Let's all pretend the problem doesn't exist and everything will be fixed by magic! Wish-O-Nomics?

You mean Mark to Myth isn't FASB?

Reality is troublesome. Let's assume wild profitability instead.

YouTube - CareerBuilder.com: Monkey Business (Up - Down Profitability) 

Pity this rule wasn't in effect when the value of these things was increasing.

No it means we still don't know what they are worth but the bank gets to tell us what they think it is worth.

Which is what lead to this problem to begin with.

What a joke. If we ban short sellers and go let the financial institutions decide what the value of their illiquid assets are then everything is fixed.

Dow 15,000 -

But as Dean points out, if they're going to do this on the way down they need to do the same on the way up.

Bah, that's a bother. The real point is to keep the bender going, what, do you want the terrorists to win?

Leave it to the government planners to try and outthink the market.

Transparency builds trust...and it destroys it. Destroying it is also necessary to separate the wheat from the chafe.

If there is even less information about the quality of one's balance sheet out there, how does that impact my lending or investment decision?

Maybe to counter, the, um, countercyclical problem, they could, like maybe take out,I don't know, insurance maybe, from some big insurer to ofset the chance that in, like, a downturn, the price of the underlying assets might fall? How would that work?

I am loving this thread

FASB/SEC a little late. Epic fail.

Geegee,

We can only hope. The markets won't function normally until the expectation of a bailout is gone. That may mean they never function normally again...ever.

So now it's "Voila, our capital levels are 10X the level required to be well capitalized" without doing a thing ? Assets were already overvalued before this game-rigging operation.

I thought the problem was no trust between financial institutions? This only makes matters much worse. How will international counterparties behave?

Put a new coat of paint on that old wreck and look, good as new! Who gets fooled?

Sounds like they are setting up the system for a mushroom cloud event.

"Assumptions"....that is great.

Well than as an investor I guess I will just have to "assume" that they are all insolvent.

Banning short selling in down markets...

Why not ban going long in up markets too?

After all, we don't want those greedy investors making money off the backs of the suckers who sold too early.

"who thinks the bailout bill is now really, really dead given the market rally today"

Not me. I think it's more alive than ever. The spin is that the rally was caused by "the hope that the bill will be resurrected". The end of the world is still on, but on hold because of this hope. Or so 'they' say.

if they're going to do this
on the way down they need to
do the same on the way up.

Then the pump don't work.

Whole point of a pump is it sucks only in one direction.

Do the assumptions include the US Treasury buying the assets at hold to maturity pricing?

...meaning the President and Congress (not listening).

Note that between 2:00 p.m. and 4:00 p.m. today, the stock market registered a net gain.

Am I supposed to believe that increasing the chance of the Apocalypse through delaying the bailout by one day was a good thing?!

Gasparino just said this a part of the Republican plan that Dems wouldn't allow. He said Republicans are claiming that if this happens bailout bill isn't needed

Repubs: We support the free market! (Except for its ability to set prices.)

Mark-to-fantasy is a micro manifestation of a macro phenomenon--the fantastical belief that America has more wealth than it really does.

Jas Jain writes:
"FASB, SEC to Issue Accounting Guidance..Guidelines for Crooks?"

Pirate's Code.

"secondly, you must be a pirate for the pirate's code to apply and you're not. And thirdly, the code is more what you'd call "guidelines" than actual rules."

All profit is had in the difference between perception and reality.

All loses are had in the difference between reality and perception

We are such tools. Just before Uncle Sam gets his wallet out to splurge on the junk yard sale we change the accounting rules to mark the junk upward in value.

This is not hold-to-maturity pricing but rather hold-your-ankles pricing.

If MTM is suspended, then we can jetison the $700B plan that was going to create fake marks, and instead just recapitalize the banks that need capital and aren't walking dead with a more efficient program.

Keeping MTM in effect and having the government create bogus marks seems even more disturbing to me.

