R Williams

FASB's FSP Decisions: Bigger than Basketball?

Frankly, I strongly disagree with your assurtion that investors were harmed by this action. As a CPA, I really don't think fair market accounting has any business being applied to some of these securities.

Discounted cash flow is the only rational way to value the securities held long-term. Mark to Market is only appropriate for securities reasonably expected to be sold, liquidated or reaching maturity within one year from the date of the statement.

Traders might like the volitilty that marking everything quarterly gives them but its a flawed example of proper balance sheet accounting to do so.

What bothers me is it took politicians to recognize this. Politicians are almost always wrong in these matters. The members of the FASB have been out to lunch for several years now as has the SEC. These free market purist have done great damage to our free market economy in order to enrich the few at the expense of the masses.

Mark-to-Market: The Bogeyman of the 1930s Is Back

According to your argument, assests like these securities for which there is no tradable market, should be valued at $0. If the holder cannot sell a pool of CDO's you would mark the pool to $0 but if the pool is generating a stream of payments, the pool has a real value and it is not $0. Reporting the pool at a $0 valuation on the balance sheet is not fair value. It might be market price but market price does not imply value because markets are driven in part by emotion. Balance sheets are supposed to reflect "value" not emotion driven "price"

The market is irrational in pricing these assets because of the uncertainty of the future stream of payments generated by the pool (emotion again). Many financial figures on a balance sheet are reasoned quesses but a better way of determing the reasonable value of these assets is historical cash flow discounted by expected impairments to future cash flow. The same thinking is applied to accounts receivables via the allowance for doubtful accounts.

FASB is ruled by mindless theoticians that make decisions based on intellectual BS rather than on common sense.

R Williams
Former CPA


because price is being determined by emotion.3 12:12 PM market ace wrote:

> Sure everyone knows the problem with the banks isn't all the crappy
> securities and loans they're loaded up with. It's not that they took
> on too much excessive risk, lending against assets whose value is
> plunging.
> It's not that they funded asinine private equity deals, stupid commercial
> construction deals, and dumb home purchases.
>
> It's that they have to mark their book of securities made up of these
> bundled loans to market, so they argue that the prices they could
> get for those securities in the markets are "artificially" low —
> or in some cases, that there is NO market for them.
>
> If only they could avoid marking those assets to market, or use their
> super- duper net present value and cash flow MODELS — which, surprise,
> surprise, say the "real" value of those securities is higher — then
> the banking system would be fine. We could all go back to the wonderful
> world of yesteryear.
>
> There's just one giant problem with htis type of thinking ...Pretending
> Something's Worth More Than It Is Doesn't Change Reality!
>
> Look, the problem isn't that there's NO market for these bad securities.
> The problem isn't that the prices are "artificially" low. The problem
> isn't how we account for these assets. The problem is that the industry
> doesn't want to acknowledge that today's prices are the REAL prices.
>
>
> There are tons of bidders out there for this crappy paper at the
> right price. Vulture funds, hedge funds, private equity investors:
> They're all raising billions and billions of dollars to scoop up
> cheap real estate, inexpensive bundles of mortgage backed securities,
> and distressed buyout loans.
>
> However, banks and regulators just don't want to admit reality. They're
> hanging on to the garbage securities, hoping against hope that they
> won't have to sell at the true market prices so now the government
> is busy trying to figure out ways to prop up the reprted price of
> the garbage rather than forcing banks to take their medicine now,
> even if it means the result is that they have to temporarily be nationalized
> or put into receivership.
>
> It is easy to understand why Policymakers are afraid of mass insolvencies.
> So they're trying to figure out how to do something akin to the early
> 1980s use of Regulatory Accounting Principles (seekingalpha.com/symbo...),
> which papered over insolvencies in the Savings & Loan industry.
>
>
> Of course, papering over the problem didn't mean it went away. No
> surprise, then, that the unofficial nickname for RAP used to be Creative
> Regulatory Accounting Principles. You can figure out the acronym
> yourself
>
> It's time to quit playing games to stoke the markets and solve the
> problems by facing reality.
>

The U.S. Financial Accounting Standards Board ((FASB)) will discuss mark-to-market guidelines at a board meeting Monday. The FASB says it will focus on "additional application guidance that would clarify how mark to market is used in illiquid markets." Earlier today, FASB chairman Robert Herz told a House subcommittee that new rules could be implemented within three weeks.

Well, I used to be a CPA and mark to market for these types of securities makes no sense. Current Assets include cash and marketable securities. My contention is many of these holdings should not be reported as marketable securities because there is no reasonable expectation that they will be disposed of in less than one year. To me, these are quasi fixed investments. Fixed assets such as Plant and Equipment used in production are not marked to market - they are amortized over their useful life. True, these securities are not fixed assets in the nature of P&E but they are also not all marketable securities expected to be realized during the current fiscal year.

In my opinion, only those securities that the company expects to sell, mature or otherwise dispose of in the next year should be market to market. The longer term holdings should stay on the books at cost less a charge for "permanent" impairment that should be amortized over the remaining life of that pool of assets. The permanent impairment deduction should be based on DCF analysis of the securities remaining in the pool.

Remember, the attest statement says in part that the financial statements fairly reflect the financial postion of the company as of a certain date. When there is no market for a major asset that is valued on a mark to market basis, the attest statement becomes invalid. Valueing non-marketable securities to market is nonsensical.

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

If you want a great bank with none of the stuff that plagues many US and European banks, pick up shares of Bank of Nova Scotia (BNS). Great Canadian bank with no CDO's, Subprime Mortagages nor is it overleveraged. It has no US banking exposure. Pays an 8% dividend and the only reason its share price is down is because of the slide in all banks.

This bank is a winner going forward

We've Crossed the Line from Capitalism to Socialism

Another over dramatic article. The truth is this plan is temporary and will cost the taxpayer nowhere near what the fear mongers are spouting. Most of the securities that get purchased by this new entity will either mature and payoff (and therefore pay back the US Treasury) or be resold into the market place to others willing to take on the risk (Hedge Funds for example).

This not socialism. This is a government acting to avoid a depression caused by fear. The people of this country got themselves into this mess by purchasing homes and other assets they couldn't afford to pay for. The government failded also in not providing the regulations needed to put a stop to our own nonsense. There is plenty of blame to go around. The only cure that makes any sense is follow exactly the actions that the Treasury is now proposing. The other option is economic suicide. Which one do you choose? I suggest youp put your free market at all cost nonsense away and smell the roses and maybe you'll come to your senses.

Three Long-Term Investments in Latin America

Larry, I just read recently about Cemex and the article made some good points about the structure of CX's deferred debt and this does not look good if the world economy,especially that of the U.S. does not rebound strongly in the next two years. Have you taken a look at their accounting methods in Mexico and the effect their debt structure could have on the company in the next few years?