World’s Biggest Banks Call For Relaxed Write-Down Rules

Posted on May 22nd, 2008 in Daily Stock Market / Economic News - The Real Story

Great idea! When this is instituted, they should all ‘historically value’ our homes at 2005 levels and let’s us all do cash-out refinances!

This garbage must stop. Wasn’t marking real estate and incomes at unreasonable levels responsible for much of the meltdown we are seeing today?

It is the banks pushing out and lying about the problem, for well over a year, that is responsible for bringing the credit markets to the brink. Every day, we learn about the underlying asset values deteriorating further and they think it is appropriate to ‘historically value’ their assets?!?

I am willing to bet that for every one ‘asset’ they have written down unjustly, there are five they have not even begun to write down to anywhere close to market levels.

Perhaps after a reasonable period of asset price and broader economic stability, this could help to bring about some loosening of credit noose, but not as asset prices are still in a free-fall. This will just push the problem out longer and make the end all the more painful. –Best, Mr Mortgage

http://www.ft.com/cms/s/0/07cb8b1a-275e-11dd-b7cb-000077b07658.html?nclick_check=1

Top banks call for relaxed writedown rules

By Francesco Guerrera in New York and Jennifer Hughes in London

Published: May 21 2008 23:04 | Last updated: May 21 2008 23:04

The world’s leading banks have stepped up pressure to relax controversial accounting rules with a new plan aimed at breaking the “downward spiral” of huge writedowns, emergency fundraisings and fire-sales of assets.

The proposals on “fair value” accounting by the Institute of International Finance, an alliance of 300-plus companies chaired by Josef Ackermann, Deutsche Bank’s chairman, would enable financial companies to cushion the blow of financial crises by valuing illiquid assets using historical, rather than market, prices.

Under the plan, which has been obtained by the Financial Times, banks that decided to keep assets on their balance sheet would also be freed from the requirement to hold them to maturity and would be able to sell them after two years.

The IIF’s proposals, which were sent to US and European central banks, governments and accounting watchdogs, underline financial groups’ view that the credit crunch will inflict long-lasting damage on their business.

The IIF’s paper says: “The writedowns required under current interpretations may be substantially in excess of any actual or reasonably probable loss on many instruments”.

Financial companies around the world have been hit by more than $300bn in writedowns and been forced to raise more than $260bn from outside investors since last year, according to Bank of America analysts.

Senior bankers have long sought a change to the accounting rules, arguing that the requirement to mark the value of assets to the market price even when markets are illiquid or frozen creates a vicious circle of excessive losses, capital depletion and forced asset sales.

“Often dramatic writedowns of sound investments required under the current implementation of fair-value accounting adversely affect market sentiment, in turn leading to further writedowns…in a downward spiral that may lead to large-scale fire sales of assets,” the IIF’s paper argues.

However, accounting standard-setters in the US and Europe so far resisted pressure to relax fair value rules. Other regulators have also criticised financial companies for proposing rule changes that would reduce the impact of a crisis triggered in large part by their aggressive lending and underwriting practices. The IIF declined to comment.

16 Responses to “World’s Biggest Banks Call For Relaxed Write-Down Rules”

  1. It is not alt-a or subprimes, it is prime mortgages that is the problem, as shown in this latest Fed report:
    http://calculatedrisk.blogspot.com/2008/05/fed-delinquency-rates-rose-sharply-in.html

  2. Ackerman of DB wants to use historical rather than market prices for assets.

    I bet a lot of people would like to use 1999 prices on many tech stocks for balance sheet valuations.

    the level of stupidity, hubris, audacity and willful deceit is unprecedented. Like I have said before books will be written and courses taught on this shameful era.

  3. the level of greed is astonishing.

  4. Completely nuts!

    I bought a car ten years ago, which is now a rust heap. Can I value it at its “historical value” too?

    Can anyone tell me why it would be so bad to actually let these banks fail? I’d rather have the turmoil of bank failures than to bail out the guys who not only caused this, but are still trying to slime their way out so they can live to do this again!

  5. HOW are we allowing these institutions to literally re-write the F#$@ing rules like this?? It is such insanity.

    For those that havent seen it yet, Paul Farrell has a great article going over at Marketwatch, titled the “Numbers Racket”. I guess people will have to riot in the streets for anything to change. Our government is completely corrupt and useless at this point.

