Thursday, April 2, 2009

Magic Hour in the BananaRama Republic

(So let me get this straight ... the banksters will be able to launder legacy/toxic/crappy assets back to themselves and in doing so they will pump up the value of them. This was further confirmed today by commentary that only folks that own these types of assets will be able to bid on these type of assets and that very large 10B+ hedge funds are being excluded because they aren't part of the crony capitalism club... hence they might actually speak truth to power as opposed to following directions. We now, like other corrupt oligarchies throughout history, are reducing transparency in order to reward the financial elites that got us into this mess. There is some commentary that since banks now have greater license to lie that they would be less willing to sell to the PPIP, that conundrum is obviated once one realizes that there is no conflict between buyer and seller in this scheme, literally they are bidding themselves up. Oh and to add further insult in order to resolve the pablum narrative of enticing the banksters to sell the Federales have announced that they will sweeten the deal by providing a slice of the upside to 'em. The rallymonkeys are circle smirking with abandon now, Bubblevision and HeeHaw will sell it like soap...its' a spring sale at the bananarama republic. Only this time it truly is the taxpayer that is being taken down. As his eminence Sir Springsteen would say they 'cut you in half, while you're smilin' ear to ear. It's magic.' -AM)

(Add-on ... this is all over the blogosphere now given the article in Friday's FT. For my part I do feel like a bit of wind has been taken out of my sails, I had great hope for Obama. As Yves at Naked Capitalism so aptly stated: 'The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.' -AM)

By Ronald D. Orol, MarketWatch
Last update: 2:49 p.m. EDT April 2, 2009

FASB's new guidance allows banks and their auditors to use "significant judgment" when valuing the illiquid assets such as mortgage securities.

The provision allows banks to make changes to their first-quarter 2009 results, which are expected to be released by mid-April. However, FASB members argued that it will be difficult for banks to make the adjustment during that period.

Columbia Business School Accounting Professor Robert Willens said new audit guidance, which gives banks the ability to use internal models and analysis to value their illiquid assets, could hike their earnings on average by 20%.

However, he added that large banks such as Citigroup Inc. would get "the lions share" of the revaluation profits because they are stuck with a disproportionately large amount of the illiquid mortgage and other securities. (Of course Citigroup responds with "FASB's decisions today on fair value accounting -FSP FAS 157-e- will have no impact on Citigroup's financial statements or our existing practices for determining fair values" ... perhaps the most outrageous statement of the day. -AM)

However, Joshua Shapiro, chief economist for MFR Inc. in New York, said the new guidance decreases transparency and allows financial institutions to use fictional valuations for many toxic assets. "Shenanigans such as this do nothing to resolve the many problems facing the financial system," Shapiro said. (All we have done is institutionalize political risk ... I never thought I would live to see the day.-AM)

However, the battle over mark-to-market may not yet be over. Bankers are pressing lawmakers to urge FASB and its parent regulator, the SEC, to set up a procedure to retroactively recoup losses financial institutions have already taken on impaired illiquid assets. (Oh sure, why the hell not.-AM)

House Financial Services Committee Chairman Barney Frank, D-Mass., told the American Bankers Association on Tuesday that he will take their concerns about reversing retrospective losses to the SEC and Congress. "They [bankers] ought to be able to go back and say they took that loss on an asset that is being held to maturity and recoup that loss," Frank said. (Oh Barney ... are you also asking for the banks to give back all the gains they booked due to the value of their debt falling? -AM)

However, Willens said it would be extremely unusual for FASB to allow banks to go back and restate their existing earnings. "FASB doesn't traditionally do that, but Frank's pressure could make it happen," he said. (What's next, seize the sugar mills?-AM)

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