Financial Accounting Standards Board

Is it ethical for the American homeowner whose mortgage has been securitized to default, even If they are not financially distressed? First, consider it is unlikely that marketable, fee simple, insurable title can be obtained as a result of fulfilling the obligations of the related promissory note. On the contrary the titles to some 60 million homes in America are badly clouded. Secondly, encouraging investment in an asset class that has been artificially inflated, then deliberately destroying the price of the asset, as part of a separate profit making scheme is unethical, and any agreement based on this type of fraud is grounds to consider the original debt instrument used in the agreement null and void. Fortunately these grounds are unnecessary, as increasingly US courts are ruling that these mortgages are already invalid for numerous other reasons.

It is not easy to destroy the greatest empire in the history of mankind. The 20th Century was the American Century, but as with all empires, the combination of hubris, monetary debasement, imperial overreach and delusional overconfidence have set in motion the inevitable downfall of the American Empire. The policies, decisions, beliefs, and institutions implemented over decades have led the country to the threshold of financial disaster. Based on my observations, a catastrophic combination of demographics, fiat currency debasement, titanic levels of debt, smothering taxation, power in the hands of the few and Wall Street greed have led us to peak Empire. It will be downhill from here as we experience collapse, revolution and ultimately, retribution for the guilty and presumed guilty. I have already addressed the Baby Boomer generation’s contribution to our current plight, to the delight and accolades of Boomers across the land in For a Few Dollars More – Part One. The Boomers were a victim of their size and the timing of their arrival on the scene of empire collapse. Their delusions of debt based wealth and me first attitude could not have been satiated without the creation of the Federal Reserve and the institution of the personal income tax in 1913.

One of the most flagrant forms of abuse of US accounting rules was the implementation of FAS 157 and 115 discussed over two years ago by Zero Hedge here. The rules, which were implemented in advance of the end of Mark To Market back in 2009 to prevent fair value from creeping into bank asset valuations, segregated bank assets into three categories: trading, available-for-sale and held-to-maturity (also known as banking). The chief distinction was that while "trading" assets could be, well, traded, on an ad hoc basis, they would also need to be marked-to-market, and as a result suffer valuation shortfalls which would possibly lead to bank undercapitalization when markets swooned. The held-to-maturity assets, on the other hand, were encased in a shell of impenetrable valuation, traditionally held on the bank books at par, as the assumption is that all would be money good at maturity. The one caveat is that banks could not trade out of these assets without a solid reason to justify shifting underlying assets from one class to another. Not surprisingly, in the volatile days of 2009 and 2010, most banks moved their asset holdings to the banking category leaving trading books empty. And while the FASB recently pushed to reinforce mark to market, that failed. Yet what seems to be happening is that banks are now voluntarily going back to Mark-to-Market in order to take advantage of what even they are obviously perceiving as ludicrous valuations for toxic assets. As the FT reports, Citi shifted  $12.7 billion in bad assets from its banking book to its trading book, supposedly so it can be shielded from onerous Basel III capitalization requirements (minimum 7% equity buffer on banking book assets), but really so it can take advantage of an environment in which bidders for Maiden Lane II assets (primarily AIG itself indirectly through banks) are scrambling to bid on last pockets of remaining yield. What this means is that pretty soon all bank assets will be moved back to Mark To Market, leading in much more incremental volatility as these will be reflexive of market momentum and vol. But that is at least a few weeks away. And by then it will be some other CFO's problem.

On the headline JP Morgan (JPM) beat with $1.28 versus estimates of $1.15 on EPS. Comparing Q1 2011 to Q1 2010 net revenues is down 8.8% while EPS is up 72%. Sounds OK unless you ask two very simple questions (1) what is the direction of income before provisions for loan losses and (2) what is the direction of asset prices... Time will only tell what the real answer to question 2 is regarding the direction of asset prices. Right now it appears the trend is lower. If in fact that is the case then the deteriorating income of JPM and other banks will not be able to absorb rising provisions for loan losses. The bank trade really comes down to a bet on housing. So beyond FASB accounting tricks, government intervention and regulatory slaps on the wrist, the free market will have the final say on the future of the banking sector.

A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the criminal Wall Street banking syndicate. The plan has been enabled by the FASB, SEC, IRS, FDIC and corrupt politicians in Washington D.C. This master plan has funneled hundreds of billions from taxpayers to the banks that created the greatest financial collapse in world history. The authorities had a choice. This country has bankruptcy laws. The criminally negligent Wall Street banks could have been liquidated in an orderly bankruptcy. Their good assets could have been sold off to banks that did not take their extreme greed based risks. Bond holders and stockholders would have been wiped out. Today, we would have a balanced banking system, with no Too Big To Fail institutions. Instead, the years of placing their cronies within governmental agencies and buying off politicians paid big dividends for Wall Street. Their return on investment has been fantastic.

