Jadogsl

TARP Takes a Wrong Turn

if you read nothing else read the last link in this comment

Former Fed Officials agree...

Thanks for your comments, which are quite thoughtful. I will keep up this fight until SFAS 157 is suspended, as it is destroying our financial system and taking the economy with it.
Best regards, Bill William M. Isaac
Chairman
The Secura Group of LECG


--- On Fri, 11/21/08, Bob McTeer <soupcolddog@yahoo.... wrote:

From: Bob McTeer
Date: Friday, November 21, 2008, 10:22 AM

Thanks. I heard Sec Paulson on the radio yesterday refer to mark to market accounting as "pro cyclical." That's encouraging. Bob


Here is what they were responing to...

Did the enforcement of Fair Value Accounting i.e FAS 157 effective for fiscal years beginning after November 15, 2007 coincide with the early stages of the meltdown of the bond and equity markets ? Or was it a coincidence ?

There is no doubt that some financial-services firms found themselves ill-equipped to perform such acrobatics. Finance executives in the sector complained that the fair-value rules were "pro-cyclical" - that they were a self-fulfilling prophecy forcing banks to sell their securities in plummeting markets. ( paraphrased from CFO.com )

The big picture, a common sense view .... CSCO stock was at $80 in 2000. The cash flow value was $18. Had margin been against $18 instead of $80 the bubble in tech stocks may never have happened. Also in 2002, CSCO was at $11. Cash flow value ? $18. How do the purists defend Fair Value accounting 'allowing' margin loans against an $80 stocks really worth $18 by conservative estimates ? Migrate this example to Las Vegas real estate in 2005 and you have the achilles heal of Fair Value accounting.

The reverse is now happening, a downward spiral as assets sell below their intrinsic value.

George Soros speaks of reflexivity as the main component of his investing thesis. The key element is banks lending against overvalued assets create bubbles and the withdrawal of lending against falling asset values creates the bust. A mark to model across all spectrums, Margin...Home lending etc would REDUCE the risk to our financial system and bring sanity to our financial markets.

The real fix is INDEPENDENT firms that audit companies. Firing without cause should be eliminated when it comes to these firms. Whistleblower laws with teeth wouldn't hurt either. After all the problems where known within Enron and reported to upper management. It wasn't a mark to market issue it was a regulatory issue.


The case is made by an esteemed former official ... sec.gov/comments/4-573...

The effects are felt .....
www.researchrecap.com/.../

The proof is in .....
seekingalpha.com/artic...