Nice Transperancy

The Financial Accounting Standards Board ("FASB") has altered the rules in the U.S. on mark-to-market, thus easing the pressure on financial institutions and, thereby, alleviating some of their capital to debt ratio strain. After all, with the old standards mark-to-fantasy was undoubtedly getting harder to pass by the auditors. Now they have a new lease on life and mark-to-fantasy is officially blessed by the powers that be. Go figure.

Obviously the U.S. is well out in front of all other countries in liberating the jerks that got us here from any sort of rationality, so the EU now feels compelled to do the same for their banks so they are not at a disadvantage. Now everyone is free to mark their toxic assets as they please. This will truly help us free up credit - not!

http://www.bloomberg.com/apps/news?pid=20601087&sid=aElymhLgAaK4&refer=home

This is just great. Now in some respects I can appreciate that mark-to-market does not work too well when the only sales are at distressed fire-sale prices. Nonetheless, I assume most financial institutions are being liberal in putting assets into Tier III, i.e. the world where asset prices are incapable of being calculated. When there is no comparison, banks are a bit free (subject to paying their auditors enough to go along) to mark-to-fantasy. Still, there is just so long they can play this game, so they want another way to cook the books and the FASB is playing along.

I may be off on a branch here, but I think we need more transparency, not less. Allowing financial institutions to hide more of their problems with accounting standards being lowered is the wrong direction, in my opinion. But hey, I am just a blogger with a small voice.

Krugman - Not an Optimist

I do not always agree with Krugman, the Nobel laureate economist, but I agree with him that this is a nasty downturn that is not over yet.

http://www.calculatedriskblog.com/2009/04/occ-more-seriously-delinquent-prime.html

I am using this as a lead up to something I posted last night but to which I did not give proper justice. Prime loans, by number, are now exceeding subprime loans in the loans seriously delinquent status. Now stop and think about this for a bit. Prime loans are typically for a higher loan amount than subprime, commonly much more. Prime loans represent a much larger number of loans than subprime. So the bank toxic assets, in my book, should be getting much more toxic. More loans at higher loan values delinquent does not bode well for banks. Nor does it bode well for all those that bought securities backed by these loans. If the banks had serious problems when subprime went under, then they really have to be suffering now.

Think about it - carefully. Prime loans are rated better and represent more money at risk. If these are going under the bank problems are getting worse significantly.

I have said on this site that I do not see a bottom until real estate bottoms. I still do not. In part this is due to the strain on those owning the homes and in part it is due to the strains on the financial institutions. Prime loans increasing in delinquencies is not a good sign to me.

Disclosures: None