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My note –

So, while Sarkozy and Merkel are insisting on intelligent redesign of the regulations and transparency that will fix this mess which was directly caused by the lack of them, our Congressional and business leaders have succeeded in making a mockery of them and the entire G20 efforts by having the mark-to-market rule changed back to fantasy accounting.

On This Morning – 04-02-09, the Financial Accounting Standards Board, (FASB) will be changing the mark-to-market rule into something that no longer resembles reality once again by allowing bankers and others to use their own “significant judgment” in determining values for accounting purposes. That means any accomplishments by the G20 over the next few days will be completely undermined and a total waste of every agreement that might be made because the basic sound accounting practices will be unfounded.

Good going Mr. Geithner and whoever else has backhanded this while our President and World Leaders are making their honest and best efforts to make something good for everyone and bring us out of this Global economic disaster.

– cricketdiane, 04-01-09

HIGHLIGHTS – Sarkozy/Merkel news conference
Wed Apr 1, 2009 5:40pm BST

LONDON (Reuters) – Following are highlights of comments made by French President Nicolas Sarkozy and German Chancellor Angela Merkel at a news conference ahead of the G20 summit on Wednesday.

SARKOZY ON WALKOUT THREAT

“Firstly, it would be awkward for me to leave when I’ve only just arrived. Secondly, Angela Merkel and I are on exactly the same page. We think our positions are based on common sense. We both simply wanted to get across that it (summit) was historic. And when faced with history, you can’t sidestep it.

You will judge the result tomorrow of what is not a battle, but a frank discussion.”

MERKEL ON SUMMIT OUTCOMES

“…the most important thing is that we develop a new architecture, a new constitution for financial markets and that we enact very concrete rules and make this very clear in the communique.

This cannot remain a matter of generalities, but it must become clear that those who do not adhere to our rules will be named. We decided in Washington that no place, no institution, and no product should be left without control and adequate transparency. And if we want that, then that means that there must be a list of places that do not want to be regulated.

If we want that, it means that hedge funds will need to be regulated, that there must be rules for remuneration of managers, that ratings agencies must adhere to stricter standards.”

“Countries that do not stick to agreements must be named. The communique needs to set out very concrete steps. The summit must delineate the new architecture of financial markets.”

SARKOZY ON G20

France and Germany will “speak with one voice” at Thursday’s summit. “Our objective is simple. We demand results in London we want concrete results.”

SARKOZY ON REGULATION

“In the results, we want the principle of new regulation to be a major objective…..This is not negotiable.”

http://uk.reuters.com/article/UKNews1/idUKTRE5305KL20090401?pageNumber=2&virtualBrandChannel=0

***

FASB Will Vote Tomorrow on Relaxing Mark-to-Market Accounting

The Financial Accounting Standards Board is set to debate proposals to change mark-to-market accounting.

FASB Will Vote Tomorrow on Relaxing Mark-to-Market Accounting

The Financial Accounting Standards Board is set to debate proposals to change mark-to-market accounting.

To read more about the proposed changes, click here.

[or see FASB info below.]

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atGP3JkZcwVE

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Higher Value

Or as the CFA Institute’s Center for Financial Market Integrity said in a comment letter, “This is an almost certain invitation to having toxic and other problem assets being reflected at a value much higher than actual market value.”

There is also the issue of the Treasury’s bailout plan. Will prices resulting from purchases of bank loans and securities be considered market values? Will banks have to use them for similar holdings on their books, even if that results in losses?

The FASB’s proposal makes it more likely banks will argue these sales don’t represent market values they have to use. In that case, banks may be able to use the Treasury program to cherry-pick values they like while disregarding those that would cause balance-sheet pain.

The FASB’s mission is to craft rules that give investors clear, relevant financial information. Its latest proposals are nothing more than sops to the banks.

If adopted, they will only confirm for investors that markets are now a rigged game.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Reilly at dreilly14@bloomberg.net
Last Updated: April 1, 2009 00:01 EDT

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aR516Rnf_Kvc

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The funny thing is banks don’t mark most of their balance sheets to market prices. Still, many want the FASB to allow them to massage the marks they do take.

