Lipstick on a Pig

March 30th, 2009 8:53 am | by John Jansen |

FASB will attempt to do that later in the week when they crumble in front of the pressure to change the rules on mark to market accounting. I believe they meet on April 2 to resolve the issue.

The market is not the issue nor should it be. The market exposed this junk before regulators and rules makers. To change the rules is to obscure the problem and delay a solution.

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  1. 9 Responses to “Lipstick on a Pig”

  2. By Stuart on Mar 30, 2009 | Reply

    The main premise of the bank recovery proposals so far is that the financial assets on the books of the banks are not that toxic at all, that the banks are not that bad off at all, that their “toxic assets” are simply not properly valued because they are only mis-understood by the market participants. A supplemental strategy is therefore to change the reporting of these assets if one is unsuccessful in changing the market’s understanding of these assets. If we can’t convince the market that these bags of garbage are really boxes of roses, well then, at least we can account for them like they’re boxes of roses. Their folly is that this market is based on securitization of these assets and confidence in the vendors has been nuked. The market is not going to return….. not without covert govt backing for 97% of the purchase.

  3. By Jo on Mar 30, 2009 | Reply

    Cheers Stuart – or should I say Vikram.

  4. By George on Mar 30, 2009 | Reply

    Pigs have really been getting an unfair beatup lately. Just because of a little porker.

  5. By jonathan on Mar 30, 2009 | Reply

    I totally disagree with Stuart’s remarks. That isn’t the issue with bad assets. The issue is a lack of market, meaning a lack of buyers with cash. When there is no functioning market, it’s difficult to value certain assets at all – other than perhaps salvage value. The assets aren’t misunderstood.

    Mark-to-market is necessary. (But first, though the rules get complicated, they don’t require marking down to salvage value, so that’s a red herring foisted on us by people who still want to find a way to blame regulators.) Imagine a scenario when your counter-party has assets valued at whatever the heck it wants on its sheet. Would you trust them? It would be like taking Madoff at his word. Lack of trust requires a premium and lack of real accounting is lack of trust.

  6. By Terry on Mar 30, 2009 | Reply

    Give me a big “Amen,” Brother!


  7. By Stuart on Mar 30, 2009 | Reply

    “confidence in the vendors has been nuked” = Lack of Trust. That is what I am saying.

  8. By Leo on Mar 30, 2009 | Reply

    There are buyers with cash who will pay .25-.30 cents for these unwanted financial s***sandwiches in fact banks are buying like mad right now in order to sell them at full value when the taxpayer plan gets rolling. After the trillions are spent they will go back down in price.
    The problem was savers in other countries were buying these under the pretense of them being AAA and paying back a decent return down the road and they got burned. Now we will have to buy them.
    Bernanke & Geitner are trying to restart the machine. There is not enough central bank money in the world to make up for lost bagholders.

  9. By Guy on Mar 30, 2009 | Reply

    Isn’t it the case that auditors were using salvage value as MTM?

    “Last known trade” used for MTM from an intelligent and opportunistic investor buying cash flows at $40, when the cash flows are worth at *least* $70 is what confounds me re MTM. I looked at a bunch of money good non-agency CMOs trading at MASSIVE discounts simply because they had bad labels.

    It’s like George Bailey calling you quarterly to pony up cash for your depreciating house to protect his 1st lien LTV. If my neighbor is facing foreclosure and sells at 70%, the house next door that traded 10 years ago is worth 75% now?

    Please set me straight if I am wrong here… I’ve been influenced by this blog

  10. By cyclingscholar on Mar 30, 2009 | Reply

    The gov’t pushed mark to market for the most CRASS of reasons….so that they could levy taxes on assets that weren’t even being SOLD but had appreciated in value. SURPRISE…not that things are on the way down and it means lost revenues from tax writeoffs, guess which way Barney is leaning!

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