Tuesday, May 19, 2009

FASB Decides Enron Like Accounting Should Actually Stop All Things Considered

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Generally for those in power to not get their way, it appears to take a near global financial Armageddon. Only then will sensible rules be put in place (but don't you worry friend, the strings from these rules will be plucked away in 2010 forward and by 2013 we should be right back where we started). We've spoken countless times on how banks have hidden "bad stuff" off the balance sheet; really no different from Enron. What did we learn from Enron? We learned that this was a great way to hide things from investors and we should copy this behavior in some of our largest financial institutions. You think I'm being facetious but I am not...

Per this Bloomberg piece, even after nearly 2 years of writeoffs, selling junk for pennies on the dollars, and more government largess than you can shake a stick at... we STILL have nearly $1 Trillion of OFF Balance Sheet issues. Again our entire economy is only $13-$14 Trillion. Thankfully FASB (the accounting rules makers) decided transparency was not a half way bad idea. Why off balance sheet accounting EVER was a good idea, is only something the lobbyists could explain to you....
  • Citigroup Inc. and JPMorgan Chase & Co. will be required starting next year to add billions of dollars of assets and liabilities to their balance sheets under rules approved by the Financial Accounting Standards Board. The rules, effective for annual reporting periods after Nov. 15, were approved by FASB’s five-member board today during a meeting at the panel’s headquarters in Norwalk, Connecticut. The board, which writes U.S. accounting rules, is overseen by the Securities and Exchange Commission.
  • In July 2008, FASB postponed by at least a year the effective date of the changes after banks and trade groups complained. (i.e. this was right around the time we banned short selling of financials, and just imagine if we actually had to account for liabilites on the balance sheet back then? Oh the horror)
Reread the following bullet point about 10 times and then tell me about the shell games that are US accounting...
  • Lenders recorded profits before the U.S. subprime mortgage market collapsed in 2007 by selling pooled loans to off-balance- sheet trusts, which repackaged the pools into mortgage-backed securities. Banks then sold those securities to other off- balance-sheet vehicles they sponsored, concealing from investors that the securities were backed by deteriorating mortgages.
And that's capitalism 101. (don't forget to tip your favorite lawmaker) These are the people we are subsidizing and bailing out... Reverse Robin Hood style.
  • U.S. regulators said the 19 lenders subjected to stress tests completed this month would have to bring about $900 billion of assets onto their balance sheets because of the FASB changes, according to a Federal Reserve report released April 24. The Fed based its calculation on data provided by the banks.
Yet the banks lobbying group is STILL kicking and screaming - it's unfair! Why should we account for assets and liabilites on our balance sheet? (uhh, because that's what a balance sheet is for?) These usurious rules by accounting boards will only hurt the US consumer! If we can hide our dirty laundry, the US consumer will benefit - don't you realize all the benefits the US consumer and their 3-4 generation of children to come that are bailing us out will enjoy?
  • The rule change will hurt banks and the economy by discouraging lending, said Wayne Abernathy, executive vice president at the American Bankers Association in Washington. “It will affect fee income and the economy’s ability to rebound on the lending side,” he said in an interview before the vote.
You can't make this stuff up...

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