That would be in keeping with banks’ preference to use prices based on their own views of value, which often overlook the consequences of shoddy lending.

Investors have given up on that approach. A March 24 report from Goldman Sachs Group Inc. analyst Richard Ramsden shows why. He estimated that Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. are all carrying commercial mortgages at 100 percent of face value.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aR516Rnf_Kvc

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The problem stems from banks’ refusal to face up to losses, and a congressional directive that the Financial Accounting Standards Board “fix” mark-to-market accounting. What Congress, at the urging of bankers, really meant was, “Make bank losses disappear!”

The FASB is due tomorrow to debate proposals aimed at doing just that. The board is so desperate to please Congress, it didn’t give investors time to consider the plans.

Congress isn’t worried about that. It seems to believe that if banks can hide the gangrenous rot on their books, investors won’t turn away.

Mark-to-market accounting is a roadblock because it requires banks to use often-depressed market prices to value some assets. That makes it a sometimes painful reality check.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aR516Rnf_Kvc

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Banks Demand Perfume for Rotting Balance Sheets: David Reilly

Commentary by David Reilly

April 1 (Bloomberg) — Investors crave clarity about what banks are really worth.

Accounting-rule makers aren’t giving it to them.

The problem stems from banks’ refusal to face up to losses, and a congressional directive that the Financial Accounting Standards Board “fix” mark-to-market accounting. What Congress, at the urging of bankers, really meant was, “Make bank losses disappear!”

The FASB is due tomorrow to debate proposals aimed at doing just that. The board is so desperate to please Congress, it didn’t give investors time to consider the plans.

Congress isn’t worried about that. It seems to believe that if banks can hide the gangrenous rot on their books, investors won’t turn away.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aR516Rnf_Kvc

  • ***

My note –

Why would they believe that the more lies that can be generated – the more likely people and institutional players will invest? They would have to know better as investors. So much for transparency and reality.

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Seattle FHLB Had ‘Material Weaknesses’ in Internal Controls

The Seattle Federal Home Loan Bank found “material weaknesses” in how management accounted for losses on mortgage bond investments, a flaw that may take as long as six months to fix.

The bank, a lending cooperative whose biggest customers include JPMorgan Chase & Co. and Bank of America Corp., failed to adequately oversee “significant accounting estimates and assumptions” used to tally losses, according to a March 30 filing with the Securities and Exchange Commission. Connie Waks, a bank spokeswoman, said “rapidly changing market conditions” led to the deficiencies in valuations and accounting controls.

“That’s a problem,” said Charles Mulford, an accounting professor at the Georgia Institute of Technology in Atlanta. “There is a risk that financial items will be improperly valued” without strong internal controls, he said.

The capacity of the 12 regional Federal Home Loan Banks to keep bolstering the loan markets is being challenged amid record losses on the value of mortgage investments that are eroding capital. The cooperatives, which last year made $1 trillion in short-term loans mostly to commercial banks and thrifts, were cited by economists with the Federal Reserve banks of Atlanta and New York as being a key source of liquidity for U.S. banks as the credit markets froze in late 2007.

Large U.S. Banks Need Higher Capital, Greenspan Says

Former Federal Reserve Chairman Alan Greenspan said the largest U.S. banks should be required to carry more capital reserves because they enjoy an implied federal guarantee that encourages undue risk-taking.

To contact the reporter on this story: Lisa Brennan in New York at lbrennan1@bloomberg.net.
Last Updated: April 1, 2009 11:48 EDT

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atGP3JkZcwVE

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Mark-to-Market Lobby Buoys Bank Profits 20% as FASB May Say Yes

By Ian Katz and Jesse Westbrook

March 30 (Bloomberg) — Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.

The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities. A final vote on the resolutions, which would apply to first-quarter financial statements, is scheduled for April 2.

FASB’s acquiescence followed lobbying efforts by the U.S. Chamber of Commerce, the American Bankers Association and companies ranging from Bank of New York Mellon Corp., the world’s largest custodian of financial assets, to community lender Brentwood Bank in Pennsylvania. Former regulators and accounting analysts say the new rules would hurt investors who need more transparency, not less, in financial statements.

