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Italian Banks Pushing For Mark-To-Market To Benefit From Surging Price Of... Gold

Tyler Durden's picture




 

The world has officially gone insane. After making a mortal enemy out of Mark to Market and halting it pretty much everywhere as an indicator of true asset value, Italian banks are now aggressively urging to implement Mark to Market to take advantage of surging prices in, get this, gold! From the FT: "Italian banks, which by a quirk of law are shareholders in the country’s central bank, are lobbying to have their stakes in the Bank of Italy marked-to-market on the back of surging gold prices in an attempt to ease regulatory pressure on them to raise capital in advance of this summer’s stress tests." You can't make this up: basically the world financial mafia says Mark to Myth when prices are low, and Mark to Market (on selected assets) when prices surge to a record.

The FT has more on this tragicomedy:

The Bank of Italy currently has a nominal value of just €156,000 ($215,000) divided into 300,000 shares which are distributed among Italy’s retail and savings banks according to their size.

Senior bankers say taking into account the surge in gold prices the Bank of Italy could have a mark-to-market value of about €30bn. Analysts estimate the Italian banking sector has combined recapitalisation needs of much the same amount to comply with new Basel III capital rules.

Any debate over the value of the Bank of Italy has met with opposition from the central bank concerned that it could harm governance. For the same reason, executives at Italy’s banks are not involved in the central bank’s decision-making process.

But several sources familiar with the talks say Italy’s banking lobby is gaining political traction amid opposition from its core shareholders, the local banking foundations, to capital increases as they fear a dilution of their stakes.

Italy’s government has also indicated there is a political will to reduce the need for Italian banks to access the capital markets

It is oddly ironic that we discussed just this issue 10 short days ago, when we penned "Does A Surging Gold Price Mean The Fed Will Be Forced To Sell Treasurys?" when we observed a variation of the the inverse: i.e., should the Fed allow Mark to Market accounting on its alleged 8,133.5 tonnes of gold, which are currently held on the books at $42.22, then the asset side of the Fed's balance sheet will surge by $350 billion! Which would mean that either excess reserves will have to rise by the same amount, making hyperinflation that much more likely, or the Fed would have to sell a like amount of securities. Neither will happen.

Which is why we believe that the Italian MTM proposal has no negligible chance of actually happening: one call from Bernanke to former Goldmanite, and current Bank of Italy governor, Mario Draghi will make sure to lay out all the "angles" of the situation quickly and succinctly...

 

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Tue, 03/01/2011 - 09:56 | 1006685 bankrupt JPM bu...
bankrupt JPM buy silver's picture

and there goes Italy!  Spain where you at?

 

www.silvergoldsilver.blogspot.com

Tue, 03/01/2011 - 09:57 | 1006689 falak pema
falak pema's picture

As long as they don't try and debase Mozzarella Italy's economy is fine.

Tue, 03/01/2011 - 09:59 | 1006692 SWRichmond
SWRichmond's picture

Gold, being fully able to faithfully execute the "store of value" function, also functions beautifully as capital.

Tue, 03/01/2011 - 13:17 | 1007554 Arthor Bearing
Arthor Bearing's picture

Mandatory lower-of-cost-or-market accounting, no counting the liabilities of others towards capital requirements (because of the increased risk of cascading defaults). Two accounting rules that would solve TBTF all on ther own.

Tue, 03/01/2011 - 10:02 | 1006706 redarrow
redarrow's picture

Frikkin ass***. Just cannot stand this. Whenever there is trouble socialize and privatize on good news.

Tue, 03/01/2011 - 10:03 | 1006707 camoes
camoes's picture

Bunga bunga party-ho bitchez!!!

Tue, 03/01/2011 - 10:04 | 1006714 ronin12
ronin12's picture

Could this be a precursor to returning to a (partially) gold backed currency?

Tue, 03/01/2011 - 10:50 | 1006834 Snidley Whipsnae
Snidley Whipsnae's picture

The Euro is already 'partially gold backed' for their central bank, the ECB, marks gold to current market value every quarter.

Unlike the US Gov that continues to carry it's gold reserves (assuming it has any) at ~ $42 per oz.

Tue, 03/01/2011 - 11:24 | 1006966 A Nanny Moose
A Nanny Moose's picture

$42!! A bargain at twice the price. If only...

Tue, 03/01/2011 - 10:06 | 1006724 johnnymustardseed
johnnymustardseed's picture

I am sure it would be limited mark to market......only the good stuff

Tue, 03/01/2011 - 10:08 | 1006728 tallystick
tallystick's picture

Yeah they just wanna mark gold plated tungsten to the price of gold.

Tue, 03/01/2011 - 10:11 | 1006743 gwar5
gwar5's picture

Yeah -- the banking bitchez are telling us what real money is.

Never trust a fiat currency --- it's so unreliable they named it after an Italian car maker

Tue, 03/01/2011 - 10:11 | 1006746 Contra_Man
Contra_Man's picture

Canadian's Banksters Too:

Here is how: BMO Q1/11 just announced gains on new Level 1 assets from previously "held not available for sale" Level II assets, and how now today level II assets which can now float to the surface on now improved F.M.V. on Level III assets, and so forth.