I wish the SEC required a disclosure of the default rate, concentration by state and recovery rate of all MBSs... but failing that and given the choice of Mark to bogus government marks vs. mark to fantasy with money being used to recapitalize surviving banks, I go for the latter.

When will Google start amortizing advertising costs like AOL did back in the day! That would make earnings look better as well.

MBSs are real just like confederate money-couldn't we ebay them as souvenirs of an historic time?

what are cps's?

Seriously mark to market does not work when there is no market!
Citizen Anonymous

Technically you are correct, that if there are no transactions you can't mark to market, but there are some transactions occurring, however at extremely low prices.

GAAP requires that you consider the prices in those transactions in valuing your securities, unless those transactions are 'forced' or 'distressed'.

The problem with CDOs, SIVs etc etc was that they did not go far enough.

We need Goodwill Debt Obligations (GDO), Future Invention Vehicles (FIV), Bright Idea Bonds (BIB) and CEO Fucking Up Things Default Swaps (CEOFUPTDS)!

Ford and GM should be able to benefit from this. Assuming that their car inventory is worth an additional $25b or so, their balance sheet should get a lot better.

Next we need to work on the Income statement. Real revenue is posting too low because of the short term market conditions. I suggest a market inflator factor to boost revenues to where they would be if SUVs were in demand.

Now we have value and profit forever.

the fartnocker crew is going over it now on cnbc

Whatever happens, I'd sure hate to be on the audit team or the lead client service partner at any of the major banks right now...

I'm not sure, but I don't think I saw a going concern opinion issued for Lehman Brothers or Fannie/Freddie...OUCH!

level 3=Island of dr moreau assets

Debt to the Penny (Daily History Search Application) 

It moved!

Yes Scotto,
A small tribute to Paul Newman.

Insightful explanation by a federal bankers on the financial crisis.

A MUST READ!

MarketWarnings: Credit and financial Crisis Explained by Fed Governor from Atlanta

oops sorry..

amen and halleleujah

Comrade Hilipatihippa,

"US markets are soon as transparent as a light year thick wall of solid LEAD. Even accountants working for Mafia will be protesting soon..."

Mob Boss: Hey Numbers, why ain't yous thinkin' up stuff like dese guys, huh?

Numbers: Even I gots my scrupples, boss.

Nostrovia,

As i had commented yesterday, i added to my position amidst sea of despair among CR's acolytes. And lo & behold, market found its bearing today.
There are always a few good men amidst ragamuffins & rif-raff

Comrade Fraud Guy,

"Why does this remind me of the glorious people's five year plans?"

LOL!

Because they are the same.

Nostrovia,

Why is my Fidelity Ohio municipal money market paying 5.5%? This is the cash settlement account for trades. Should I be concerned? Seriously, would appreciate the collective wisdom of the board here, since the "overnight" Fidelity money market fund - the one I have to sell out of to go to cash to trade - is yielding 2.4%. I've been having a little bit of luck doing short-term trading of stocks lately, but frankly, I'm not sure what is make of this - I've had brokerage accouts for decades, and have never been in the situation of having to have to dope out the safety of cash equivalent accounts...thanks...carlos

New York's securities industry could lose as many as 40,000 jobs as the fallout in the credit markets spreads, the state's comptroller warned.
Democratic Comptroller Thomas DiNapoli cited the figures in a release that estimated three service jobs could be lost for every job lost by a bank or brokerage.
“The preliminary September numbers show the fallout from the Wall Street crisis is starting to hit the state hard,” DiNapoli said late Monday. “The volatility in the markets is creating difficulty in predicting budget revenues.”
DiNapoli also estimated that Wall Street bonuses could be as much as 50 percent lower than last year, a drop that “could rival” the lower numbers felt after the 9/11 terrorist attacks.

This is a great start!

McCain Adviser: Treasury Doesn't Need Congress for Bailout

McCain Adviser: Treasury Doesn't Need Congress for Bailout

Holtz-Eakin claims law already allows for $700 billion bailout without congressional authority; CNBC's Burnett disputes claim.