Officials at Norwalk, Connecticut-based FASB were under “tremendous pressure” and “more or less eviscerated mark-to- market accounting,” said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who runs his own tax and accounting advisory firm in New York. “I’d say there was a pretty close cause and effect.”

Willens, investor-advocate groups including the CFA Institute in Charlottesville, Virginia, and former U.S. Securities and Exchange Commission Chairman Arthur Levitt oppose changes that would enable banks to put off reporting losses.

‘Outrageous Threats’

“What disturbs me most about the FASB action is they appear to be bowing to outrageous threats from members of Congress who are beholden to corporate supporters,” said Levitt, now a senior adviser at buyout firm Carlyle Group and a board member at Bloomberg LP, the parent of Bloomberg News.

FASB spokesman Neal McGarity said the proposal allowing significant judgment was “in the works prior to the Washington hearing and was merely accelerated for the first quarter, instead of the second quarter.” The plan on impaired investments “was an attempt to address an important financial reporting issue that has emerged from the financial crisis,” he said.

[ . . . ]

Citigroup had $1.6 billion of losses last year for so- called Alt-A mortgages, according to the company’s annual report. That loss would be erased with the new FASB rules, Dietrich said.

Bank of America Corp. in Charlotte, North Carolina, reported “income before income taxes” last year of $4.4 billion. The FASB proposal on impaired securities would increase that figure by about $3.5 billion, or the amount of “other- than-temporary” losses that the company recognized, Dietrich said. The new rule would mean the loss would be stripped out of net income, boosting earnings, though it would still be reported in financial statements.

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 percent, Willens said. Companies weighed down by mortgage- backed securities, such as New York-based Citigroup, could cut their losses by 50 percent to 70 percent, said Richard Dietrich, an accounting professor at Ohio State University in Columbus.

[ . . . ]

Banks and insurers wanted to value securities at prices they bought them for, Hewitt said. His response: “If you carry them at 100 percent of what your purchase price was and they are worth 50 percent, is that fair to the investor?”

Hewitt said nothing the SEC and FASB did curtailed the lobbying by financial companies, including issuing guidelines on how to price assets when no market exists and conducting a congressionally mandated study of fair-value accounting.

Conrad Hewitt, a former chief accountant at the SEC who stepped down in January, said representatives from the ABA, American International Group Inc., Fannie Mae and Freddie Mac all lobbied him over the past two years to suspend the fair- value rule.

Executives “would come to me in the afternoon with the argument, ‘You’ve got to suspend it,’” Hewitt said in a March 25 interview. The SEC, which oversees FASB, would reject their demands, and “the next morning their lobbyists would go to Congress,” he said.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awSxPMGzDW38

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Financial Accounting Standards Board – Actions List Page

redeterminations and other alterations of standards

[ . . . ]

http://www.fasb.org/draft/index.shtml

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Financial Accounting Standards Board –
SUMMARY OF BOARD DECISIONS

Summary of Board decisions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue a final standard.

April 1, 2009 Board Meeting

Revenue recognition. In the Discussion Paper, Preliminary Views on Revenue Recognition in Contracts with Customers, the FASB and the IASB propose a revenue recognition model based on increases in an entity’s net contract position. The entity’s net contract position is a contract asset or a contract liability depending on the combination of the remaining rights and performance obligations in the contract. In that model, an entity initially measures those rights and performance obligations at the transaction price—that is, the amount of promised customer consideration.

At this meeting, the Board discussed an issue that was not included in the Discussion Paper, that is, how an entity would determine the transaction price when the promised consideration is:

1. Payable at a time significantly different from performance by the entity,

2. Uncertain in amount, or

3. In a form other than cash.

The Board decided that when measuring a net contract position, an entity would reflect the time value of money whenever that effect would be material. It would use the discount rate that would be reflected in a financing transaction between the entity and its customer that did not involve the provision of other goods and services. The reporting entity would report the effect of financing separately from the revenue from other goods and services.

