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FDIC’s Bair: "Bury the Losses"
Sheila Bair has turned a corner in her support of the bankers. On the
critical issue of accounting clarity she made these remarks today to a
bunch of CPA’s. I hear she got a standing ovation from that audience.
Her words:
Fair Value AccountingAnother
ongoing regulatory process is FASB's proposal to substantially revise
the accounting standards for financial instruments. Under the proposed
rule, banks would be required to measure substantially all of their financial instruments at fair value on the balance sheet.While
we understand that the objective of the rule is to make financial
statements more transparent, we believe that its effect could be to
undermine financial stability by making bank performance more
procyclical. In short, we do not believe that a bank – whose business strategy is to hold loans and deposit liabilities for the long term – should be required to measure them at fair value on the balance sheet.
70% of all Americans own some stocks. It is hard to avoid the financials
if you’re in a fund, so the consumer’s new champion, Elizabeth Warren,
should take up the issue of clarity on bank financial statements. That
would be a cat-fight I would like to see.
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As a well balanced Ellis character once said: Cool it with the anti-semitic remarks.
Warren has no chance. She's not Jewish and has no cover. Epic fail.
It's just the sanctioning of fantasy valuations...more mark to myth, or mystery if that works for you.
Further, the idea that we would sanction obfuscation of losses is absurd. To do so would mean increased opacity in an area where people evaluate investments based on what's required to report. Is this a purposful attempt to implement NINJA loan type accounting rules? I mean that's where it's headed.
If you and 10,000 friends deposit your money in a new local bank for a 5yr term deposit, and the bank buys a 5yr government bond to earn interest to pay you and your 10,000 friends the interest on your deposit, should the bank mark the government bond to market? If they do, they could make vast profits and losses over the next couple of years while doing absolutely nothing - all they do is clip a 1.5% coupon and give you a slightly lower rate. If interest rates rose by 200bp tomorrow, the local bank would experience a loss of close to 10% of the total deposit amount if marked to market.
For all you people who want banks to mark all their assets to market.... remember they have to market their liabilities to market too. Nobody here would want that. What that means is they get out of the business of making loans on their own book unless they have matching collateral, or they administer loans made by a loan fund.
You must be kidding, right?
The bank knew exactly what the bond will pay, and the bank is the one who created the "term deposit". If the term deposit is fixed rate, their assets and liabilities are 100% known from day one. If the term deposit is variable rate, the spread between their assets and liabilities are 100% known from day one.
Your example contradicts itself, and makes no sense.
Only if the bank created some totally stupid and unusual terms in the offer it made to customers does any issue exist. And if they did that, they should be judged for it.
I am not kidding and my example does not contradict itself. I did not use a variable rate in the example but one could. If the term deposit at fixed rate and the bond asset are known on Day1, that should be fine. Right? Not under full mark-to-market accounting. Full mark-to-market accounting does not care whether the assets and liabilities are perfectly matched with zero credit risk. The asset must be marked to market and the liability (deposit) is not. The mark on the 5yr Treasury note drops 10 points but the liability does not. That creates a mark-to-market loss taken as a hit on the income statement.
As noted above in my reply to Bruce Krasting, the rules for marking down held-to-maturity assets currently held at cost (accrual income basis) already exist in FAS. What people complain about in 'mark-to-myth' is that they are not marked correctly. Mark-to-market does not improve the mark, it is just different, and more volatile.
I personally have no problem with banks marking things to market. It will lower house prices substantially - not a problem because I only own a shack in the woods with no debt against it. I would be happy to buy real estate at far lower prices and rent it out to people who got thrown out of their houses because they couldn't manage the collateral adjustments required by the bank under the new rules.
Well, I don't know every aspect of the "mark to market" policy you describe, and I won't pretend I do. However, the instantaneous "market" value of both exactly-matching transactions should track, assuming both are zero-risk or equivalent-risk. Otherwise it makes no sense.
I agree. For real-estate prices to fall drastically is a good thing. THAT is the right way for everyone to be able to buy a home --- remove ALL props and let the prices fall to their natural levels. The total cost of ownership of a home is 8x to 12x the natural and appropriate cost. I admit, this seems incredible (and non-credible) when you first hear it, but everyone who has said "bull crap" to that claim, then let me put the numbers in front of them and do the math, finally agrees. Of course, to achieve this system would require the elimination of fractional reserve banking and home mortgate tax deductions, but "who cares" because most people could afford to buy a modest home outright a few years after they start working at these prices (either by being frugal and saving, or via a no-interest loan from their parents savings, if they can afford it).
