Agreeing that it would be much better if financial firms could just decide for themselves what difficult to value items on their balance sheet are worth if the price for similar assets in the market isn’t satisfactory to them, FASB voted to grant Imaginationland powers to anyone with a balance sheet.
The changes to so-called mark-to-market accounting allow companies to use “significant” judgment when gauging the price of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks’ writedowns and boost their first-quarter net income by 20 percent or more. FASB voted on the rules at a meeting today in Norwalk, Connecticut.
House Financial Services Committee members pressed FASB Chairman Robert Herz at a March 12 hearing to revise fair-value, which requires banks to mark assets each quarter to reflect market prices, saying the rule unfairly punished financial companies. FASB’s proposals, made four days later, spurred criticism from investor advocates and accounting-industry groups, which say fair-value forces companies to disclose their true financial health.
“I’m not sure how this system is going to survive if we cannot make up marks,” commented an anonymous (and probably imaginary) FASB representative. (At least she looked like she was from FASB, she was wearing a FASB T-Shirt). Asked what relation to reality the marks bore she commented, “What is reality anyhow? Are you really here? Am I? How do you know your senses are not fooling you? What is the matrix? You have to realize not that the mark can be bent, but that there is no mark.” Asked how FASB justified the vote she responded with “What is FASB really but a mental construct?” She begged off any other questions insisting that she had to catch a late double feature of Yellow Submarine and Heavy Metal.
FASB Eases Fair-Value Rules Amid Lawmaker Pressure [Bloomberg]
EP – your problem is assuming that the market is always right in the prices it puts on assets.
The market is always wrong – that’s why the prices keep changing.
@1:
Morpheus?
EP – A Heavy Metal reference! Now I remember why I love you. I was wondering what that glowing green ball was doing at the FASB building.
Bet there’s a huge mound of coke on Kudlow’s desk. Dude must be jacked.
@1 Right, and it’s a good thing that these same market participants are promising to do a much better job valuing their own assets in the future.
If they are able to mark up these assets, would they then be willing to pay the same price for comparable assets in a trade with another firm?
@5 has it!
Starting today, I will be marking all of my 2016 GM Bonds at 90 cents on the dollar because that’s what they are worth to me. anyone with me?
@5 should STFU…….now people will start asking that question!!! Jeez. Way to go.
Is this the Fastow exemption they are passing?
@5, certainly not.
The problem with MTM is that people looked at it as some sort of magical number that could tell them all they needed to know about what an asset was worth. That viewpoint is every bit as dumb as looking at DVAR as everything you need to know about risk. The market used to value this sh*t at par, now it values it at .20. Neither number is correct.
@ 7
i will be marking my house at 2006 market price b/c thats what its worth to me
i will go down to the bank and get a HELOC and come buy your bonds
What does this mean for my Enron shares?
The market used to value this sh*t at par, now it values it at .20. Neither number is correct.
————
the number that is correct is what the highest bidder is willing to pay for it
isnt that how markets work?
fyi – my KO stock is currently at 45.40. used to be at 61. i say the value is somewhere in the middle. 54 sounds like a good number
You can put lipstick on a pig…
-BO ’08
@13 – I guarantee your KO won’t be at 45.40 tomorrow…so is that price correct today? It’s not even correct now, three minutes later.
“The market used to value this sh*t at par, now it values it at .20. Neither number is correct.”
Both numbers are correct given a certain set of assumptions. Prices constantly change because information constantly changes, changing assumptions. By allowing firms to mark to convenience, you are effectively telling them to ignore relevant information. The buyers of said assets don’t, by contrast, don’t ignore information. Since only assets held ready for sale are subject to MTM in the first place, this is important.
The elimination of MTM is simply a backdoor method of extending more leverage to the banks just as the bailout of AIG was just a way for government to funnel money to institutions it can’t legally or politically funnel money to otherwise. It’s all very costly B.S.
How will this affect Geitner’s private/public partnership proposal to buy these same MTM “toxic” assets?
@10 Why weren’t their any MTM debates at par?
@11 it’s about time some of us got together a fixed this economy!
I’ve got some boats priced at mark-to-myth as well. Here’s a few representative samples: http://www.nytimes.com/2009/04/01/business/01boats.html?_r=1&hp
-@7
@ 15
well aware but the market is setting the price not some fantasy land accounting board
@ 11. What is the present value of the stream of cash flows your house is expected to generate?
Unlike a mortgage-backed security your house doesn’t have a stream of cash flows. So, it’s worth what someone is willing to pay you for. Not the same with a bond.
@15 Should I change the cost basis for the shares of KO my grandparents bought me 35 years ago? If it were up to me and not the IRS I would raise the cost basis. I’m sure the IRS would like to lower the costs basis. Conflict of interest under both scenarios…wouldn’t you agree?
@ 10, 13, 15
re: accounting, one should be ‘conservative’ (small ‘c’); that is, one should be surprised by good info, not bad. allowing mark-to-myth foments the same problems that got us here in the first place, namely poor risk management, excessive leverage, and moral hazard.
MTM is not the problem; atrocious judgement and balance sheets are.
@21 – there is a stream of cash flows from my 2016 GM Bonds. Can I make up a price for those? your argument fails.