The Board decided that when the customer consideration is uncertain (variable) in amount, the transaction price at inception is the amount of the expected customer consideration, defined as the probability-weighted estimate of customer consideration. An entity would update the measurement of rights to reflect changes in the transaction price and allocate those changes to the recognized performance obligations. The effects of those changes on satisfied performance obligations would be recognized as revenue in the period of change. However, the cumulative amount of revenue recognized would be limited to the amount of noncontingent consideration.

The Board tentatively decided that an entity should measure noncash consideration at fair value. If an entity cannot estimate reliably the fair value of noncash consideration, it should measure the consideration indirectly by reference to the selling price of the promised goods and services.

In future meetings, the Board will consider collectibility and some other contract-related issues, such as contract renewals and cancellations, and the combination and segmentation of contracts.

Statement 140 implementation: transfers of financial assets. The Board redeliberated significant issues related to the disclosures required in the proposed amendment to FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

The Board made the following decisions:

1. The proposed disclosures would be updated to reflect the results of the Board’s redeliberations of FSP FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.

2. The scope of the proposed sensitivity analysis disclosures would be finalized as proposed and would not be expanded.

3. The Board previously decided to require specific disclosures for securitization and asset backed financing arrangements where a transferor has continuing involvement with transferred financial assets accounted for as sales.   The Board decided to expand those requirements to all transfers of financial assets accounted for as sales where the transferor has continuing involvement with transferred financial assets.

4. All disclosure requirements would apply to both nonpublic and public entities.

5. An entity would disclose the nature of any beneficial interests received as proceeds from a sale of financial assets, and also disclose the inputs and valuation techniques used to value those beneficial interests.

6. An entity would disclose the maximum exposure to loss arising from its continuing involvement, except in the case of a secured borrowing.

7. Further guidance on how to consider materiality or significance in relation to continuing involvements would not be provided.

8. The reporting entity would not be required to disclose standardized categories of transferred financial assets in standardized tabular formats.

9. An entity would not be required to disclose an analysis of the maturity of its repurchase obligations.

10. An entity would not be required to disclose the amount of transfer activity (that qualifies for derecognition) in a reporting period when the transfer activity is not evenly distributed throughout the reporting period.

FASB ratification of EITF consensuses-for-exposure. The Board ratified the following consensuses-for-exposure reached by the EITF at its March 19, 2009 meeting.

1. Issue No. 08-9, “Milestone Method of Revenue Recognition.” The Board decided on a 30-day comment period.

2. Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance.” The Board decided on a 30-day comment period.

Reconsideration of Interpretation 46(R). [This summary of decisions will be posted as soon as it is available.]

http://www.fasb.org/action/sbd040109.shtml

  • **

EXPOSURE DOCUMENTS

The full text of the exposure documents listed below can be downloaded by their corresponding links.
Copyright Notice for FASB Pronouncements Listed Below

Copyright © by Financial Accounting Standards Board.

http://www.fasb.org/draft/index.shtml

  • **

Three days before the hearing, 31 financial-industry groups sent a letter to committee chairman Barney Frank and Alabama Representative Spencer Bachus, the panel’s ranking Republican, emphasizing “the need to correct the unintended consequences of mark-to-market accounting.” The organizations included the ABA, the National Association of Realtors and the 12 Federal Home Loan banks, the government-chartered cooperatives owned by U.S. financial companies.

[ . . . ]

At a March 12 hearing of a House Financial Services subcommittee, lawmakers showed impatience with FASB.

“You do understand the message that we’re sending?” panel chairman Paul Kanjorski, a Pennsylvania Democrat, asked Herz.

“Yes, I absolutely do, sir,” Herz replied.

After hesitating, Herz said he would try to get a new fair- value rule finished within three weeks.

“The financial institutions and their trade groups have been lobbying heavily,” Herz said in an interview after the hearing. “Investors don’t lobby heavily.”

