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?