I never bought a home, because I have always refused to become a slave to banks who create the debt-money out of thin air (and for other more practical reasons, like the ability to move whenever I wish). Responsible folks like us are totally screwed by living in this fractional-reserve-world where people buy things when "they can make the down payment" rather than when "they saved enough money".
I, for one, would love to know how the "total cost of ownership of a home is 8x to 12x the natural and appropriate cost".
While I think that houses in many markets are overpriced, I do not think the multiplier is 8-12x. I also think that the amount of work and materials which goes into building the average home costs more than you think it does. If indeed a home is really only worth 1/8th to 1/12th of current cost, then you have to tell all the workers who put their time in to building that house that they too are worth 1/8th to 1/12th of what they cost. The only way the housing stock of the US (or world) is worth 1/12th of current "cost" is when we force people to start living in one-room log cabins again.
As I will continue to say, the desire to make a jump from fractional reserve banking to full reserve banking is such a radical change in the way that the world works that it will instantly impoverish almost everyone in the US. It is not the state of being which is necessarily bad - it is the shock required to make the transition. You think you don't like government interference in the lives of men (most fractional reserve banking arguments are fundamentally libertarian or "anarcho-capitalist")? Too bad. The move from fractional reserve to full reserve can ONLY be financed through massive default or massive wealth/asset confiscation by the government. When the assets have generated enough cash to pay off the existing debts, then the government can sell them to the highest bidders - who will ultimately be either the newly rich or the foreigners who just had their debt paid off and who have most US cash.
When someone can explain to me a good process of getting from fractional reserve to full reserve with arithmetic, which does not involve internal contradictions to that person's own aims (like "let's move to full reserve banking because that means the state will no longer control money," which is a complete and utter contradiction in terms) I will buy into it.
The full analysis is too long to give here, but I'll mention a few factors. Assuming normal mortgage interest rate, a human pays about 3 times the price of the house. So, there is a factor of 3x in the "total cost of home ownership". Remember, if we can bring down the total cost of ownership sufficiently, no debt is necessary, and this is a REAL savings of 3x.
The next biggie is land costs, which is an amazingly large percentage of the total price of a house. It used to be, and still should be, that people in a country can simply claim empty land. That reduces land costs to zero, and saves this entire percentage (about 2x on average). The current, massively corrupt practice, is for the BLM to sell one or more square mile (640 acre) chunks to a developer for $1,000,000 or so. The developer then divides that 640 acres into 2500 lots of approximately 1/8 acre each, with the remaining space consumed by roads and such... and charge $50,000 to $150,000 per lot (~$250,000,000 total), for a [pre-expenses] markup of ~250x. The actual cost of putting in the roads and underground pipes should be paid by those who purchase the houses, but no more (and zero to BLM - they are thieves). The corporation that develops the site has zero right to the land, only living, breathing, individual human beings do.
So here we are... already at 3x * 2x.
Next, the price of homes is just about completely untethered because of two facts: people are morons, and banksters are criminals. Specifically, I refer to "fractional reserve practices" and government scams like FannyMae and such. If banksters could not create fiat-debt-money out of thin air (which they DO), and people HAD to buy houses with cash, the prices of homes would be much, much, much cheaper. They would be cheaper because builders would need to make them that way to make sales.
Or think about it this way. Today, people will buy a house if they can get their hands on the required down payment, which recently has ranged from 0% to 3%. In an honest system, people would need to have already saved 100% of the house cost. So, someone with $10,000 saved up could afford a $10,000 house in an honest system, or buy a $300,000+ house in the current scam-system. Being morons subject to FannyMae and corporate propaganda, humans today buy whatever they are allowed to buy (the $300,000 house). This drives up prices --- massively.
This does not mean the people building houses would earn 8x less money. They probably would make somewhat less money, because an honest house market would be more price competitive. You can also be certain that builders would find ways to build houses much cheaper.
I have been a product developer for decades, and I know a fair bit about designing products. I am always massively grossed out how stupidly houses (and other buildings) are constructed. It is insane, really. I can easily see how houses could be built with modular mass-produced structural parts that are built remotely by automated machines in factories, then simply assembled (more-or-less "snapped together") at the site. The labor costs would be reduced by about 10x just because 10x less labor would be required. And material costs would also be greatly reduced, though I cannot accurately estimate by how much.
The average house might be a bit smaller, though I doubt it. Instead, I suspect the average house would contain fewer unnecessary "fancy/luxury/pretentious" elements (which function no better, but "look" or "pretend to be" somehow more desirable). Of course, anyone with rich and/or stupid parents might be able to afford to waste money, but regular folks need not.