@7
@21 I rent out my house in SF as I had to move to NYC. Is my SF house generating cash flow? Is the apartment I’m renting in NYC generating CF?
22 -
agreed. we are just creating another bubble here. allowing banks to sprinkle their balance sheet with pixie dust to either lever up some more or loan to tapped out consumers for more debt
@ 25.
Yes.
Retreat to the gum drop forest!
http://www.southparkstudios.com/clips/155724
I don’t see how anything bad could happen by allowing banks and other companies to keep crap on their books at inflated prices.
Bill Parcells taught me that you are what your record says you are, to bad he’s not running FASB
@24
You can’t just “make up” a price. That’s not really what’s being argued.
http://www.youtube.com/watch?v=VRrMu7B1L2I
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
#32 – the gov’t is not buying the toxic assets (at least not technically.) It is “financing” them.
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
In the end the Party would announce that two and two made five, and you would have to believe it. It was inevitable that they should make that claim sooner or later: the logic of their position demanded it. Not merely the validity of experience, but the very existence of external reality, was tacitly denied by their philosophy. The heresy of heresies was common sense. And what was terrifying was not that they would kill you for thinking otherwise, but that they might be right. For, after all, how do we know that two and two make four? Or that the force of gravity works? Or that the past is unchangeable? If both the past and the external world exist only in the mind, and if the mind itself is controllable—what then?
What is the sound of one hand clapping?
What is the price one would pay in a market where one only trades with oneself?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
FYI
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@34 – @37, et. al.
NO! It’s an auction.
I miss Dylan Ratigan’s pithy remarks and smoldering good looks.
I’m from yahoo, what are “several minutes”?
I didn’t take accounting in college because my parents wanted me to be an honorable person in life and my high school made me promise to never “lie, cheat or steal nor tolerate it in others…”
My penis is 16″ MTM.
@48 Brilliant!
#30 making up a price is exactly what they are going to do. Models are only as good as the inputs. Banks will make very favorable assumptions. Ultimately the 30% decline in house prices and steep rise in unemployment will have to be acknowledged.
#50…When?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
@50 don’t you mean “models are only as good as their implants”?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
If banks start marking up their toxic assets, will the goverment have to buy them at these new prices for the PPIP?
This house sho done gone crazy!
Selling tomorrow to pay for today. I love it! This latest gift from the FASB will keep on giving for years to come in ways we can’t begin to imagine. Inefficient markets that are encouraged to hoard valuable assets.
@41 – Marksturbation?
…and what’s your point, if the larger global market believes there should be no market because the assets are in fact worthless….then so be it. The market says there is no market, the market always wins. MARK IT.
@51 at the Thunderdome … probably where we are headed
@51 at the Thunderdome
it is now impossible for banks to raise private capital. Oh forgot it already was impossible because their loans were never marked to market to begin with. Why not let the banks mark bonds at 200 or 300 since we are just making up numbers?
@62
Good point. The banks are and will remain nationalized in every way but name.
“@13 – I guarantee your KO won’t be at 45.40 tomorrow…so is that price correct today? It’s not even correct now, three minutes later.”
————–
I suppose that’s why they put dates on financial statements.
-Not 13
MERRY CHRISTMAS!!
If the stakes weren’t so high, I would say this reminds me of when we were kids and dad, who couldn’t turn around because he was driving, would promise us that “This will all end in tears.”
It always did.
Today I guess we have to rely on Marc Faber, who recently said: “This will all end in disaster.”
To those of you who, like weaselly little attorneys, are insisting that this rule change is not material, I offer the simple evidence of all the whores, uh, wall streetwalkers who’ve been asking for this relief for months, along with the upward spike in the markets today as refutation of your specious reasoning.
Despite the internet bubble, the last 6 years of the real estate/credit bubble, the “Mission Accomplished” photo-op, and this rally from the March lows, I have never seen a bigger case of Ostrich Syndrome in my life than this MTM rule change, which should henceforth be known as “The W Maneuver.”
There are just not enough put options in the world for the sane, objective people to buy right now.
I called the market top a little early in 2007 (okay it was May, so I missed 1,500-2,000 points until October) and always regretted not making money from the fall. Well thank you FASB/Denial Rally/Fairy Dust Induced Euphoria.
I guess I’ll get to buy that island after all.
@7 Your balance sheet looks better but your not liquid. It still shows.
Why would I ever sell my level IIIs to the gov if I can value them where I want to?
Suspending MTM is the worst thing that could have possibly occurred. This is obviously a pet Fed program as a new means to introduce inflation to the system. What happened last time when banks were enabled with more capital? What always happens after a credit bubble? Now ask yourself, what the FUCK happens after a credit bubble follows a credit bubble?
Please, explain to me how that will end.
@60, 61 – I call my dickhead the Thunderdome. The shaft is Old Hickory, the boys down low are Law and Order. The whole package is called the Three Ninjas.
Taking positions in securities that are not liquid is insane.
Even if the suspension of MTM reduces the paper losses of taking this position, you can’t sell the damn thing.
@ 66 What’s the impact on their CARs? The revaluation will show up somewhere if not in I/S probably in R/E?