Banks NOW Getting HAMMERED; WTF Will They Do When M2M Under FASB Is Re-Enacted?

[Kassz007]

Quote from ByLoSellHi:

I agree 100%.

The suspension of M2M for banks and financial institutions represented a massive fraud on U.S. taxpayers, particularly at a time when hundreds of billions (trillions?) of taxpayer dollars were being funneled to these very same institutions, to help them recapitalize their balance sheets.

Doing so only delays the pain of recognizing losses, amplifies those losses, and puts those taxpayer rescue dollars at even greater risk.

The U.S. Taxpayer has become the true lender of last resort, by force.

Suspending M2M was complete bullshit for sure. They basically are saying M2M is a great idea when values are increasing, but if they plummet, suddenly M2M doesn't work...

The valuation needs to be consistent, one way or the other, for comparison purposes. How do you compare this year to last when the accounting policies have completely altered earnings?

I just feel sorry for those who don't understand the whole M2M concept and thought nothing of the FASB suspending the policy.

 

[ByLoSellHi]

Quote from Kassz007:

Suspending M2M was complete bullshit for sure. They basically are saying M2M is a great idea when values are increasing, but if they plummet, suddenly M2M doesn't work...

The valuation needs to be consistent, one way or the other, for comparison purposes. How do you compare this year to last when the accounting policies have completely altered earnings?

I just feel sorry for those who don't understand the whole M2M concept and thought nothing of the FASB suspending the policy.

Yep.

Long run, anything that distorts true data, let alone completely obscures it, will not be shown favorable treatment by Mr. Market.

I do believe Benjamin Graham held it is a basic tenet that Mr. Market detests a lack of clarity above all else.

 

[achilles28]

Quote from Kassz007:

Suspending M2M was complete bullshit for sure. They basically are saying M2M is a great idea when values are increasing, but if they plummet, suddenly M2M doesn't work...

The valuation needs to be consistent, one way or the other, for comparison purposes. How do you compare this year to last when the accounting policies have completely altered earnings?

I just feel sorry for those who don't understand the whole M2M concept and thought nothing of the FASB suspending the policy.

What he said.

Its bullshit accounting to jawbone perceived equity and minimize cap req.

Beware of geeks with calculators. Only they know the "true value"....

 

[Kassz007]

Quote from TGregg:

I'm in the biz as well. There are two arguments against M2M. Don't know if I buy them or not, but here they are.

1. If you have some structure and you can show it's value is higher than the market says, why not carry it at the higher value? Imagine a slice of loans. The market doesn't know those loans very well, but you do. As a bank, you are in a better position to say how much that group of loans really is worth.

A problem with this argument is all the assumptions and other behind-the-scenes stuff. Fraud becomes virtually assured, IMO. On one hand, the bank is in a position to properly value this thing. OTOH, it is also in a position to benefit from exaggeration.

2. Market fluctuations would make cap requirements very difficult to manage since they would change dramatically as the markets moved. This would also make pricing the bank very difficult.

And #3 on my list of 2 is some markets are too thin to properly value some structures. If BAC has some weird thing and they are the only ones who have it, how can it be M2Med?

As a capitalist, I like the idea of using market prices. But there are some problems. Perhaps they can be addressed.

There are certainly problems with the M2M concept that need to be addressed.

As per Canadian GAAP, investments are classified under one of three categories:
1. Held-for-trading (held for less than a year)
2. Available-for-sale (intend on holding but have the option to sell if desired)
3. Amortized (i.e. long term bonds, investments held until maturity)

Gains/losses under 1. are put through the income statement.
Gains/losses under 2. are included in "Other Comprehensive Income".
Gains/losses under 3. are capitalized and amortized over the life of the investment.

Does anybody know if the M2M rules differ under US GAAP? Or internationally, the IFRS?

 

[fhl]

Quote from ByLoSellHi:



Long run, anything that distorts true data, let alone completely obscures it, will not be shown favorable treatment by Mr. Market.

Nothing is being run for the long run.

Maybe Buffet's investment portfolio, nothing else.

 

[Ivanovich]

Quote from TGregg:

I'm in the biz as well. There are two arguments against M2M. Don't know if I buy them or not, but here they are.

1. If you have some structure and you can show it's value is higher than the market says, why not carry it at the higher value? Imagine a slice of loans. The market doesn't know those loans very well, but you do. As a bank, you are in a better position to say how much that group of loans really is worth.