By Jeff Poor
Business & Media Institute
9/30/2008 4:45:21 PM

Since the $700 billion bailout plan went down in the House of Representatives by a 228-205 margin, talking heads and politicos have been looking for ways to circumvent Congress and give the executive branch the authority to perform a bailout without their consent.

Republican presidential nominee Sen. John McCain, R-Ariz., first made the suggestion to NBC News correspondent Kelly O’Donnell. His senior economic adviser, Douglas Holtz-Eakin, later confirmed to MSNBC that McCain said Congress has already given the Treasury Department authority to bail out Fannie Mae and Freddie Mac to the tune of a trillion dollars.

“This past summer, Congress passed and the President signed a housing relief bill that had a variety of things in it,” Holtz-Eakin said in an interview with NBC Washington correspondent Andrea Mitchell on MSNBC Sept. 30.

“Among them,” Holtz-Eakin said, “in addition to appointing a new regulator for Fannie Mae and Freddie Mac, that legislation contained the authority for purchases of mortgage-backed securities and other housing-related instruments. It simultaneously increased the debt limit of the United States by a trillion dollars. So in effect, the government could borrow up to – nearly a trillion more dollars and use those funds to purchase these housing-related securities.”

Holtz-Eakin explained this wouldn’t be the first choice of action but said it is an option that is available to the Treasury...

This is a great start!

I am not going to be gleeful about people losing their jobs, but I think with all the well-educated people getting laid off from finance jobs congress should act to force the AMA and medical schools to vastly increase enrollment next year. That way we can get a lot of this talent into medicine and lower the cost of heath care, which is the real fiscal crisis facing the United States.

Not sure how I feel about the argument that re-inflating bank's balance sheets is better done with accounting fraud than with taxpayer bailout money.

The hell with it. Let's do both. Taxpayer bailout post balance sheet inflating.
Let's play two

How interesting...

it seems that just when the market is going to have to face up to reality, it adapts, with the help of 'the suits' like a Darwinian Uber-evolutionista so as to survive and thrive...

whether or not this comes about it is largely irrelevant because it STILL does not address the core issue of confidence at the wholesale level. By what measure can one institution measure counterparty risk when each counterparty can choose the values of its own assets by some measure other than a transparent and standardized one!?!

Can then, I, choose to value the worth of my own assets and liabilities when I fill out a loan application form? Hmmm... I'd say that my 15 years worth of 'Bus Quarterly' magazines is unique and worth a cool $123,456,789....

Gold standard, wherefore art thou?

All the best.

"That way we can get a lot of this talent into medicine and lower the cost of heath care, which is the real fiscal crisis facing the United States."

I hope that was tongue in cheek. You see the floodgates to medicine were thrown open years ago and it hasn't worked out so well. On the bright side however, there has been a tremendous surge in billing fraud which must be keeping law enforcement busy.

Anyone catch the ability to reduce regulatory capital requirements to 0% was in the bill?

Can anyone tell me what the heck the DTCC is - other than what is in this article:

WHO REALLY OWNS YOUR MONEY? Part One: The Depository Trust & Clearing Corporation « Your Mortgage or Your Life…

This is scary - scary I did not know of it!

McKinl - Basel II framework of accounting standards is a crucial component of US net geopolitical strategy to cement USD hegemony. It's my opinion --since I actually read the BLUEPRINT FOR A MODERNIZED FINANCIAL STRUCTURE-- that the bailout bill is the culmination of so-called short-term [H.R.3221] and intermediate recommendations, a controlled demolition of the US industry which is quite fragmented.

Asset stripping of thrifts continues apace.

