Thursday, April 2, 2009

Congress and the CPAs

"Blaming mark-to-market accounting for the banking sector's woes is like blaming a polar bear stranded on an ice flow for global warming. The stranded bear points to the problem; though he didn't cause it. The AIG debacle demonstrates the risk of ignoring market values. Congress is balking at being asked to approve yet another heap of money for AIG. There's a growing sense that if we knew in September how big the hole was in this bucket was, we might not have started filling it in. But we did know in September. Or at least somebody knew. ... Consider the fact pattern: the Treasury Secretary convinces Congress to spend $150 billion to bail out one of the largest trading partners of his former firm. If something similar happened in a third world plutocracy, we'd shrug. ... What Congress did not know in September was that the collateral calls were based on marking-to-market the assets guaranteed by AIG FP. Those who claim these assets are impossible to value are either ignorant or deceptive. At least 20 firms would soon be calling AIG for margin based on the market value of these toxic assets and AIG's impending downgrade. AIG was not disputing the valuation. It simply did not have the cash. ... If any taxpayer money needed to be spent, it would have been better spent making sure that the insurance subsidiaries of AIG were unaffected by the travails of the holding company. Astonishingly, the initial reaction by regulators was the reverse", James Keller, 11 March 2009, at:

"FASB Chairman Robert Herz told the lawmakers on the House Financial Services subcommittee on capital markets that the board 'could have the guidance in three weeks.' ... The lawmakers addressed Herz, who appeared before the subcommittee with officials from the SEC and a Treasury Department bank regulatory agency. 'We have been dithering while the patient is sick,' said Rep. Ed Perlmutter, D-Colo. He has proposed legisation to create a new federal board to oversee how accounting principles are applied to financial markets", Marcy Gordon at the Houston Chronicle, 13 March 2009.

"'We do have to have you move now,' said Mr. Frank. 'You are the FASB. In this one you can't be the slows-B.' ... Under tough questioning from the committee, the SEC and FASB agreed to produce new guidance on the subject within three weeks", Tom Braithwaite and Sarah O'Connor at the FT, 13 March 2009.

"Talk about misplaced investigations: what needs to be investigated is why Congress listens so well to bankers and their lobby. Consider the bill sponsored by Representative Ed Perlmutter of Colorado--the 'Federal Accounting Oversight Board [FAOB] Act of 2009.' It fairly bristles with the kind of rewards the banking industry would love: better than bonuses, it could give them the kind of regulation they want. The bill would transfer the SEC's oversight of the FASB to the new [FAOB]. ... It's downright Orwellian: to protect the public, this 'oversight body' would blind them from the mistakes made by financial institutions by making accounting less transparent. ... The link between financial accounting and regulatory accounting needs to be broken for good", Jack Ciesielski (JC), 19 March 2009 at

I have been singing Keller's song for months.

The fools in Congress like Barney Frank (BF), AB, JD Harvard, who brought us the Community Reinvestment Act, now want to conceal up their misfeasance by encouraging bank book cooking. Robert Herz (RH) shows what's wrong with Big 87654 partners, he was with PWC, no cojones. RH should have told BF clearly, the FASB would not be party to bank book cooking. That if BF doesn't like it, create a new accounting body just for banks. My guess is if RH told BF that on the floor of Congress, BF would have fainted. Then the FASB 157 discussion would have ended. RH could have told BF repeal the laws against securities fraud. That would have gotten a rise out of him.

Isn't this nice, BF got a sound bite, "slows-B". The SEC has done nothing to enforce the existing accounting rules against TBTF banks. What more can it do?

I agree with JC.

1 comment:

Anonymous said...

Isn't Barney a big purple huggable dinosaur?

Who was hugging Barney? Was it a shiny headed Secretary?

Is big, purple dinosaur working hard to make everything appear neat and tidy now?

From brilliant Tracy Alloway at the FT...

"But there’s a hitch. Tim Backshall of Credit Derivatives Research put it well in a research note, via Reuters:

The hopes of the FASB mark-to-market snafu this week are in our view ‘crazy’ - we still know the ’stuff’ is on the balance sheets and if the financials are actually allowed to adjust capital based on unreal marks then who will ever buy financials again - how can you trust them?"

So the clever bankers put purple dinosaur and friends over the barrel and then investors say "NG"...

And the FDIC can keep "insuring" bank debt? Will it become permanent? They've made a Looking Glass...

How much Treasury debt did you say will need to be issued/rolled? The debt markets have a new topography...

Although it's a new cast of players
(let's count the dead IBs) and a new time for pushing back...

All too much IA... all too true...