Thursday, April 2, 2009

Mark To Market: Time Of Death 8:45AM, April 2,2009

April 2 (Bloomberg) -- The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies,voted to relax fair-value rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive.

The changes approved today to fair-value, also known as mark-to-market, allow companies to use “significant” judgment in valuing assets to reduce writedowns on certain investments, including mortgage-backed securities. Accounting analysts say the measure, which can be applied to first-quarter results, may boost banks’ net income by 20 percent or more.
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Well, now that banks are all good in perpetuity (or at least until entire asset pools are remarked from par to zero), there goes the need for the PPIP. Hopefully this at least means that Bill Gross and Larry Fink won't make billions compliments of U.S. taxpayers. But don't take my word for it: the head of the world's largest hedge fund voices these very concerns. In fact, Dalio is so disgusted by the insanity in equity markets, rumor is he has moved out of trading equities entirely.
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20 comments:

Amit Chokshi said...

I think this is sell the news time, we all new it was coming down the pike. That's my "day trading" view ie worthless but seems like everyone is waiting for when is the next PR good news coming?

HazeNYC said...

This is a ticking time bomb.. these markets for "toxic" assets won't become liquid and efficient any time soon. These derivative and swap contracts will have to expire and be reconciled at some point.. You can hide losses by fudging numbers only until the thing expires and then actual losses (or gains..) are realized.
So if there is a $1B loss on a trade u can hide it for a year and then Boom! lose $1B overnight .. or mark to market and lose a chunk daily until it expires worthless..

scriabinop23 said...

Yes. But we're talking about the aggregate here. If a commercial property makes it to refi stage with its payment stream intact, and there is a working lending market (thank you TALF), then it doesn't matter if property prices are chopped in half. Collateral means nothing - it is all about flow. And flow will hold up the more they do to design the system to not be so procyclical.

zn8ke said...

It's a ticking bomb allright. The rpoblem though is "what else to do"? The assets, if marked to market are set at silly default rates. Better to keep everything to expiry and see what stands and don't. The only headache are if you want to invest in that bank. What is their stocks worth? I'd agree with anyone that says this is good for the banks but bad for the stockprice. Weird but true

mojakus said...

ha ha - I'm surprised the Treasury didn't submit a comment letter to FASB telling them they're not helping... so much for the PPPIP/TALF2.0 - why sell anymore than you need to barely stay alive? zombie-nation = less lending = longer contraction.

Anonymous said...

They need to change the name of this little banana republic to the Enron Empire.

Anonymous said...

what does madoff think at 50 bil he was running one of the largest as well...

Anonymous said...

oh puh-LEEZE...we all know fas 157 was a relic from a time when securitization accounted for 50% of the world's financing capabilities. And, once again as we all know, securitization is dead and gone, rendering fas 157 useless. The only people that were defending fas were the academics and people that had a stake in the wholesale destruction of our banking system for the sake of some ridiculous rule that is totally and completely obsolete.

Anonymous said...

and by the way...that "pfffftfftftftftf" sound is the sound of the air coming out of the negativity-blog-bubble.

orson said...

If these people had any ability to predict the future market value of these "assets" we would not be in this mess to begin with. I wonder what they thought the future value was 18 months ago....

Anonymous said...

didn't we implement mandatory mark-to-market accounting rules because on ENRON?! WTF?!!! This is dangerous.. i have NO idea why we're rallying........ so hard.... people are extremely short sighted!

Anonymous said...

Can someone explain to me how this isn't Enron-like?

We're seriously trusting these same institutions who drove themselves into the ground by letting them claim the shit on their books is actually gold?

This is god damn insane.

Anonymous said...

"by letting them claim the shit on their books is actually gold?"

to assume fas 157 was perfect is insane. nothing that regulatory bodies put out is perfect. to claim fas 157 was perfect is to claim that our regulators are on top of their game. good luck proving that. unbelievable how close-minded some people are about this. its obviously the byproduct of a shamelessly hidden economic/ideological stake.

In Debt We Trust said...

Asteroid hits Earth. Dow rally 1k points.

That's how the MM's take things.

The Hube said...

I believe MTM is only needed when prices are going up.

Anonymous said...

Quote from original FAS 157:
"Determining fair value in a dislocated market depends on the facts and circumstances and may require the use of significant judgment."

Quote from revised FAS 157:
"The staff believes determining fair value in a market where there has been a significant decrease in volume and level of activity for the asset at the measurement date is inherently complex, depends on facts and circumstances and involves significant professional judgment"

I feel like the market is overreacting to the latter statement. It is the same thing as the former statement from 2006.

Jr Accountant said...

FUCKING AWESOME - so the crisis is over, right? Everything is great again? I can dust off my credit cards and go get that excessively overvalued 1 bedroom dump for $490,000 in San Francisco's shittiest neighborhood I've had my eye on?


This makes me sad.

john bougearel said...

Tyler,

Thank you on the time of death notice. I was curious to know that.

john bougearel said...

anon 11:09

They don't call them financial alchemists for nothing. They've earned their title, you have to give them credit for that much at least. :-)

Linda Lowell said...

The press and every blogger who just read the badly reported new got this wrong. FAS 157 ALWAYS allowed judgement, modeling in case of bona fide inactive markets. Not counting roundtables, Congressional testimony and so forth, this is the third "read my lips" moment for FASB on measuring fair value. They keep saying the same thing. The real joke is that the banks will have a tough time proving markets for AAA private label MBS and CMBS are inactive. They have always traded, transactions are orderly, and the advent of PPIP just boosted trading to yet another level.