Large US corporate defined-benefit pension plans experienced record sponsor contributions last year, consulting firm Milliman Inc. reported in a study, saying a decline in discount rates fueled record levels of pension expense and cash contributions.

An interesting thing happened last week, garnering no coverage in the face of a global meltdown, literally and figuratively. Nike reported horrible earnings. A rare miss by the industry all star is best summed up by CEO, Mark Parker ”higher costs for materials, labor and freight are here, as predicted.” Then there was Fedex with another miss “earnings could be trimmed by ongoing Middle East turmoil and fuel costs.”... These are not isolated warnings but rather across all industries. Month after month PPI and CPI have been showing rising inputs costs, margin compression, rising non discretionary prices and contracting discretionary prices. At what point will corporate profits peak? It is quite possible that time is upon us.

A butterfly flapped its wings in Tunisia creating a hurricane that is swirling across the globe, wreaking havoc with the existing social order and sweeping away old crumbling institutions and dictatorships. The linear thinking politicians, pundits and thought leaders have been knocked for a loop. They didn’t see it coming and they don’t know where it’s leading. An examination and understanding of history would have revealed that we have been here before. We were here in 1773. We were here in 1860. We were here in 1929. We are here again. The Fourth Turning has returned in its predictable cycle, just as Winter always follows Fall.

The following is another exclusive transcript put together by the guys at Santangel's Review. In his must read testimony in front of the Financial Crisis Inquiry Commission, Warren Buffett explains what he believes saved the global financial system during the depths of the crisis.

And while the general public frets over the latest geopolitical disasters, the SEC proves Rahm Emanuel correct once again, and letting no disaster go to waste, man-made or natural, the world's most incompetent (but massively underpaid, or so they claim) regulator is preparing to let Dick Fuld completely off the hook for last spring's stunning Repo 105 report by Anton Valukas, whose findings even the bankruptcy expert said were probably cause for civil lawsuits. The WSJ reports: "In recent months, Securities and Exchange Commission officials have grown increasingly doubtful they can prove that Lehman violated U.S. laws by using an accounting maneuver to move as much as $50 billion in assets off its balance sheet, which made it appear that the securities firm had reduced its debt levels....After zeroing in last summer on the battered real-estate portfolio and an accounting move known as Repo 105, SEC officials have grown more worried they could lose a court battle if they bring civil charges that allege Lehman investors were duped by company executives. The key stumbling block: The accounting move, while controversial, isn't necessarily illegal." Oh no, illegal it is. The problem is that should the SEC actually pursue it and win, that act would open up the floodgates for hundreds of lawsuits against everyone from Bank of America and Citi, which have also disclosed they used comparable tactics to misrepresent the true status of their books, to shady accounts like Ernst & Young, all the way to FASB at the very top of the corruption pyramid. And with hundreds of millions if not billions in legal fees about to be paid out if the fraudclosure back door settlement fails, the SEC simply can not allow the pursuit of justice to threaten the viability of America's only national interest: that of its criminal banking syndicate.

I said it! Bill Gross said it (and put his money where his mouth was by selling off all US treasuries)! Common sense says it... Central Bank manipulated interest rates are too low. They will rise. What happens when they rise during a supply glut of real estate, foreclosure issues and a slow economy??? Put it this way... What made the markets crash in 2008: unemployment, slow economy, snow... Or real estate prices getting in touch with reality?

This has to be one of the biggest "I Told Ya So's" of the year! JP Morgan is forced to come clean on the legal liabilities that I have been pounding the table about for two years as Wall Streets sell side coterie and JPM management have managed to underplay for about as long. Now, it looks as if the chickens are coming home to roost...

This request for the REAL THING is what brought down Lehman and Bear, and this is what is knocking on the door of B of A. Fear not BoomBustBloggers and other mathematically inclined investors, the righteous return of the fundamentals is nigh upon us!!! Rejoice in unison...

The Truth! The Truth! YOU CAN'T HANDLE THE TRUTH!!!

Oh, I just love that scene. Doesn't Jack Nicholson deliver?

A significant extension to my 3 minute Q&A on CNBC's Fast Money show yesterday that, in my opinion, provides irrefutable evidence that commercial real estate is about to enter a cyclical bear market. Then again, what do I know...