FASB Proposes Semi-MTM Requirement, American Banker Association Goes All "Mutual Assured Destruction"

Tyler Durden's picture

Ever since the financial crisis made it all too clear that all US banks would be insolvent if their assets were marked anywhere near fair market value, Bank Holding companies received a green card to actually represent any of their securities "held to maturity" at anything else than mark-to-model/myth/unicorn on their books. Obviously models miraculously priced all barely cash producing loans at par, and with "out of sight, out of mind" receiving the full blessing of the administration's treatment vis-a-vis an insolvent banking system (i.e., no risk, all return), investors realized they have nothing to fear as pertains to the asset side of bank balance sheets, they ended up purchasing such otherwise undercapitalized companies as Citigroup (and soon, incidentally, Government Motors, which as Jonathan Weil reported recently, would have an equity value of negative $6 billion if the bankrupt company's $30 billion in goodwill assets was removed). Well, the FASB has just fired a semi-warning salvo at the banking system with a new proposed rule that would seek the gradual return of that long lost concept known as mark-to-market.

However, while not going all the way and demanding that everything on the balance sheet flowed through the income statement's bottom line, the FASB has decided to give banks the leeway of accounting for MTM adjustment in the bottom bottom line, which few if any ever look at (and certainly not sellside bank analysts): the Other Comprehensive Income line. Yet since this would at least optically disclose just how bankrupt most US lenders are, the ABA has gone nuts on the FASB and has decided to pull its one Mutual Assured Destruction wildcard: lending, claiming: "the proposal would greatly undermine the availability of credit by
making it difficult to make many long-term loans, the value of which,
even if  performing perfectly, would likely be reduced on the day a loan
is made
." The fact that it would also show just how broke the state of US finance truly is, seems to have been omitted from the ABA's complaint.

More from Mark-To-Market Debate:

The Financial Accounting Standards Board has proposed new rules under which banks and other lenders would be required to use mark-to-market accounting.

Banks would have to report both the fair value and amortized cost of loans and some other financial assets and liabilities on their balance sheets under the new rules. Changes in fair value would, in most cases, be recognized in other comprehensive income and could cause swings of billions of dollars in the book values for the biggest lenders.

Sure enough, one look at the bolded text is all it took for the ABA to go all up in arms over the proposal which all but screams that the "emperor is naked."

The American Bankers Association released a statement that said the accounting change would present “significant problems, not only for banks, but also the general economy. If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made.”

Ah, good old MAD - don't touch the status quo, or else. In the meantime please continue the borken Keynesian scheme of funding is in perpetuity, while we cover up just how broke we are, all the while receiving tens of billions in bonuses for dragging the American financial system into the ground.

To be sure, even with the full implementation, banks would still have at least 3 years to collect full bonus payments:

The rules would take effect for the biggest banks as early as 2013. Smaller banks, with less than $1 billion in assets, would be permitted to wait until 2017. The FASB is seeking comment through September 30, 2010.

We disagree with MTMReport's conclusion:

This is restrictive and gets it half right. Report the fair value, disclose it and keep it current. But don’t hit the lenders in the O.C.I. This will discourage lending. Period.

It doesn't matter if the MTM impairment is run through the income statement at all: investors can do their own math. We all know banks earnings are a scam, however if at least the fair value of trillions in "assets" was disclosed we could all do the simple subtraction (note: not addition) from book value to determine just how many billions the book (and this market) equity is underwater by. The bottom line is that unless the ABA once again manages to outbluff the accounting system, which is nothing but a token facade for legitimacy and representation, the double dip for banks is about to join the double dip in housing, which CNBC already reported on earlier.

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homersimpson's picture

Mark-to market (if it ever came true): the greatest wet dream for the majority of ZH readers.

And a victory for those that really want to buy a home at it's true value..

John McCloy's picture

Which is exactly why it ain't happening. By gradual they were thinking when? Around the time James T.Kirk is scheduled to be born in the future perhaps?.

The Rock's picture

Gradual when it affects them, but instantaneous and extreme when it affect YOU (remember the overnight wholesale banning of stocks vs. the real problem of Naked shorting?) MF'ers!!!!!!

old_turk's picture

Actually, 'marked to what current performance means you will expect to have received by maturity' would be good enough for me.

If that happened, there'd be so many 'tits up' financials, they'd have to name the FDIC as the 'new' national money center bank.

Meanwhile, the bonus pools need funding so how about another round of capital raises?

goldmiddelfinger's picture

As the market jumps 40 points in 90 seconds for no reason

goldmiddelfinger's picture

Oh and I love the follow through. Plus 40 and stop. Who's Mark2Marking this market?

Problem Is's picture

Straight Up!
Did Bennie B just pour on more rocket fuel?

"Rocket man, Bernanke burning out his fuse up here alone..."
"And I think it's gonna be a long long time..."