This gets us close to 8x. At the top of the bubble, house prices were about 2x higher than the long term trend line, which means, half the cost was pure gravy for the housing industry (homebuilders, real-estate developers/brokers/agents, building material suppliers, etc). That is quite obvious, since I just drove past a new development of new homes exactly like the ones next door, and they are selling for 60% less than the same house in mid-2007. Their costs are probably no less today than 2006 when the identical homes next door were built, so there was more than a factor of 2x "excess ripoff" in the price due to bubble-mania. So if we say my "8x to 12x" refers to the "top of the bubble", I've already shown how those prices were more than 8x higher than in an honest system.
And I haven't included several other factors, each of which is somewhat smaller than those mentioned above, but add up.
One important part of understanding is this. If a $250,000 home in 2007 could be purchased for $75,000 today (in a totally honest market), a newlywed couple out of high-school or college could live a frugal life for just a few years, save the entire price of the new home ($75,000), and buy it with cash. From that day forward, they would have zero rent and zero mortgate payments. 100% of their earnings would be available for them to live "the good life". Perhaps they'd like to enlarge or "upgrade" some elements in their house, if they want to make themselves feel "upscale". Well, with no rent or mortgage payments, that would be easy.
Also note that in such an honest system, they would become rich over their working lives compared to folks today, who are bled for $750,000 (including interest) for that $250,000 home that should have cost $75,000 (hence the 10x difference). The $675,000 difference is theirs to invest, take trips, educate themselves, have fun, eat healthy, you-name-it. This also means, when their kids become adults [graduate and/or marry], they could give their kids a new house for only 1/9 of the savings mentioned above (on only 1/18 == $38,000 each if both sets of parents contribute). Or the parents could lend the couple $75,000 at zero interest. The point being, since the gangster banksters are not involved, the total cost is still 10x less than today. So low, in fact, that parents would likely start giving free homes to their kids after they finish school or marry.
Also note that people should learn about (and get) "allodial titles" to their property, which eliminates all real estate taxes (another significant and fraudulant expense). Note that allodial titles cannot exist for land or home that has any loans against it, so this is yet another win for the honest system that is not available in the existing scam.
The above is just off the top of my head (from memory). I did not refer to my careful, detailed analysis, so some numbers might be slightly off. But the point is made.
The most important point I want to make is... how utterly clueless humans are --- how completely they can be enslaved and ripped-off without even noticing.
To "jump to a non-fractional reserve banking system" impoverishes NOBODY (not even the criminal ganster banksters, who already have stolen enough to live in luxury for a dozen lifetimes). Where do you get such an idea, anyway? Perhaps you imagine those with bogus loans would need to repay them. Answer: NO. The loans are inherently fraudulant. FederalReserveNotes are not constitutional, not money, and have ZERO value. Thus no contract based upon that is valid. This problem, since imposed involuntarily by the predators-that-be in the federal government, would need to be undone once. Everyone with such a loan would need to have it recast to about 1/4 to 1/8 of its former size, all interest eliminated, the payback term left as-is, and payment required in gold (and the amount recalculated in gold, obviously). Frankly, there is a very good argument to claim those with mortgage loans owe ZERO to the predators who scammed them with those fiat debt fraud currency contracts... but that would totally screw everyone who did not buy a house because they were being prudent (waiting until they could pay cash, or pay at least 20% to 50% down payment). But we cannot expect a 100% corrupt system to be unwound without some modest irregularities. Some of these could be paid by taking all the property of the gangster banksters who ran this system, since ALL their income for life has been under fraudulant behavior.
The same goes for the debts of the federal government of the USSA, and all state and local governments. They must stop operating on the basis of debt --- that is MASSIVE FRAUD against those not receiving the services given, but required to pay back the debt later. That must end.
Yes, I can tell you how we can get from the current scam to a fully honest system without any fractional reserve practices, and without any fiat, fake, fraud, fiction, fantasy debt or money or currency or anything else. However, this post is already too long. Search my other comments in ZH to learn some elements of that system.
i need to print and bind these damned things!
+++
If the asset has a variable market value (which in your example it does), and the liability does not (as you posited), then you still have a built-in mismatch. The loss so-generated from marking reveals this gap.
Agreed. If it is a loan with the same credit risk rather than a traded bond would that make a difference? Under current accounting it would. Under the proposal to "mark loans to market" it would not.
What is being discussed is credit quality. Not duration gap funding. That is a separate and measurable 'book'. The "We are holding this to maturity so we don't have to write it down" is at the sole discretion of the banks. That is a bad plan. How could you trust those books. I don't/wont.
