"Independent" FASB Gives In

Despite the outcry of investment banks, auditors, analysts and LAST BUT NOT LEAST, investors, the Financial Accounting Standards Board (FASB) loosened restrictions on mark-to-market (MTM) accounting. MTM requires that for balance sheet purposes, assets are valued at the market value. (See a detailed explanation in http://assetdesigncenter.blogspot.com) Banks have found this very hard to do since many of their derivative instruments entered into either cannot be valued or are currently valued at fire sale prices!

But now with the new FASB guidance, banks will be able to value "toxic assets" any way they wish, possibly at full face value. Some estimate that now, first quarter bank earnings will be perhaps 25% higher than they would have been without this ruling! What a fraud.

The stock market was up some 300 points today as the government and the supposedly INDEPENDENT accounting board manipulates the markets once again. How will we ever be able to properly value bank stocks? We won't be able to. They can tell us anything they want about earnings but in the end, it is all fiction. I studied accounting in grad school and I understand how numbers can be managed. But now, this is getting ridiculous! Bank stocks, although they may rise, will be doomed to collapse. In the end, no government, no one world nation will be able to bail out the banks when the next leg of the real estate crisis hits, when the bond market crashes, when the dollar becomes devalued.

Astute analysts hopefully will not be fooled and what is worse, overall confidence in the markets and the FASB will erode. Obama promised transparency when running for president but this certainly is going the wrong direction.

WHAT ABOUT TOXIC ASSET SALES?

For months we have been waiting for details on the toxic asset sale strategy. This was intended to take toxic assets off the books of the banks, freeing up reserves to encourage more lending. It's always been a tough sell because the spread between what the banks want to sell the assets at and what investors are willing to pay for them are so wide. Finally, Treasury Secretary Geitner revealed his plan where toxic assets would be a public-private partnership with the taxpayer taking almost all of the risk and and only selected investors being allowed to partcipate. (Another government giveaway to the rich). Well, what happens now? If banks can value the toxic assets at some enhanced value or even face value, what's the point in selling them? Certainly seems like one hand doesn't know what the other is doing.


Quite frankly, I don't know where to turn anymore. The government is manipulating the stock market and the Federal Reserve is manipulating the bond market. The worthless dollar continues to rise because by comparison, the rest of the world is in even worse shape than us.

The president's wife was recently seen planting a garden at the White House. I guess we all need to find a good plot of land and start growing our vegetables. And one word of advice, if you start stockpiling canned tuna and other canned foods, make sure you have a couple of good can openers.