Sunday, 2 October 2011

Gee, Bloggers Have Been Right? (Book-Cooking by Banks)

October 1st, 2011 | Author: Stephanie

Wow, what a shock…

The bottom line from the chair of the International Standards Board is that the European banks are fudging their books. This is not the Blogs making this assertion. It’s coming from the highest authority that exists.

That’s supposed to be illegal if you do business here in the US, and many of these institutions do in one form or another. Some are even primary dealers.

This is NOT just an intrepid blogger or three making this assertion. It is IFRS, the highest authority there is in this regard.

Even when a model is used to measure fair value, that model must reflect current market conditions (including those as evidenced by observable transaction prices) and it should include appropriate adjustments that market participants would make for credit and liquidity risks. (ed: If there are liquidity risks the mark would be lower to reflect those risks, not higher) Furthermore, the model must maximise the use of relevant observable inputs (eg market data) and minimise the use of unobservable inputs (eg the company’s own assumptions). A company cannot ignore relevant market data (including observable transaction prices) when it is clear that market participants would use that data in determining the price at which they would be willing to enter into a transaction for the financial asset.

It would therefore not be in accordance with either the requirements in, or the intent of, IAS 39 to measure a loss on government bonds classified as AFS financial assets solely by assessing the present value of the future cash flows arising from a proposed restructure of those bonds. It is hard to imagine that there are buyers willing to buy those bonds at the prices indicated by the valuation models being used. In my view it is therefore difficult to justify that those models would meet the objective of a fair value measurement.

That’s from August, by the same organization – and now it has been repeated, in public.

The DAX was pounded for 2.5% today and our market was down a similar amount. Banks were the big suffers, with Morgan Stanley being hit particularly hard.

If this game is not stopped by someone – either the participants themselves or regulators – we are headed directly for a repeat of 2008′s meltdown and this time there is little or no government ability to interrupt it as the tactic of allowing firms to lie about valuations – the very tactic that interrupted the crash in early 2009 – has already been used!

The lies must stop NOW.

H/t Bruce Krasting



The elites are finally admitting it: Banks have been lying about their assets and risk level for many years (see below). This is one of the reasons banks were able to make bad loans (subprime) to people who didn't have jobs, assets or enough money for a down payment up until the inevitable crash in 2007, which was caused by this suicidal financial policy. They could make themselves look solvent by cooking the books.
The idea of making easy home loans public policy apparently goes as far back as the Carter administration (in the form of the CRA), was beefed up greatly by Clinton, and Bush, while making a few feeble protests in his first term, succumbed later on and cheerfully went right along with it.
The result is history: a worldwide financial crisis that affected business to the tune of millions of lost jobs. You are living it, you are suffering the fallout, and you are not protesting or demanding accountability.
If the banks had been forced to report honestly, the crisis may not have happened.
Government looked the other way. It still is, for the most part. Many Republicans didn’t want to regulate the banks because they thought of them as untouchable pillars of the "free" market, while the Dems wanted to use the banks as their private wealth redistribution centers.
It is way past time to do things differently or perish. So what are they doing?
Well, remember those poignant questions the Fox News moderators asked the candidates about these financial and economic issues 2 weeks ago?
No, you don't. They didn't. As far as the news media are concerned, this is a non-issue, so it doesn't matter what the future president thinks about it. Even "conservative" Fox doesn't care.
To his credit, Ron Paul did mention finances even though he wasn't asked a pertinent question on it.
No one else did, so we have no way of knowing if our next president will have a clue. Ron Paul has his own set of issues, and is making himself very hard to elect, if not unelectable.
So are we headed where Spain and Greece are?
Greece is on the brink of bankruptcy and will eventually have to leave the euro zone -- or be kicked out -- since Germany is not interested in flushing any more euros down the toilet. Spoil sports.
And Spain? Well, like all of Europe, Spain got hurt by our subprime junk securities and also had some quick and easy lending policies of their own.
But one thing that took her even further down was Zapatero's enthusiasm for green jobs. A prestigious institute in Spain found, after billions were spent on green jobs, that the program had cost Spain more per green job generated than a green job worker would make in several years. The experiment was declared infeasible. No kidding?
The upshot? At 21%, Spain now ranks no. one in unemployment in the world.
Good thing we didn’t try such a boondoggle.
Oh, wait: there was that solar energy company Solyndra? Seems they went bankrupt after Obama lent them a half-billion of your cash (you don’t mind, do you?).
And what did we learn from the Solyndra fiasco and from the Spanish failure?
This:

WASHINGTON - The Energy Department on Friday approved four more solar energy loan guarantees worth nearly $5 billion, hours before a controversial loan program was set to expire.

Yes, this new commitment of MORE OF YOUR money to a new bound-to-fail venture comes on the heels of the Solyndra failure. Nothing like adopting the same failed policies over and over. Oh, but it was all Bush's fault and Obama has had a "run of bad luck." MMMhmmm. Sure. Besides, it would be racist to suggest that Obama can't do simple math so we just have to like it and lump it, I guess.
Meanwhile, back on planet earth: Unless there is a very quick, very momentous wake-up call in the US, we may well outstrip Spain in unemployment.
But judging by your reaction, that is fine with most of you.
IFRS Foundation. IFRS = International Financial Reporting Standards.
AFS = Available for Sale.

Posted by Britannia Radio at 07:29