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| S.E.C. Move May Relax Asset Rule | |
| 2008-10-01 | |
The move on Tuesday drew praise from the American Bankers Association, which had complained to the S.E.C. that auditors were forcing banks to value assets at unrealistically low "fire sale" prices, rather than at the higher values the banks believe the assets should be worth in an orderly market. Some congressmen had pressed to order a suspension of the fair-value rule, known as S.F.A.S 157, as part of the bailout bill that the House defeated on Monday but that may be revived later in the week. That bill stopped short of that, but did require a study of the rule and authorized the S.E.C. to suspend it. | |
| Posted by:Steve White |
| #15 The notion that a temporary market glitch should be allowed to bankrupt firms due to strict application of an accounting regulation is batty. These mortgages have value, just not one that makes their holders happy. The temporary lack of a market does not mean they are worthless. Many of these securities are intended to be held for years. All are backed by real estate of some worth and many have income from payments arriving monthly. The market locked up because some major players decided they would not accept market prices but would hold out for government intervention. They know that their bought Congresscritters will pay more for this paper than the market. The House bill allowed the Treasury to pay some holders more than they paid for the securities originally. As a practicing senior-level accountant for over 20 years, I will say that mark to market is one of several FASB / government originated decisions that have made business more difficult in the last two decades. Pension valuations will make this situation look like a walk in the park. |
| Posted by: Chuck Simmins 2008-10-01 14:36 |
| #14 BP is right. Now that everyone knows that nobody knows what these things are worth, any new rule 'interpretation' is meaningless. |
| Posted by: Mike N. 2008-10-01 13:21 |
| #13 Look, if you want people to invest then you have to give them confidence that what they're buying isn't a shit sandwich. Allowing the accounts to say that the ZZZ- shit sandwich is a "AAA gourmet faecal sub" just isn't going to work. |
| Posted by: Bright Pebbles 2008-10-01 11:16 |
| #12 GAAP standards only require them to do sampling I'm pretty sure, at least for external auditors. If they actually catch you with auditing, you have probably gone buck wild anyway. |
| Posted by: bigjim-ky 2008-10-01 10:49 |
| #11 Just ignore the man behind the curtain. |
| Posted by: Anguper Hupomosing9418 2008-10-01 10:49 |
| #10 If you want to diddle the books you always do it in stock account. Why? because it's the only category that appears in the balance sheets and profit and loss. It's always about valuation. That's why they have auditors, who if they are any good should know what to look for. |
| Posted by: tipper 2008-10-01 10:38 |
| #9 Variable rate, interest only, ARM and other specialty loans have their place. They can be real handy for some people in the right situation. Some people know that they will only live in a house for a certain period of time, say if you were living on location for a job, or you were going to retire at a known time in the future and move abroad. They were not originally conceived to get people into houses that they obviously could not afford, but that's what happened. You need to reinforce good qualifications for buyers and make it stick, those pre-qualifications are already there, and they work well, if applied. |
| Posted by: bigjim-ky 2008-10-01 10:30 |
| #8 OK, my take here is to have the Government actualy take all the mortgages failing, restore the original terms, make all a fixed interest and jail the thieves who played the shell game of "Selling Mortgages" Then jacking up the interest. A fixed mortgage rate (And a law oulawing "Variable Rate loans) will not only fix this mess, it'll prevent it happening again, and the US Government will profit handsomly to boot. That's my.02 . |
| Posted by: Redneck Jim 2008-10-01 10:04 |
| #7 Part of the problem today is that people are sitting on the sidelines of investment because they can't be certain what they are buying for their money. Companies over-leveraged their assets so much that it is hard to know what they have at this point. Investors are waiting for things to shake out. Because of organizations like Fannie and Freddie where the books were cooked, money was looted, and risky loans were re-packaged and sold under various instrument names and backed by other financial esoterica that were sold. Consequently, a financial cancer was spread through our economy. However, I can't believe that you can't value assets in some meaningful way. If I bought a $30,000 truck earlier in the year and I go out of business because of bad management, health reasons, business climate changes, etc. that truck might be sold for $1.00 today! That's what's being said about these large investment firms that are in trouble. Somewhere between around what I paid for the truck and virtually nothing ($1.00) is some reasonable valuation that people might agree on. If people come to look at my truck and make offers, one will arrive at some kind of reasonable valuation for this asset. I can sell the asset for some value--maybe. There is some risk I might end up eating a loss and go on. That's the risk inherent in being in business. Or the government might bail me out for not knowing how to run a business. Political correctness would say that no one should fail. "Failure" is a signal that we need to learn something that we are not doing right. In engineered systems that rely on feedback control, deviation from expected performance is used to control the system and get it back on track. Mistakes and failure are essential to learning. Maybe oversimplified. |
| Posted by: JohnQC 2008-10-01 09:55 |
| #6 I guess if it was footnoted it would be possible to factor that in, but it would make it "Skill Level 5" at least. I think investing in the future is going to be somewhat more complicated with several hundred billion dollars of dubious assets in the finance industry. |
| Posted by: bigjim-ky 2008-10-01 08:20 |
| #5 the thing is that the current price is the accurate price. In previous years the price was buoyed up by the credit bubble! Will "fair value" accounting be restating the previous accounts down to account for the credit bubble? Thought not. |
| Posted by: Bright Pebbles 2008-10-01 07:52 |
| #4 This rule is total BS. These values should be footnoted, and the data should be available, but the statements should be constructed on a historical cost basis with sufficient reserves in management's judgment. There are more games that can be played with "fair" value to manage earnings than with historical cost. And I am getting sick of the misuse of the word "fair". If we could come back in 200 years, I think we would find that the definition of "fair" had become "liberal manure". |
| Posted by: Nimble Spemble 2008-10-01 07:37 |
| #3 Is this a temporary rule? It seems like it could be misused easily. It will make it much harder for investors to evaluate a company's true ROI. |
| Posted by: bigjim-ky 2008-10-01 07:30 |
| #2 Disagree with BP's assessment. First, there is no known inventory of the asset values. Just because these are default mortgages doesn't mean they have below par value. In fact, I believe this is a win-win-win for bankers, investors, the Fed. I will be leading the way with my broker finding the best managed funds to take a share of their potential come-back valuation but the mark-to-market has to be fixed first exactly to allow market value to rule versus regulatory auditors subjective assessments. |
| Posted by: Jack is Back! 2008-10-01 07:08 |
| #1 Steve that's Rubbish! It's like trying to turn a ship, by holding a magnet near the compass. Everyone will know that the accounts are meaningless, and so no-one will lend to anyone. More transparency is needed, not less. |
| Posted by: Bright Pebbles 2008-10-01 06:54 |