What has been and is being discussed by FASB and others is quite specifically NOT linked only to credit quality. It is financial instruments of all sorts. In my example, there is no duration gap either. It is a gap between marking one's term asset against one's term liability. If the term asset is marked to market while the term liability is not (because deposits at fixed rate, despite being a bank's own credit instrument, are NOT marked to market), then you get the problem I showed.
If the same Excellent Local Bank made home loans to all its 10,000 depositors, who were, as ZH board commentators and their friends are, perfectly creditworthy in all cases when viewed on an objective basis, and the local bank made those loans with a HUGE equity buffer (call it 50%), then one could say that those home loans are indeed of excellent quality. If Excellent Local Bank saw that trade-able mortgages of all sorts were suddenly trading at no higher than 70 cents on the dollar, as they were in early 2009, how does ELB mark their assets to market? Do they say that all of their excellent quality loans to excellent quality customers are worth 30% less because that is the closest approximation to "market" so I have to mark there?
If that became the rule, the only way they could defend themselves is by demanding more collateral from the borrowers (i.e. their deposits, mutual fund assets, lien on their car, wage garnishment, etc) so that they were able to say that the loan was better protected with collateral. That is what people here could not handle.
The current rule on non-performing (mortgage) loans which are 'held to maturity' is in FAS 65 Para 7. If they have to be impaired, the have to be marked down. The "market" does not necessarily understand the appropriate value of Bruce Krasting's mortgage because Bruce is a guy in a recourse state with millions to his name, 50% equity, and purchased his home in 1996. FWIW, it is not at the sole discretion of the banks anyway. It is at the approval of the bank's auditors as well. You may accuse them of not being trustworthy either, but find me a better set of people to judge and let's use them.
What you seem to want (based on your "how could you trust those books" comment) is to have someone other than the bank decide whether the mortgage/loan should be marked down. I see no problem with that, but that is not mark-to-market, that is just a better process of marking carrying value to the lower of cost or market, which is what FAS rules already do.
In short I do not believe the government gives a flying fuck what it's citizens care or say, what is right or wrong, only in what is only in the best interest of special interests and serving the elite.
This is bullshit what they are allowed to do in the name of survival.
Hey, why not make Banks' financials a matter of National Security, so they don't have to give out any data whatsoever, not even fraudulent data?
I wish I was a God damned "jew" and never indoctrinated with any morals whatsoever.
"Jew" is capitalized. It really is not a good idea to post while drunk, Jim.
Or do you go by "James?"
You are right to be afraid of us, we are everywhere and we know who you are.
I'm not afraid of anything, least of all you putzy faggots. You fucking assholes will be wiped out in this country in less than 2 weeks when it goes down.
Sleep tight. You can't go to China.
I can't think of anything nasyt enough to say. Really.
You've passed the boundaries of my sarcasm and ability to reply.
I hear you. However:
98% of NBA players are African American. 98% of African Americans are not in the NBA.
Don't confuse the corrupt that must go with the rest of the tribe.
Fuck off and die, Nazi filth.
Hitler was right about everything. Here we are again, jews. I will tell you something. We are not the Russian peasantry. This time you are going to fucking get it.
Hitler's Monetary System
7-14-7
Someone lose their job today? Perhaps to a Jew?
Drinking won't help, and quoting Hitler is really, REALLY played.
William Gayley Simpson is a new one for me-I'll make sure to google search him.
What's that I hear..........It's a Jew! Look out!!!
I smell your fear and I like it. I want your daughters targetted as you have targetted ours. Get rid of the women and the khazar race dies.
You need to cool it, LS. There are plenty of people here who feel that the power of Organized Jewry - and all other Group Entitlements - needs to be curbed. But your genocidal ravings are no help at all. In fact, they read like a provocation.
You fuck-off.
It just so happens Bair and nearly all the people who got us into this mess and exploited us and have as their goal eliminating the middle class and making themselves the rulers are Jews. Start to finish, and still there after all the crimes, and we're still battling them, are almost to the last person, Jews.
The top of every pyramid in Corporate America, the FED, Banking, Insurance, Government, Academia, Media, ALL JEWS.
Why not hold those who are guilty, responsible? If they happen to be Jews, they should get NO IMMUNITY. Or are you saying they should get a free pass?
Or are you saying this top of the heap saturation does not exist?
Spread the word about these fucks.
Fake balance sheets are Otay if you are Wall Street Banksters, but dont done of you little people try it.
*palmface*
Why do we even bother having balance sheets at all? If the information on them is complete bollocks and can't be trusted, what's the damn point?
Again, fraud. This is what has put America in the shit and while our leaders keep burying it, there will be no recovery. Of course our leaders keep burying it because they are complicit.
