the key issue is whether the ratio of excess reserves to deposits is sensitive to a change in reserve requirements. If the demand for total reserves (for managing portfolio risk and liquidity risk) is sufficiently high (see, for example, Calomiris and Wilson 2004), then even a large increase in a non-binding reserve requirement will have no effect on the demand for total reserves. In that case, a change in required reserves will have no effect on the money multiplier.
Conclusion
The Federal Reserve doubled reserve requirements in three stages in 1936 and 1937 in an attempt to remove "slack" from the banking system and to put itself in the position of being able to tighten the money supply through open market sales or further reserve requirement increases if deemed necessary. The Fed did not believe that the higher reserve requirements reduced the supply of money or credit in 1936 and 1937. Friedman and Schwartz (1963) challenged that view and argued that the higher reserve requirements raised reserve demand, thereby lowering the money multiplier
Other policy actions, especially reduced monetary base growth (due to the December 1936 sterilization of gold flows) and the 1936 tax rate increases, seem more likely culprits in causing the recession.
IMO in 2013 the FED is Dead assuming Congress is capable to warrant clawback on M2M but to date there is no resolve in there serf status.
QE is slack allowed to bleed "club members" redemptions, i.e tearup's to come.
From Bill Isaac's Personal Karma ledger:
...Started the day with - 1.000.000.000 in my personal karma account.
... Did some insider trades. Karma dropped by a few thousand points. Oh, well, comes with the territory, I guess.
... Just sent out an e-mail logically explaining why the cover-up should continue. Karma flash-crashed by a 100 million points. WTF?