By now everyone is aware that following tremendous pressure by the banker lobby, which knows too well the Ponzi jig will be immediately up if Quantitative Easing’s TBTF Madoffs are forced to disclose the true value of their worthless assets (yes, true value comes from asset cash flow generation, not from diluting money), the FASB decided to stop its push for a return to MTM. From the WSJ: “Accounting rule makers, bowing to an intense lobbying campaign, took a key step Tuesday to reverse a controversial proposal that would have required banks to use market prices rather than cost in order to value the loans they hold on their balance sheets.”
Transparency? What moron would propose that in an economy that is so obviously healthy and surging. After all, the only way to validate a surging stock market, er, economic recovery, is through bullshit numbers pulled out of the ass. That way they can pretend to tell us the truth, we can pretend to believe them, and everyone will frontrun the Fed who pretends not to be buying stocks. And it would have been great if it ended there. Alas no. Following the announcement, none other than Bill Isaac, current Chairman of LECG, but far more importantly, former Chairman of the FDIC under Ronald Reagan decided to send out a gloating email to his entire address book explaining what a moral victory it is to kill the MTM monster that is the sole reason for the near collapse of capitalism in 2008, and how truly wonderful it is for everyone to live in perpetual lack of knowledge of what the true value of any company’s assets really is. Unfortunately, this just goes to show what the existing, extremely bribed, leaders of the nation’s most vital organizations really think.
And before we present Isaac’s note, here is some more on how the banker lobby scored one more over the US peasantry, from the WSJ:
The Financial Accounting Standards Board preliminary vote would allow banks to continue valuing many of their loans at amortized cost, an adjusted version of their original cost, as they do now. That backtracks on an FASB proposal last May to expand fair value to bank loans. The reversal is a victory for the banking industry, which says it would have hurt lending and unfairly reduce banks’ book value. Supporters of the FASB fair-value proposal say it would have improved transparency and unmasked potential weakness at banks.
The FASB indicated the overwhelmingly negative reaction to its proposal from companies and investors played a large role in prompting the board to change its mind. The board received more than 2,800 comment letters on its fair-value proposal, most of them opposed to the move.
FASB changed direction on how to value loans because of “strong signals from the board’s constituents,” FASB Chairman Leslie Seidman said during a webcast Tuesday. She also noted that some loans—including those that banks trade actively instead of retaining in order to collect the payments on them—will have to be valued at market prices.
And the reason for why opacity rules:
At some large banks, their loans’ fair value is billions of dollars less than their carrying amount.
That would dramatically reduce their shareholder equity—or assets minus liabilities—if the loans had to be carried at fair value.
Investors have said fair-value information is important to them even if they don’t think it should be the criteria for valuing loans on the balance sheet, FASB members said.
Simply said, if everyone knew the truth, everyone would be insolvent.
And here is William Isaac’s letter, which blames Mark To Market for the near end of capitalism. Conveniently his email is also provided.
Mark-to-market accounting — a failed policy that was terminated by the Roosevelt Administration in 1938 because it was inhibiting bank lending — was revived by the Securities and Exchange Commission and the Financial Accounting Standards Board in the 1990s over strong objections from the Fed, FDIC and Treasury.
The MTM policy senselessly destroyed some $500 billion of capital in our financial system when the markets collapsed in 2008. This destroyed some $4 trillion of bank lending capacity and was a major contributor to the financial panic and ensuing economic collapse.
The FASB, almost inexplicably, proposed last year to EXPAND mark-to-market accounting to cover all bank loans. This would have essentially shut down lending except for short-term lending to businesses with impeccable credit ratings.
See the press release below. The FASB is apparently abandoning its plan to expand mark-to-market accounting. This is an important first step improving US accounting as it relates to financial institutions.
Best regards, Bill
As Bankers Kill Off Mark-To-Market For Good, Former FDIC Chairman Gloats | zero hedge.