Heh, if I bag on people, I have to provide the cheer when its appropriate too. And this time, it is:
About a year ago, the government-chartered lender blamed accounting rules after it wrote down its portfolio of mortgage- backed securities by $304.2 million to reflect how much their fair-market values had fallen. While those declines counted against its earnings and regulatory capital, the bank said they were “well beyond any expected economic loss.”
The bank’s executives said they expected to lose a mere $12 million of principal over the life of the securities. That estimate proved far too hopeful, though.
The bank, one of 12 regional Federal Home Loan Banks that supply low-cost loans to about 8,000 member banks and finance companies, now says it expects about $311.2 million of credit losses on its portfolio.
Remember this folks?
The banks - including the FHLB system - all said that "mark to market" was unfair. If you remember the biggest fraud ever foisted on the investing public was rammed through by Congress literally threatening FASB in open hearings. They got their "mark to model" and we all heard that the world was good, milk and honey was back and the banks were not going to take these huge losses since they'd simply wait for the market to improve and the loans would all be ok.
Except they weren't, and the "estimated" original $300 million loss (before "mark to fantasy" was given back to them) turned out not to be the fantasy $12 million "model" loss trotted out before Congress, but in fact is now $311 million.
Heh wait - that's kinda close to $302, no? It's a hell of a lot closer to $302 than it is to 12!
At the time I wrote a proposal on how we could temporarily use a MTM suspension to clear the market - by putting a date-certain on the end of all games, all Level 3 BS, and all off-balance sheet exposures. That, of course isn't what Congress forced FASB to do, basically at gunpoint.
But now the facts are in. As I wrote about on January 28th, FHLB Seattle is now going after the bundlers of the trash. And their claim is not just for a couple hundred million. Oh no - they're after $2 billion smackers.
Does this count as the jury being in on actual valuations?
Mr. Weil thinks so and so do I. Then again I called it BS from the start when it was unpopular to do so.
Jonathan's final word says it as well as I could:
Those explanations aside, what happened here is that a few members of Congress bum-rushed the FASB into action based on a premise that was false, in a misguided effort to boost public confidence in the financial system through smoke and mirrors. It’s an open question if the board’s standard-setting process can regain its credibility someday. Undoing this disaster of a rule change would be a good start.
You forgot "jail all the crooks", but I'll forgive you for that.
Balance sheet fraud is how we got ENRON. We learned exactly nothing from it, and we're still doing it.
Congress may have had Geithner and everyone else in the "industry" telling them that they "had to do this to save the world", but in fact it hasn't save anything. The losses are still there and in fact have gotten worse.
We've done nothing other than making legal accounting lies. The impairment and thus the actual economic loss still exists, and while we may have pushed it off another year that actually makes it worse, because these non-accruing loans gather more and more hair on them the longer they sit around without being either foreclosed, put back, or otherwise disposed of.
This part of The Bezzle is one of the worst examples in this entire sordid mess and if Congress won't grow a pair then FASB needs to - right now.
PS: If they don't, cash flow will eventually burn these guys. You can play with a balance sheet all you want but the electric company only accepts actual money in exchange for keeping your lights on.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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