A problem with this argument is all the assumptions and other behind-the-scenes stuff. Fraud becomes virtually assured, IMO. On one hand, the bank is in a position to properly value this thing. OTOH, it is also in a position to benefit from exaggeration.

2. Market fluctuations would make cap requirements very difficult to manage since they would change dramatically as the markets moved. This would also make pricing the bank very difficult.

And #3 on my list of 2 is some markets are too thin to properly value some structures. If BAC has some weird thing and they are the only ones who have it, how can it be M2Med?

As a capitalist, I like the idea of using market prices. But there are some problems. Perhaps they can be addressed.

The only way to handle this is for a third party to rate them, state what they are worth and if the holding bank disagrees on the value, for them to have the opportunity to dispute the value through a form process. Of course, whoever rates them has to be of the highest integrity. I wouldn't classify any of the current agencies up to that task.

 

[Kassz007]

Quote from Ivanovich:

The only way to handle this is for a third party to rate them, state what they are worth and if the holding bank disagrees on the value, for them to have the opportunity to dispute the value through a form process. Of course, whoever rates them has to be of the highest integrity. I wouldn't classify any of the current agencies up to that task.

I'm sure the government would be happy to establish an "independent" agency.

 

[fhl]

Quote from TGregg:

I'm in the biz as well. There are two arguments against M2M. Don't know if I buy them or not, but here they are.

1. If you have some structure and you can show it's value is higher than the market says, why not carry it at the higher value? Imagine a slice of loans. The market doesn't know those loans very well, but you do. As a bank, you are in a better position to say how much that group of loans really is worth.

A problem with this argument is all the assumptions and other behind-the-scenes stuff. Fraud becomes virtually assured, IMO. On one hand, the bank is in a position to properly value this thing. OTOH, it is also in a position to benefit from exaggeration.

2. Market fluctuations would make cap requirements very difficult to manage since they would change dramatically as the markets moved. This would also make pricing the bank very difficult.

And #3 on my list of 2 is some markets are too thin to properly value some structures. If BAC has some weird thing and they are the only ones who have it, how can it be M2Med?

As a capitalist, I like the idea of using market prices. But there are some problems. Perhaps they can be addressed.

The banks want to value stuff based on current cash flow, for the most part. They said their stuff was still performing and so it should be valued more highly. That's the argument they made on cdo's.

The market looks into the future. For example, GM bonds traded at ten cents on the dollar long before they declared bankruptcy, and the bonds were still performing. According to the banks way of thinking, those bonds should have traded at fifty, seventy-five, or whatever and shouldn't have gone down until After GM went bankrupt and stopped paying on the bonds.


The market, like democracy, ain't always right, but it's better than the alternative. imo

 

[trendlover]

I am not saying I am correct to how I understand this, but this is how I understand right now.
When mark to market was stopped before, that was because they think it is unfair to mark to market assets that (have no market in that time) So they are saying these assets have value only if someone want to buy them. No buyers in that time.
So they do not want to say it is a loss (in that time) because in the future that loss can be a win.
So bylo, if that is true they want to do mark to market again, then someone is bullish on buyers in the market for these assets.
Than there is TARP money used for merger and aquisition. Than there is the new tax law for banks to take all the loss from bad assets against the gain to write off ALL that loss...less taxes the bank pay for gains. Now toxic assets are diluted more, and a market for the assets. So to me that look like a very slow recovery.

 

[ByLoSellHi]

Quote from trendlover:

I am not saying I am correct to how I understand this, but this is how I understand right now.
When mark to market was stopped before, that was because they think it is unfair to mark to market assets that (have no market in that time) So they are saying these assets have value only if someone want to buy them. No buyers in that time.
So they do not want to say it is a loss (in that time) because in the future that loss can be a win.
So bylo, if that is true they want to do mark to market again, then someone is bullish on buyers in the market for these assets.
Than there is TARP money used for merger and aquisition. Than there is the new tax law for banks to take all the loss from bad assets against the gain to write off ALL that loss...less taxes the bank pay for gains. Now toxic assets are diluted more, and a market for the assets. So to me that look like a very slow recovery.

The people that are arguing for a return to M2M are a few prominent economists who see value in transparency, long term, even if re-implementing it will cause severe losses and some degree of financial shock.

The banks and other financial institutions are still deeply opposed to reinstating M2M.