Friday, July 24, 2009

Back To FASB Repercussions

So FASB after letting down the free world and allowing banks to mark any security to its own flawed models, has decided that in the benefit of all that is holy its going to now expand fair market values?

After being neutered in Congress this spring.
FASB has finally grown a pair!

FASB is stating even loans would have to be carried on the balance sheet at fair value, under a preliminary decision reached July 15. The board might decide whether to issue a formal proposal on the matter as soon as next month. Previously, only securities that are traded on exchanges were eligible to be mark to market.

This impact has tremendous implications towards the financials. An impact that has been totally lost on the media, and entirely ignored by the market.

Back to the Bloomberg article, As Jonathan Weill was stating, this would have "caught" CIT in December, six months before they got "in trouble" according to the market, as their loan book was in fact "worth" enough less to wipe out shareholder equity in December.

The earth shattering details are as follows:

The scope of the FASB’s initiative, which has received almost no attention in the press, is massive. All financial assets would have to be recorded at fair value on the balance sheet each quarter, under the board’s tentative plan.

This would mean an end to asset classifications such as held for investment, held to maturity and held for sale, along with their differing balance-sheet treatments. Most loans, for example, probably would be presented on the balance sheet at cost, with a line item below showing accumulated change in fair value, and then a net fair-value figure below that. For lenders, rule changes could mean faster recognition of loan losses, resulting in lower earnings and book values.

All of this will be bitterly fought by the Tax Payer Traitors in Government and Congress. You can bet on that! But in the case FASB goes through with this as well as force consolidation of all SIVs and other off balance-sheet games (allegedly due to go into effect at the end of the year) we'll finally be able to read a balance sheet and come up with an accurate representation of the company's finances.

This all means GAME....SET....MATCH!

Yet...Like stated above, no one is paying attention to this, the market rallies "hard" on decent earnings and bogus economic reports, and rallies on horrible earnings and bad economic data. This is a potential bombshell or "Black Swan" for every single financial connected entity in the US. Forcing this disclosure (which should have always been policy and required) would expose the literal "insolvency" under fair market value of hundreds of public companies right here and now.

The majority of banks/financial institutions are "Insolvent" if the bad loans they have on their books are market to market.

Should FASB implement this, it would finally bring some truth to what the banks and to a larger extent Congress have been up to. Which is basically Accounting Fraud.

This is going to be an interesting steel cage death match with the frauds in Congress who wanted and succeeded in legislating Accounting Fraud back this spring.

The only quote you need to understand is the following:

“I guess the nicest thing I can say is it’s difficult to find the good in this,” Donna Fisher, the American Bankers Association’s tax and accounting director in Washington.

Yes...that's right! Telling the truth, accountability, and ownership are No No's in the banking industry, especially when bonus money is at stake.

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