Monday, July 13, 2009
Death to QSPEs?
"Reporters have tried for years to make accounting sound interesting. When it comes to off-balance-sheet accounting our job has been made easier, since we have been able to attach adjectives such as 'shady', 'shadowy', 'opaque' or, best of all, 'Enronesque'. But no longer. Qualified special purpose entities are finally dead. These have been the vehicles of choice through which US banks have bundled vast pools of loans off their balance sheets and away from the eyes of investors and regulators. ... To anyone with a passing knowledge of accounting and the Enron scandal, the rhetoric should ring alarm bells. ... Among those 130 [responses] were banks that argued that the financial backstop they provided to conduits did not need to appear on their books. Banks set up the vehicles to provide funds for their corporate clients, which put in high-quality assets such as receivables, and the conduit issued low-cost commerical paper against these. In case the CP market wasn't open, banks provided a back-up--but they said this was such a small risk that it did not need to go on the books. ... Now we have had the latest fix to the rule, and new estimates are emerging of what will hit the books. [Fed] officials have put the figure at about $700bn among the top 19 US banks. Citi reckons its balance sheet could take as much as $165.8bn while JPMorgan thinks it could see up to $145bn", Jennifer Hughes at the FT, 25 June 2009.
The FASB's new rules do nothing for me. We need bank managers who claimed they need not record bank QSPEs in the past indicted. Indicting CPAs who thought this accounting kosher also wouldn't hurt. We have a "Graffam Moment" here, see my 24 October 2007 post: http://skepticaltexascpa.blogspot.com/2007/10/call-out-cops.html. These QSPEs never had substance. No true sales took place. Period! Well PCAOB and SEC, where are you? I'll say it again, bank accounting stinks. These idiot bankers have no concept of cost of capital. Among their many failings.