US Basel II ruels were finalized 6 November 2007. Goodwin Proctor [law firm] summarized implications of the Quantitative Impact Study 4, commissioned by the BCBS. The study indicated that the BIS version of Basel II would allow certain US banks --ostensibly the twenty FRB primary "broker-dealers"-- a substantial competitive capital advantage over 8,980 other banks, all of which are depositors of the reserve banking system. Another "competitive" tension created by US accord with Basel II is associated with consolidated and country-specific supervision. The BIS-version, which the SEC adopted to regulate FRB primary "broker-dealers" like Merrill Lynch, Morgan Stanley, Goldman Sachs and Bear Stearns, framework for compliance promotes "enterprise-wide supervision" --jurisdiction of a holding company-- over the jurisdictions in which such multinational firms operate.

According to OCC, when the Basel II proposal was issued, Paulson Geithner LLC contemplated that the largest, internationally active US banks ("core banks") would be required to use the Basel II rule. Certain other banks ("opt-in banks") could use the Basel II rule with the permission of their primary federal supervisor. Banks that were neither core banks nor opt-in banks would be subject to some alternative rule. The agreement included a plan to propose a new standardized approach to replace the proposal known as Basel 1A. Although a standardized approach was part of the original Basel II framework, such an approach had not previously been proposed for U.S. banks.

Doubtless Paulson Geithner LLC would like to make the US safe for global debt securities marketing. It's just that it's a little embarrassing for everyone to watch however.

::

Basel II Compliance
Basel II Resources, News, Events, White papers, Services & Products for Corporate Compliance Management

Goodwin Proctor
Basel II and IA: Framework, Issues and Opportunities
summary Banking Agencies Publish Final Rulemaking for US Basel II. - Free Online Library

Ziggurat writes:
"Look at any big bank and how they book their loan portfolio. There has been NO discussion of changing this practice which has been around forever. And they aren't talking about it now."

Now that every major financial entity is a bank, I have seen it argued that there will be a shift to held-to-maturity valuation of most of financials' balance sheet.

It means that fianncial statements will be much more opaque, which makes stability-oriented regulators very happy. Mark-to-market accounting is a very poor match for deposit-taking institutions.

I found a good summary of the real issue at hand:

"The issue is not whether it has been appropriate for “illiquid assets” in the Level 3 category of FAS 157 to be marked down, but whether the market prices of more liquid indices such as ABX are appropriate proxies for pricing. The wrinkle results from the fact that the underlying constituent securities which make up these indices are not sufficiently liquid to ensure that default protection on those securities is in turn liquidand efficiently priced. As a result, one cannot assume that arbitrage activity will keep the relationships (the “basis”) in line. With this result out of “fair value”, an index of such default protection can, in turn, diverge from fair value — overshooting the level implied by prices of either the underlying securities, or default protection on those securities. Consider an example where the index is trading at 50, default protection on the index’s underlying securities would likely trade around 60 and the most recent trade in the underlying securities themselves was around 70. That 70 price implies certain assumptions about default rates, timing of defaults, recovery values, etc. The 50 price on the index implies more negative assumptions about these pricing inputs. So which set of assumptions is “correct”? Only time will tell. But in the absense of arbitrage activity to keep the various prices “in line” — it’s not clear cut that the index level, despite it’s being the “most” observable, is the most rational.
— Posted by E"

In other words, is a level 2 valuation based on the abx better then a level 3 based on models?

The only answer is that it depends....

And it makes a big difference when you have somewhat arbitrary capital ratios to maintain and fairly subtle judgments can blow you up. This is not even remotely close to ignoring very solid market prices, like a NYSE stock.

The abx is produced by Markit --

"Markit is a financial information services company with over 1000 employees in Europe, North America and Asia-Pacific.

Markit was founded in 2001 as the first independent source of credit derivative pricing"

So how does this credit derivative pricing firm have its indices becoming the required input in valuing complex asset backed securities? Is this stuff robust? Who knows.

I think the issue, as described above, is to allow some flexibility regarding what to use when there is conflicting information. I don't see how the abx is inherently superior.

Or at least how the use of the abx in a situation where there is significant uncertainty should be the only valuation criterion when a firm may be severely damaged by a Level 2 estimate. At least allow a little room for judgment.