April 2nd, 2009 The real April fools day and the joke is on us!

[dc dalton]

I mentioned this a while back but tomorrow is the day banks begin to be allowed to mark their assets (value them) to their own 'banking models', not to what the value of them is on the market each quarter.

Before the rant I'd like to publicly thank our very own Rep. Kanjorski for his hand in allowing this fraud to be perpetuated on the investors of America. As usual Kanjorski has lined his pockets with lobby money and done exactly what those lobbyists asked, no matter what the ramifications ... let's here it for our very own 'bought and paid for' representative!

So what's the big deal and why the hell should anyone care?

Let me make an analogy to explain this for those that want the simple version. Let's say I own a 2009 Challenger I just paid $45k to Chrysler for. I didn't buy it to drive, I bought it for an investment in the rare car market.

So technically my new car is worth $45k in my assets (we will ignore the instant price drop when a car is driven off the lot for this story)

Now there are valuation guides for 'collector cars', while not the gospel they are widely agreed upon values in the 'market' but I don't like the way the market values my new car so I build a computer program that extrapolates the value of the car over the next 10-20 years using market conditions I build into the program. I run the program and out pops the number $125,000 for the value of the car in 10 years.

I then take this computer generated number and add it into the assets column of my personal balance sheet.... bingo I just became $80,000 richer on paper and can use that new found wealth to show to banks AS AN ASSET to borrow against.

Sound stupid? Sure to me and you it does but to the bankers and now our congress it is exactly what they will do TOMORROW!

Here's the long version, great details and explanation of what is going to start happening tomorrow:

http://www.whiskeyandgunpowder.com/t...h-a-vengeance/

And a few notable quotes from the article for the short attention span folks:

Each quarter, instead of finding out your current account value, you’d get a figure derived from a series of equations using various probabilities for what the value of your fund might be at your target date for retirement. In my case, something like 2045.

Of course, I don’t think I’ll be living in the same America in 2045 — even if I never move overseas. And that’s the problem. As the mortgage-back securities blowup taught us, these models — especially those developed by and for the banks — didn’t price things correctly in the first place.

Bloomberg offers the take from former Lehman Bros. managing director, Robert Willens:

“By letting banks use internal models, instead of market prices, and allowing them to take into account the cash flow of securities, FASB’s change could boost bank industry earnings by 20%.”

But Congress — with the help of the FASB — wants to let these banks keep the stinking assets…every last one. Mark to model will be left up to the bank’s choice of equations plugged into its internal modeling of future market conditions — and not it being made to write these assets down to below “fair market value.” Thus, they won’t be selling these suckers to the Treasury.

The model, on the other hand, is only the most mathematical guess where the market will be in 10 years. There’s just one flaw. Even holy Goldman doesn’t know the future, and no matter how many ex-execs it puts in public service, we’ve seen it can’t MAKE the future.

When the math guys, fondly called “quants” — short for “quantitative” — modeled these derivatives the first time around, their calculations indicated what would happen 99% of the time, when there would be some measure of profit, and neglected the other 1% of the time, when losses would be catastrophic.

So tell me again how Washington is NOT being run by the large banks?

[Dredly]

Can I do this and then go to my lender and get refinanced?

I called yesterday to see about going with a lower mortgage rate but I don't have 5% equity in my house yet... I've paid well over 40,000 (on a 165k house) in interest in the 3 1/2 years of living here but I don't have 5% equity yet.

pretty sure in 10 years my house should be worth at least 175k so I should be good to get refinanced!

[dc dalton]

Can I do this and then go to my lender and get refinanced?

I called yesterday to see about going with a lower mortgage rate but I don't have 5% equity in my house yet... I've paid well over 40,000 (on a 165k house) in interest in the 3 1/2 years of living here but I don't have 5% equity yet.

pretty sure in 10 years my house should be worth at least 175k so I should be good to get refinanced!

But of course you CAN'T do it! Why should you be allowed to play by the same rules the banks play by?

[Dredly]

But of course you CAN'T do it! Why should you be allowed to play by the same rules the banks play by?

hmmm... but I'm a single mother that is struggling to put food on the table due to my crack habit...



now do I qualify?

[dc dalton]

hmmm... but I'm a single mother that is struggling to put food on the table due to my crack habit...



now do I qualify?

Surely you jest good sir, you don't have any assets so you get the free ticket from the government.

[Dredly]

Surely you jest good sir, you don't have any assets so you get the free ticket from the government.

Gov't... Banks... who cares gimme gimme gimme :P

[stephpd]

Come on, be nice. Where else but banks can you deposit money and they put it in the asset column. To you and I it would be a debt that we would owe but not to the banks.

Take for another example of you buying a $100,000 house and you put down $10,000 or 10%. Using fractional banking of 2% they can loan out $200,000. But they hold onto the deed. So with your $10,000 plus the deed, plus another $100;000 they now have $210,000 worth of assets.

Oh, and you, not them, have to pay the property tax. It's not your property, but there's. Just miss a payment and see who ends up homeless.

The whole thing is a scam.

[imperialism2024]

I swear to an arbitrarily-picked minor deity, quitting my job and maxing out my credit cards is looking really fucking appealing these days.

DC, I'm sending you the medical bills for the reassembly of my skull, thank you very much.

[LilEMT]

hmmm... but I'm a single mother that is struggling to put food on the table due to my crack habit...



now do I qualify?

Absolutely. You also qualify for WIC and Governmental funding and Housing... While the people being laid off loose their houses and sleep in homeless shelters.

How can our government be so blind...

[FNG19]

So tell me again how Washington is NOT being run by the large banks?

I see your point, but I disagree with this statement. Washington, on its own, has plenty of impetus to make the financial situation look better than it is. That the banks benefit is either a fortunate or unfortunate side effect, depending on which side of the issue you're on. With that said, Mark-to-Market has always been a somewhat contentious rule, and it's no surprise to me that Washington has been putting enormous pressure on both the SEC and FASB to allow some flexibility in the MTM rules in light of the current situation. Hell, they practically came out and said that if the SEC/FASB doesn't change things, they'll just pass a law that does it. It's no wonder that FASB caved... the last thing you want is people with a vested interest in the solution to write the rules that solve the problem the rules they wrote in the first place created.

I am in no way removing the role of the banks in this decision, but rather am laying the blame purely at the feet of Congress. It's not about what's best for the Banks, it's about what's best for their political careers. Notice a conspicuous lack of mention of two important parties in this paragraph. Their absence in this equation is telling.