Account Dracula!

The Financial Accounting Standards Board is the other “white meat.” It a private non-profit of green-shaders – accountants who set the standards for accountants in the U.S. (the international counterpart is the International Accounting Standards Board). I can feel your chins heading slowly for your chest, reaching for the browser, looking for something more bearable to read. Well hang on, because let’s face it, big public companies don’t hire accountants to make them look bad in public, even if they stink like a hot festering wound in the tropics! Ewwww!

So our government, and private standards-setting boards like FASB, are supposed to keep “truth in the equation” – to make the numbers real. Yeah, right. A government that really wants the consumer confidence level to rise and for people to believe we’re just peachy, beginning a recovery. So if we shade a little here... and twist a little there, how bad can it be? What’s the price on “hope” these days?

FASB has implemented a lot of new rules in light of the crunched economy. “One change softened the impact of when short-term investments such as securities lose value. Banks had been required to set aside money from earnings to cover such declines. Under the new rules, banks are not required to set aside money against the portion of a loss judged to be temporary. [like define “temporary” huh?] Companies were allowed to adopt the rule in the first quarter and required to adopt it in the second quarter. A study … found that 45 financial firms took advantage of the new rules in the first quarter to report higher earnings. [The study] estimated that the total benefit exceeded $3 billion.” The August 4^th Washington Post.

English please! OK, it means that the same banks with the same crappy investments can account in a way that makes them look more profitable, when in fact nothing has changed. Thus, you might look at that company, think it’s getting healthier, invest in the bank, and get hosed by the folly of believing the numbers you were reading! Hey, but it lets the Dept. of the Treasury use this financial information to convince us that the economy is getting better! So banks really like this rule.

FASB is thinking that applying a fair market evaluation of longer term assets, forcing banks to accept and declare a big write-down of toxic assets they’ve kept on their books at artificially high paper valuations. This would make the banks and the economy look bad. So surprise, banks with a little help from the government are resisting this change. “[B]anks could be required to set aside money from capital, or their reserve against unexpected losses, to cover the predicted losses. That could leave many banks with less capital than regulators require, forcing them to raise money.” The Post. Banks don’t like that much honesty!

And you thought Fairy Tales were Grimm? “The industry is preparing to fight the rule change aggressively. Many bankers blame existing mark-to-market accounting rules for deepening the financial crisis, by creating a cycle in which desperation sales dragged down market prices, forcing additional fire sales and further declines in asset prices… Banks already must acknowledge losses if a borrower stops making payments. But opponents of mark-to-market accounting question why a bank should be required to report the fluctuating value of a loan it intends to keep if the checks keep coming every month.” The Post. It’s like owing $4 billion dollars, paying the interest, but knowing when the loan eventually comes due, you can’t repay it or restructure that debt. Sooner or later, that debt will kill the debtor. You can lie and pretend you’re ok, hope you can pay the interest when due, but you know… you know… you are dead with the due date drops doo doo on you hoo!

Where are the feds in all this? Well, as FASB is about to amend a rule that allows banks to park bad assets in “other companies” (special purpose companies referred to in the biz as “Q’s”) to avoid showing them on their financial reports (the so-call “off-balance-sheet” rule), the government is squawking. The August 5^th the Deal.com: “The change could affect trillions of dollars of off-balance-sheet assets when they take effect in 2010. .. Federal Deposit Insurance Corp Chairman Sheila Bair told the Senate Banking Committee the notion that off-balance-sheet rules must be implemented while the economy is still restoring itself following last fall’s financial panic ‘gives me some heartburn’ and could hamper recovery of the securitization market.”

One of the reasons we lack “consumer confidence” is because we get lied to through numbers so much. We just don’t believe what we’re told. The entire financial meltdown taught us that. Politician’s reassurances notwithstanding, if I am getting paid less, or have lost my job, or my home value is less than the cash in my pocket, stop lying to me!

I’m Peter Dekom, and I approve this message.