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Andrew Butter
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I build business models and develop marketing strategies for new technology and innovations. Currently working on (a) Robotic Parking (b) a new generation of Self Elevating Jack-up Work Platforms used in oil & gas maintenance and well-service and in wind farms (c) an internet hotel booking... More
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  • Lehman Style Capital Adequacy Valuation Scams Just Won’t Die…Why the Big Surprise? 1 comment
    Mar 12, 2010 5:51 AM
     

    On 30th July 2003 John Edge the Chairman of the International Valuation Standards Committee wrote to the Bank of International Settlements on the subject of Capital Adequacy pointing out:

    …”without proper rules on asset valuation any capital adequacy assessment is bound to be misleading”…  

    …without more accurate asset valuation and provisioning, capital and capital adequacy figures are seriously flawed”.

    http://www.bis.org/bcbs/cp3/invastco.pdf

     

     

    Now…Err…the penny is starting to drop…in perfect slow motion just exactly as was predicted.

    http://www.marketoracle.co.uk/Article8177.html

    seekingalpha.com/article/129512-ppip-is-...

    seekingalpha.com/article/159368-six-mill...

    The recent story of Lehman where CCC bonds were "removed" temporarily from the balance sheet is just one example of how to cheat investors and regulators, I wouildn't be surprised if the "transactions" were used to take a mark-to-market snapshot at teh same time.

    So the valuations of assets used to calculate capital adequacy were (1) misleading (2) seriously flawed.

    Didn’t everyone know that was going on in 2003?

    By-the-way BIS did not respond to the letter from IVSC (well at least their response was not on their web-site), so presumably they and all the other Central Bankers and regulators all over the world knew perfectly well that all the valuations used to assess capital adequacy were just a pile of Andersen-scented pig-manure.

    And they still are.

    Talk about Alice in Wonderland and the Mad Hatter.

    One of these days I suppose that someone is going to suggest that there is adult supervision of the banking system, like insisting that assets are valued using IVS.

    Until then I’m sticking with my tried & tested methodology of doing a valuation of a bank (given that the audit-reports and stress tests are meaningless).

    1: Take a Big Picture of the CEO.

    2: Show it  to your dog

    3: If your dog wags huis tail- everything is fine!

     


    Disclosure: "No Positions"
     
     
     
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  • John Lounsbury
    , contributor
    Comments (4002) | Send Message
     
    Andrew - - -

     

    I would smile at your clever humor if I wasn't crying because of the facts behind it.
    12 Mar 2010, 11:56 AM Reply Like
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