It's like this: if you were a Bankster today, your "assets" that had a poor FMV value (in your opinion) a year ago (at market rates) suddenly now becomes "Held Available For Sale" as the market value has improved - and so only now, shall we play the Free Market (valuation) Game.

Sometimes we FMV - Sometimes we do not.   Accounting Theory 401

Question:   Is it transparent and fair reporting?  Course not.  Consistency induces confidence huh? Wouldn't you like to hold your RRSP or Investments as not available to buy/sell during periods of market price declines.  I sure would.

So keep up on these types of audit committee shenanigans:

From the BMO Q1 Notes:

Significant Transfers
"Transfers are made between the various fair value hierarchy
levels due to changes in the availability of quoted market prices
or observable market inputs due to changing market conditions.
The following is a discussion of the significant transfers
between Level 1, Level 2 and Level 3 balances for the quarter
ended January 31, 2011.
During the quarter ended January 31, 2011, $207 million and
$20 million of mortgage-backed securities and collateralized
mortgage obligations were transferred from Level 3 to Level 2
within trading securities and available-for-sale securities,
respectively, as values for these securities are now obtained
through a third party vendor and are based on market prices.
Similarly, during the quarter ended January 31, 2011, corporate
debt securities within trading securities were transferred from
Level 3 to Level 2 as values for these securities are now obtained
through a third party vendor and are based on market prices.
During the quarter ended January 31, 2011, derivative assets
of $6 million and derivative liabilities of $9 million were
transferred from Level 3 to Level 2 as market information
became available for certain over-the-counter equity contracts.
During the year ended October 31, 2010, a portion of the asset backed
commercial paper issued by the conduits known as the
Montreal Accord were transferred from Level 3 to Level 2
within corporate debt trading securities because we are now
valuing the notes based on broker quotes rather than internal
models due to increased broker/dealer trading of these
securities, resulting in improved liquidity. In addition, certain
available-for-sale corporate debt securities that were previously
valued using observable market information were transferred
from Level 2 to Level 1 as values for these securities became
available in active markets."



Tue, 03/01/2011 - 10:11 | 1006749 Oh regional Indian
Oh regional Indian's picture

Italy=Vatican

Vatican= world's largest and oldest gold hoard. 

There is a gold announcement (pure instinct here) that will come and pull th erug from gold, for a bit anyways. Maybe quite a bit. 

Silver and gold will disconnect. For a bit anyways. 

Very interesting out of India last wek, of a seventeen ton silver hoard found in a fascinating place.

Please get ready for a AU/Ag ratio correction in Silver's favour. It's coming. Maybe a few more wild swings here and there....

The significance of the India silver find is trippy.

ORI

http://aadivaahan.wordpress.com/2011/02/25/wisdom-for-warriors-7/

Tue, 03/01/2011 - 10:16 | 1006761 HTZMR
HTZMR's picture

I would hope that Mario Draghi's own personal ambitions prevent such a farce, since it would justify German opposition to the head of Italy's central bank as Trichet successor.

Tue, 03/01/2011 - 10:18 | 1006764 hugovanderbubble
hugovanderbubble's picture

Italian banks are worst than spanish....so imagine...

Tue, 03/01/2011 - 10:25 | 1006776 Bahamas
Bahamas's picture

Italy has 146 US Army bases and thousands of Marines on its soil since WWII. Not to mention 90 something nuclear warheads belonging to the Pentagon.

Italy can't and won't do anything unless it's American boss tells Italy so.

Italy=puppet state 

Tue, 03/01/2011 - 11:37 | 1007040 Fred Hayek
Fred Hayek's picture

Another example of how insane U.S. defense expenditures are.  Why in the world do we need 146 army bases in Italy?  Zero would be fine.  Same thing with the nuclear warheads.  This insanity has to stop.  If Obama had a brain, conscience and balls it would.  He seems to possess all but three of these attributes.

Tue, 03/01/2011 - 17:54 | 1009062 RockyRacoon
RockyRacoon's picture

Fair enough, but you realize that he didn't put them there.  I'd say we've had impotent leaders for a long time.  Why blame just the current one?

Tue, 03/01/2011 - 10:29 | 1006786 ArkOmen1
ArkOmen1's picture

Yes! And did you know that our central bank, the wonderful Federal Reserve, just made up a new rule that basically says that it can never lose a bet! When there was some talk about how the Fed could become insolvent from what will certainly turn out to be losing bets on Treasuries, the Fed then, in an unbelievable move, signaled that any losses will be shifted onto the balance sheets of the outlying federal reserve member banks, to ultimately be shifted onto the balance sheet of the Treasury! Those losses will then be "offset" by winning bets that the Federal Reserve makes to essentially nullify all the bets.

Worship the power of the Federal Reserve!
The all-seeing eye, knows all, sees all!
We mustn't resist the Federal Reserve!
All heil the Federal Reserve!

