Under New FASB Accounting Rule, Toxic Assets May Be Revalued By Banks

April 3, 2009 by · Leave a Comment
Filed under: Legal News 

Well this is were we have come.  Instead of letting the market determine the price of assets on their books, we instead changed the accounting rules so they can set the price for them and then ultimately sell them off and higher than actual value.   This move was a bad one and will backfire on the regulators face.   All this tells me, is the banks are in a much worsen condition and they had to play an accounting trick in order to no be insolvent.  This does not bring confidence back to the market or fool any of the smart money out there. Good job.

News (Washington Post):

The board that sets U.S. accounting rules voted yesterday to let financial firms report higher values for some troubled assets, a controversial step likely to increase some banks’ reported earnings but also heighten suspicions that the companies are concealing problems.

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Toxic Asset Purchase Plan May Involve Purchases from Hedge, Mutual and Pension Funds

March 26, 2009 by · Leave a Comment
Filed under: Policy News 

 Now this is pretty big news that does not seem to be getting the same news cycles.  Up to this point it has been said that we are issuing all of this debt to “recapitalize” the banks to get credit (debt) flowing in the economy.  But now we have a new chapter in the bailout that does not involve banks at all.  It looks like the normal conservative buyers of fixed income assets have now gotten in trouble by investing in highly risky assets.  Are we now suppose to bailout these bad bets?

This is way beyond sub-prime assets being that those were only $500 billion-$1 trillion dollars total.  Basically we keep being lied to about what the real problem is and the extent this goes, I believe what has happen is all these companies were buying OTC derivatives, collected the premiums and now these bets are going bad and they are looking to the U.S. taxpayer to make them whole again.  This is not a form of capitalism I am familiar with.   I am not sure how we can have a system when the good times are good, everyone is happy and no questions are asked but when they go bad then we give bailouts.   It really kills the incentive to work really hard when you have to pay higher taxes for others mistakes and greed.

News (Bloomberg):

Treasury Secretary Timothy Geithner’s plan aimed at ridding banks of toxic real-estate assets may involve U.S.-backed purchases from hedge, pension and mutual funds at higher-than-current prices.

All financial market participants will be eligible to participate in the Treasury’s new program for older mortgage- securities, an administration official said. Investment funds will be able to buy and sell into the securities program, which was announced yesterday. The Treasury also unveiled a companion program to finance purchases of whole real-estate loans that will only allow banks as sellers.

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Investors ready to buy U.S. government-backed toxic assets?

March 11, 2009 by · Leave a Comment
Filed under: Opinion 

If you actually analyze the press release, its a load of crap (pardon me) but that is what it is.   The basis of this approach is instead of discovering the “real” price of these “toxic” assets, we would rather have the government provide financing for assets that are worth very little if anything to investors that would not normally purchase these if they did not have government financing.  Here is my favorite quote “Neel Kashkari, who administers the Treasury’s $700 billion Troubled Asset Relief Program, told a U.S. House of Representatives Oversight and Government Reform subcommittee that without financing private investors would pay such low prices for the assets that bank balance sheets would be hurt.”  Let the balance-sheets be hurt, they made bad choices and this is how a market economy deals with them.

News:

A U.S. Treasury-led effort to soak up toxic assets from bank balance sheets could draw in private investors with the right government financing, a senior Treasury official said on Wednesday.

Neel Kashkari, who administers the Treasury’s $700 billion Troubled Asset Relief Program, told a U.S. House of Representatives Oversight and Government Reform subcommittee that without financing private investors would pay such low prices for the assets that bank balance sheets would be hurt.

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Fed wants new effort to “cleanse” banks hampered by toxic assets

January 14, 2009 by · Leave a Comment
Filed under: Policy News 

Here we go again, lets reward the banks for making foolish choices because printing good money and throw it at bad assets.  This sets a precedence that will encourage this to happen again in the future and it will prevent asset prices from dropping to a level that matches income so you will also punish the people who saved and made good choices by making assets more unaffordable.

This is not going to succeed because we do not have the income to support these asset price levels.  If you want to cleanse the banks, let them go into bankruptcy and have the banks that are not insolvent, come into the market and take over their assets.  According to “Lombard Street”, you prevent good banks from forming while you send money to support bad banks.  The main reason is because of “risk taking”, a bank that is not prudent, will take undo risks that in effect will make their money “easier” to be got and that makes the good banks uncompetitive.

News:

The Federal Reserve’s top two officials urged a new effort to address the toxic assets held by financial companies, warning that they threaten to prevent banks from resuming lending to households and companies.

Chairman Ben S. Bernanke and Vice Chairman Donald Kohn said in separate remarks yesterday that the illiquid investments raise questions about the “underlying value” of banks and may hinder “private investment and new lending.” They called for the government to remove or insure the assets.

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