Mr Lennon Hendrix's picture

The reason is Timmah finished chugging 64 OZ of JOLT and got back on his PPT game!

AccreditedEYE's picture

Damn him and his 8 bit Nintendo!!!!!!! S.O.B!

goldmiddelfinger's picture

Freaking lightest vol day of the year. Save the 201Ks at all cost!!!

ZackLo's picture

that'll be 101k's buy the time this is over with....lesson in the hard laws of supply and demand.

Maybe people after this is all over with will ctually find value in assets instead of counting monopoly money litterally. This will be a home buyers dream! Well if you want to own it and have saved during the hard times, hey maybe everyone in america will be able to buy a home because the foreign dollars will get squeezed out too!

old_turk's picture

I thinking -infinity and beyond k's by the time this is all over.

Although you will lots of nice certificates (similar to the nice ones some still have from Enron) suitable for future use as bathroom wallpaper.

Turd Ferguson's picture

Actually, Timmy powered down a plate of 93-octane gulf shrimp for lunch. Came back and shit his rocket fuel dump all over the ES pit.

eatthebanksters's picture

Thanks for the laughs Turd!  A former client of mine who was a past vice chairman at Citi once told me,"You can't control market forces and anyone who thinks they can is a fool."

Sarah Conner's picture

It's all just a bunch of crap swirling the bowl...

centerline's picture

making tighter and tighter circles as we approach the drain....

Hansel's picture

First, banks are only lending to the federal government at this point, so constricting credit won't do much of anything for the real economy.  Second, if the banks don't lend, how are they going to make any money?  FASB should call the ABA's bluff.

AccreditedEYE's picture

Seriously... lending is the biggest sham excuse I've ever heard. For God's sake, the f-ing administration is inventing legislation to PROD lending to happen. What a joke.

HEHEHE's picture

So what's the scoop?  Wasn't Charlie G saying the Lehman indictments were going to come down today.

Boilermaker's picture

Irrelevant, the market is going ball-to-the-wall into the close just to prove that there will be no god damn pessimism.  Your "WE ARE IN A RECOVERY" feeding tube will be jammed further down your neck.

Turd Ferguson's picture

SRS : new 52-week low

SPG : 95.55

Get my man Boilermaker a Boilermaker! He's gonna need it!

Boilermaker's picture

I'm out of that shit.  My small puts passed away on Sept. 10th without a fight.  RIP

 

Ragnarok's picture

Why don't they just mark to a 3 year market average?  Cuts out extreme volatility and allows asset prices to reflect changing values.

 

This won't solve our current problems, but I do understand that extreme volatility of pricing of an asset makes longer term investing difficult.

pauldia's picture

At some point reality will set in and the poor souls who've been dating these paramours will discover that they have experiencing necrophilia.

mikla's picture

"the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if  performing perfectly, would likely be reduced on the day a loan is made."

The HORROR!  Mark to market?  That could not *possibly* be a good idea!

Do you realize the NIGHTMARE we would have if homes were valued at 3x income, instead of levered to 12x?  The tax revenue we would lose?  The *cough* bonuses *cough* fees *cough* we would miss?!?

Don't even TRY to make me put together deals that *make fiscal sense*, or attempt to *bound real risk*!

THE HORROR!

curbyourrisk's picture

2013.....I can't wait that long...

 

BRING ON NOW BITCHEZ!!!!

AnonymousMonetarist's picture

'Government Motors, which as Jonathan Weil reported recently, would have an equity value of negative $6 billion if the bankrupt company's $30 billion in goodwill assets was removed...'

Goodwill Motors mah man... Goodwill Motors...

My God... it's full of cars.

Boilermaker's picture

Yea, the auto bailouts are the issue...and the $3B cash for clunkers.  Not the multi-trillion dollar cornholing the banks gave us.  Way to keep that laser focus on the important stuff.

AnonymousMonetarist's picture

Am a proud non-partisan hater of all Nancy Capitalism...

Boilermaker's picture

I'm a hater of all of it....but I reserve my vile hatred for the banks.  You know, I like to channel my rage at the most deserving.

eatthebanksters's picture

Let's see...seven to eight trillion in equity losses for  homeowners, two plus trillion in losses (and growing with Fannie and Freddie losses) for taxpayers....profits for banks (not all banks are bad, just the major players in the subprime scam)...I think they need to contribute their fair share.  And the likes of Mozillo, Dimon, Lewis and many others need to be locked up for crimes against humanity; maybe they'll finally figure out how it feels to be cornholed.

hedgeless_horseman's picture

Government Motors, which as Jonathan Weil reported recently, would have an equity value of negative $6 billion if the bankrupt company's $30 billion in goodwill assets was removed).

I nearly barfed.  Un-Fucking-Conscionable, this IPO.  No suprise that Cramer wants you in it. 