  6. :)Wow! Great idea.
    Some names. Klingon Mumbo Jumbo.
    “Perpetual ficticious residual indefinite valuation model”
    Must be the idea of Alan Greenspan (Ackeman).
    “Perpetual non value collateralized infinite amortizable assets.” Level 666 assets.
    Relax. It’s just your friendly clown the banker with as always, great ideas.

    Star Trek Black Hole accounting rules.

  7. Level 666 accounting rule.We do what we want. Shut up or else. Numbers mean nothing. This is a fantantic demonstration that nothing means nothing. Don’t like the real numbers, rape them.

  8. Thanks for your hard work Mr Mortgage, always!

  9. Now. Can I call some of these bankers S.o.B.’s ? I give up. I cannot stand this anymore. If you are an ordinary investor buying stocks on margin and have a margin call, you cannot do what these bums intend doing. And if you are a small entrepreneur, it’s the same thing.

    It’s not just crazy, it’s disgusting. It’s a rape of the market rules and it’s communism for the few. Ordinary people and ordinary businesses can go bankrupt anytime on bad and impaired investments.

    This is like a anti-bankruptcy law and a anti-loss accounting rule reserved to a privileged few, call them the choosen people, the bankers. Ackerman is not only a jerk, he is a crook. They do not want to bear the brunt of their stupidity, so there are asking the politicians and the legislators, and ultimately to the taxpayers to forget it ever happened, shut up and swallow the scum.

  10. Calm down kids. This pablum refers to BIS-2 Level 3 securities. Although the accounting may be juryrigged, the BIS-2 still requires complete transparency re the actual security AND the method of valuation used for accounting. In other words, they can lie but we will know exactly what they are lying about. It is not perfect, but it is better than what we have today which is smoke and mirrors. Regards.

  11. Will they be doing the same thing when the derivatives market implodes and breaks down ? Keep at historic value a SWAP contrat gone bad, that will never have a market and that nobody wants and has no counterparty, except the taxpayer ?, will be very funny indeed. Then why waiste time even suggesting a stupid measure like that ? You are implying that there will be two sets of books. One book for the public and the propaganda at CNBC,MNBC and Bloomberg, call it the Walt Disney happy end film, and a real one that nobody mentions. Anyways, that’s the way I see it.

  12. “The IIF’s proposals, which were sent to US and European central banks, governments and accounting watchdogs, underline financial groups’ view that the credit crunch will inflict long-lasting damage on their business”.

    Must be nice that when when things go bad for you, you just change the rules. So,goes the old saying about the Golden Rule, “When you have the gold you make the rules.”

  13. If

    “The writedowns required under current interpretations may be substantially in excess of any actual or reasonably probable loss on many instruments”,

    is it possible to buy these securities at market prices and sell them to this banks at “fair – historic prices”?

    Wow. I am genious! I have just invented perpetum mobile that generates cash. I feel smart. There must be great carrer path for me at on Wall Street.

  14. Can I get gas at historical prices? 🙂

  15. From http://www.prudentbear.com/index.php/BearsLairHome , by Martin Hutchinson – The Bear’s Lair.

    “March’s consumer price index was adjusted down by 0.6%, from 0.9% to 0.3%, while April’s was adjusted down by 0.4%, from 0.6% to 0.2% — both “adjusted” figures were greeted by the stock market with a sharp upward move. In the ten years to 2007, no seasonal adjustment has ever exceeded 0.3%, plus or minus; the probabilities that the March and April seasonal adjustments were randomly arrived at by the same method as those of the last decade were thus 0.18% and 2.3% respectively (so the probability of two such anomalies in successive months was 0.0041%, about 1 in 25,000.) If the raw March and April figures are adjusted by the average March and April seasonal adjustments of the last decade, consumer price inflation in those two months averaged 7.4% per annum”

  16. As of today.

    Dow Chemicals, Ashland Oil, Occidental, Meridith, General Mills, Hershey, are jacking up their prices by 20% on all items. Some of them are going up 40%.

    How’s that for the phoney baloney fascist Labour Department in Washington ? I am so tired of these bogus inflation statistics. The markers are full of sh-t and the investors are dumb stupid morons. Probably they are the same imbeciles buying 10 year bonds and were the same buying CDO’s. The CPI indez, plain and simple, is a load of Washingtonian propaganda crap. It’s as credible as nazi propaganda. And next month the core inflation rate will be at 0,2% or some Alice in Wonderland number.

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