"It's hard to avoid financials when you are in a fund"
Why anyone would be in a fund, much less one with financials, is beyond me.
She knows if they marked to market, they'd all be BK and we'd have the truth about the core bankrupt philosophy behind U.S. banking.
What she doesn't tell us is China had the same problem post 1997. They didn't everything we did, except the KEY thing, which made all the difference.
They chose the special purpose vehicle (FED), which took the loans off the banks books (just like us), BUT...KEY POINT..
Their banks are public utilities that SERVE private industry and the country, therefore the private banking cartel didn't get the sole benefit at the expense of the people! The people got the risks and benefits of the banks, spread through all industry and production.
Simple, massive conceptual difference. You have to decide are banks a utility that drives industry or a fake industry that parasites real production for a profit ANY way they can.
Can Americans handle the only concept that will save the nation from the oligarchs?
We can't 'decide' anything.
"We" are citizens without a country, which country has been hijacked by Goldman Sucks, Jamie Dimon, George Soros, and Larry Fink, Bobby Rubin, geithner,orszag,bernanke,summers, paulson, greenspan, friedman,fuld,frank,thain, dodd,mozillo,o'neal, gensler, cassano, blankfein, shapiro,yellin, kashkari, cohn, dudley, dugan, kagan, lippman, etc., ad nauseum.
Yet, under her "guidance" the TBTF banks are out yanking small business loans by the millions, all because our balance sheets have gone south.
So, once again, heads they win, tails we lose.
God I'm so glad I'm living in the greatest country on earth.
Yep, I'm so happy after the ass-fucking the banks gave my business, maybe I'll go take a flight and get me some radiation or even a good feel!
Screwed again and still no fucking KISS! I ain't nothing but a cheap whore.
1981 Playbook, and then some. Our system is FAR, FAR more fraudulent than the run-up to the S&L bailout.
The regulators have joined the fraud.
I like this: "we do not believe that a bank – whose business strategy is to hold loans and deposit liabilities for the long term."
LMAO! She forgot to mention everyone's a "bank" post 2008, making her comment ridiculous on it's face.
Wordplay. Say "bank", think Goldman Sachs. Smile. Move on...
Black is white, paper is money, fraud is good. When this goes down it is going to make the Great Depression look like a speed bump compared to a bridge out.
If all banks fail, then she's out of a job... maybe she just figured it out. Maybe she could become a rep for Goldline.
Tagline : Hi I'm Sheila..... Do you need Gold ? I know I do ! In the old days we relied on the FDIC to provide us insurance against default. Those days are past. Today every man, woman and child should own Gold and Silver as protection against those large despicable financial institutions.
I only needed to hear Shiela speak once to know who she backs.
He name is Shilla for a reason.
Shelia would be perfect for a 50 something guy like myself. I could listen to her talk about derivatives all day.....
Be careful, her head bobs alot and she requires medicines to keep a straight face during the long talks.
I'd love to walk into my business banker's office with a balance sheet full of wishful thinking....
"...[a bank] whose business strategy is to hold loans and deposit liabilities for the long term..."
Uh, Shelia dear, not quite. Sorry to be so patronizing, but you should know better. The bank's business strategy is to borrow deposit liabilities short, and lend long. This built in mismatch is precisely WHY their books need to be regularly marked-to-market; otherwise, it's really tough to gauge interest rate risk. Regular mark-to-market also let's us know how well banks are managing credit risk.
I hear what you're sayin' though, babe. You dont want to force a good chunk of the industry into insolvency. I get that; I really do. Nevertheless, you're going to have to. Accurate accounting of gains and losses are designed to accurately reflect reality. And while your evasions may buy some time, they do not change the underlying insolvency conditions. Whether you recognize them or not, the losses exist and continue to grow. So, wrap your head around what you need to do, and get on with it.
You win the frozen turkey.
:D
Second that!
Bruce do you have this transcript or a video of this? This is sick.
Can I bury my debt too? Like in the back yard so I can be free of it?
Sorry for the ommission. The link:
http://www.fdic.gov/news/news/speeches/chairman/spnov1710.html
No, you can't bury your debt. Only banks are allowed to do that.
b
I notice in many interviews Sheila Bair cannot look the camera or her interviewer in the eye. She tends to look down. So, she finally sold out. Fuck her.
I don't know if I should consider moving or staying to watch the fucking thing burn down.
yeah - shit - I was a Sheila fan in the beginning, but..........
this town needs an enema---jack nicholson
town,city,county,state,country and everyone running them is so full of shit we're gonna need an enema bag the size of the milky way