The next thing you know, they will run a TV ad featureing GM’s Chairman and Chief Executive Officer Ed Whitacre saying, “we have repaid our government loan in full, with interest, five years ahead of the original schedule.”

http://www.theoaklandpress.com/articles/2010/05/05/business/doc4be2226b081ce715497575.txt

...and spend $3.5 billion of taxpayer money buying another sub prime lender, just because GMAC worked out so fucking well.

http://www.nytimes.com/2010/07/23/business/23autos.html

In the name of Tyler Durden I swear that I will never buy a GM product. 

Boilermaker's picture

Yes, because the quality of the products and the millions of Engineers, Accountants, Material Schedulers, Customer Service Reps, Dealers, Suppliers, et al need to be shit-canned because a handful of executives robbed the place blind.

Great logic.  Outstanding.

hedgeless_horseman's picture

Here is a word for you, Boilermaker.  Mal-investment.

Don't forget the marketing team and their great work:

http://www.youtube.com/watch?v=1gq7J71VsDM&feature=related

Boilermaker's picture

I'm all for Ford doing great, along with Chrysler.  But, Ford was actually the weakest of the 3 going into the crisis.  They just happened to have mortgaged everything they owned prior to the credit crunch.  Whereas GM and Chrysler had enough (*cough*) cash on-hand at that point.

Nevetheless, the asswipes actually cheering the death of GM and Chrysler can eat a bag of shit.  There are literally millions of real, actual, breathing white and blue collar American workers in the industry.  Since the distasteful bailout is actually over with (like it or not) I would guess / hope that there might be some general support for them.  But, no, let's make sure we force them into final liquidation to prove a principle.

Yea, that makes sense.  Of course, it isn't THEIR industry so it's sacrificial.

hedgeless_horseman's picture

Your statements indicate to me that you are not a tax payer, you are a tax receiver.  You are not alone. Today, about 50% of all American households have at least one person receiving entitlements.  This is the highest level in history.  Do you think that this is sustainable? 

A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy. 

http://en.wikiquote.org/wiki/Alexander_Fraser_Tytler

Did you cry for the Enron employees?  What about the buggy whip industry?

Mal-investment.  It must suck when your income depends on it.   Mine does not, therefore this, "ass wipe," doesn't have to, "eat shit."  Tonight, I am having steak.

Boilermaker's picture

Yes, I did have empathy for the Enron, Worldcom, Health South, Adelphia, et al employees.  The key word is employees.  I felt nothing for executives that clearly boned them out gluttonous selfish greed.

Congratulations on working in a different industry.  You omniscient and glorious d-bag.

Panafrican Funktron Robot's picture

Definitely with you on that, we're talking a couple of billion vs. 3 trillion for the banking industry, with about 2.99 trillion of that going to the folks that aren't the bank tellers, personal bankers, telecenter employees, etc.  If you're not fully focused on the criminals in the financial industry, you're falling for the obfuscation they want you to fall for.

Bendromeda Strain's picture

Nevetheless, the asswipes actually cheering the death of GM and Chrysler can eat a bag of shit.  There are literally millions of real, actual, breathing white and blue collar American workers in the industry.  Since the distasteful bailout is actually over with (like it or not) I would guess / hope that there might be some general support for them. 

Maybe if the 22 lb. contract wasn't so offensive, asswipe. It is great sport to bash veterans who go on to work for the DoD here, so buck up, buttercup. It's your turn.

http://www.thecarconnection.com/marty-blog/1016638_right-turn-the-uaw-mo...

Boilermaker's picture

Right, because everyone working in the automobile industry is a UAW member.  Jesus Fucking Christ, are people really this myopic?  They aren't even close to a majority of the total employees.  But, hey, why let the facts stand in your ignorant way.

 

NotApplicable's picture

*wonders how big of a loss can be leveraged by a $3.5B GMAC II*

And here I was doing so well at keeping my lunch down today!

Boilermaker's picture

The loss will be fractional compared to AIG.  Easy answer.

doolittlegeorge's picture

they already had the ad.  in response I demanded the CEO's replacement with Big Bird since "we've already paid for Big Bird."  What do you think?  Or we could all just "give the Big Bird" I guess...

Chuck Yeager's picture

If this goes through, a large portion of this paper will be exposed by 2013, leading to "the best loss is the first loss" rule of thumb being put back into play.  That means the first loss would be NOW with a race to the door to shovel this stuff out.  But how will they meet the Cap Ratio Requirements?  I see another loophole forming somewhere else soon.  There is a disturbance in the Force.

RockyRacoon's picture

Funny how MTM accounting was a great idea when the housing market, et al, was ramping up -- but now, not so much.  Right, Chuck?

StychoKiller's picture

Negative g's can kill every bit as much as positive ones!