Tue, 03/01/2011 - 10:34 | 1006797 MarketTruth
MarketTruth's picture

So it is the Fed's gold and not that of the United State citizens... since the Fed is privately owned by the Morgans, Rothschilds, Rockefellers, etc.

Tue, 03/01/2011 - 10:34 | 1006802 vonuistic
vonuistic's picture

Maybe if they count the gold, they would find a number somewhat less than $350 Billion.

That might help.

 

Tue, 03/01/2011 - 10:44 | 1006817 Bansters-in-my-...
Bansters-in-my- feces's picture

$42.50 on the books still.???

And some Americans think their Gubberment is fair and sane......

 

What a fucking sick joke

Tue, 03/01/2011 - 10:44 | 1006818 Jim in MN
Jim in MN's picture

Man, back in the day it was mean old dragons lying on top of the gold hoards.

Now its vampire squids and mafioso.

The more things change.....

Wed, 03/02/2011 - 02:09 | 1010377 Oh regional Indian
Oh regional Indian's picture

:-) the more they do remain....

Excellent visual!

ORI

Tue, 03/01/2011 - 10:45 | 1006822 Overflow-admin
Overflow-admin's picture

It's really stunning... I guess I'll increase my 'diversification' in precious metals and stockpile. Some wines are undoubtly good assets.

So now the bets are on: who will be the first to withdraw from the Euro???

Tue, 03/01/2011 - 10:45 | 1006826 Zardoz67
Zardoz67's picture

Maybe the problem is not Mark to Market when the prices are high, but to remove it when prices go low.

Tue, 03/01/2011 - 10:45 | 1006827 proLiberty
proLiberty's picture

This moves the Euro towards freegold.

Tue, 03/01/2011 - 10:54 | 1006848 Snidley Whipsnae
Snidley Whipsnae's picture

The Euro was much closer to free gold at it's inception. The European Central Bank marks the gold on it's balance sheet to market each quarter, while the US maintains that gold in it's possession is worth ~ $ 42.

The ECB has shown an enormous increase in the gold held on balance sheet.

 

Tue, 03/01/2011 - 22:03 | 1009834 Spitzer
Spitzer's picture

 this is getting interesting.

FOFOA gets points for this one.

Tue, 03/01/2011 - 10:51 | 1006842 Zardoz67
Zardoz67's picture

Italian banks are worst than spanish? Don't believe, the fondamentals are better: no re bubble, highest savings rate, lowest privat debt and unemployment....

Tue, 03/01/2011 - 10:52 | 1006845 metastar
metastar's picture

Hey, Lets use Mark-to-Market for Gold, Silver and other rising assets and mark-to-fantasy for everything else!

If you're going to lie (like the criminal, corrupt, and illegitimate governments and banks), why hold back?? There's a war to be won by the uber rich against the poor, middle class, and mere mortal rich.

Tue, 03/01/2011 - 10:57 | 1006853 emsolý
emsolý's picture

Which would mean that either excess reserves will have to rise by the same amount...

 

It would go to "retained earnings" on the liabilities side, surely, not excess reserves (banks' deposits). Which could, incidentally, make up / buffer for some of the future losses from the asset side.

Tue, 03/01/2011 - 10:59 | 1006868 celticgold
celticgold's picture

 show me the gold baby

Tue, 03/01/2011 - 11:34 | 1007017 Council of Econ...
Council of Economic Terrorists's picture

..will make sure to lay out all the "angles" of the situation quickly and succinctly...

 


By "angles" do you mean "suicides?"
Tue, 03/01/2011 - 11:57 | 1007116 Problem Is
Problem Is's picture

"FT: "Italian banks, which by a quirk of law are shareholders in the country’s central bank..."

Hey FT Morons, What a Coincidence
By a quirk of law, our Wall Street TBTF's are shareholders of the FRBNY! Propaganda false premise always opens a FT article...

How about the Bank of England, FT? Who are YOUR douche owners?

Quirk of law my ass...

Tue, 03/01/2011 - 13:05 | 1007465 PulauHantu29
PulauHantu29's picture

I guess it shows how essential gold is despite all th eMSM knocking it all the time.

Tue, 03/01/2011 - 13:33 | 1007633 glenlloyd
glenlloyd's picture

That's a bit hypocritical in my book...

Wed, 03/02/2011 - 03:46 | 1010481 boogey_bank
boogey_bank's picture

For italian speaking people here is what eugenio benetazzo "il tyler durden dei mercati finanziari" says about italian banks in trouble:

http://www.eugeniobenetazzo.com/diamo_il_voto_alle_banche.htm

this is dated feb 2009

Sayed that, what zh people thinks about a single nation (say Italy) trying to implement a gold backed currency? What will happen (no longer than 12 hours) after?

1) as bahamas sayed "Italy can't and won't do anything unless (in thi case becouse) it's American boss tells Italy so."

2) an american carrier bombing Rome (but not the Vatican)

3) the world rush to invest in Italy and an  Iceland style meltup of the economy and a  pop of the subsequent bubble (improbable).

In Italy actually people is shouting "berlusconi in jail" fro the whole whores affair.

I should say "Draghi in jail and berlusconi at circus"

 

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