The political action committees of banks including Citigroup, Bank of America, Bank of New York Mellon, Wells Fargo and banking trade groups contributed money to Kanjorski’s re- election campaign last year, according to the Federal Election Commission. Citigroup gave $6,500, Bank of America $7,000, Bank of New York $8,000 and Wells Fargo $13,000.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
Last Updated: March 29, 2009 20:01 EDT

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awSxPMGzDW38

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“It potentially moves the accounting closer to where we saw the economics of these transactions,” Harris said in a March 24 interview. “We don’t see a risk to their debt securities.”

Also endorsing the letter was the Pennsylvania Association of Community Bankers. Thomas Bailey, the group’s chairman and CEO of Brentwood Bank in Bethel Park, Pennsylvania, told the subcommittee that using fair-value accounting “in these times, is much like throwing gasoline on a raging inferno.”

Among the banks most negatively affected by unrealized losses are Wells Fargo, PNC Financial Services Group Inc. in Pittsburgh, Minneapolis-based U.S. Bancorp and M&T Bank Corp. in Buffalo, Robert W. Baird & Co. analyst David George wrote in a March 20 note to clients.

[ . . . ]

The Federal Home Loan Bank of Atlanta, which Kanjorski cited at his hearing as an institution hurt by fair-value accounting, would also stand to gain from FASB’s proposals.

The company, one of 12 regional institutions that provide low-cost financing to 8,000 member banks, absorbed an $87.3 million writedown on three mortgage-backed securities after determining it would not collect all the cash the assets were supposed to generate, according to a November SEC filing.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atGP3JkZcwVE

***

My note –

This item below proves that the lies just keep on coming. I am certain they know the difference. The damages caused by the credit derivatives and policies concerning them have brought down the financial health of entire industries and whole countries – including upending Iceland and others. But, nothing in their conscience or good sense stopped these folks from saying and promoting this –

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Debt Swap Rules Risk Being ‘Rushed and Reactionary,’ A&O Says

Regulation of credit-default swaps shouldn’t be “rushed and reactionary” after their role in triggering the global credit crisis was exaggerated, according to lawyers at Allen & Overy LLP.

“The current crisis was not caused by derivatives and will not be solved by any knee-jerk reaction from politicians,” London-based partners Thomas Jones and Paul Cluley wrote in a report. “What is needed is not a rigid and imposed system, but a collaborative and flexible one which involves both the regulators and market participants.”

Allen & Overy represents the New York-based International Swaps & Derivatives Association.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atGP3JkZcwVE

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GAO Urges Treasury to Require Concessions From AIG Stakeholders

The U.S. Treasury should demand that American International Group Inc., the insurer rescued by taxpayers, seek concessions from employees, creditors and derivatives counterparties as a condition of its aid, the Government Accountability Office said.

The GAO report released yesterday also highlighted the Treasury’s new pledge to hire “outside vendors” to help with executive compensation requirements. The department delayed new pay restrictions on banks and other companies that receive government aid after Congress included new, tougher limits in last month’s economic stimulus legislation.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atGP3JkZcwVE

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To understand how requires a look at mark-to-market mechanics. When a bank prices mark-to-market holdings, it discloses the reliability of the values used, grouping them into three different levels.

Level 1 prices are securities such as publicly traded stocks. Level 2 contains instruments that don’t have easy-to-see prices, but whose worth is based on things that have observable values.

Level 3 contains hard-to-value assets, or ones that trade infrequently. Prices for these rely heavily on management estimates. That is why this category has been called, among other things, mark-to-make-believe.

Banks want to move even more assets into this bucket because they can come up with their own values. Banks can’t do this unless there are few if any trades in a security, or they can argue that transactions are distressed sales that should be ignored.

Helping Hand

The FASB plans to help out by letting banks consider many sales to be distressed unless proven otherwise. Or banks could ignore prices if there are only a handful of trades. (That, by the way, seems to conflict with Securities and Exchange Commission guidance.)

The FASB’s approach is predicated on the idea that today’s markets are abnormal, so prices and trading often aren’t realistic. This ignores that what we considered normal in recent years was a mirage brought about by the biggest housing and credit bubble of all time.

In light of that, today’s market conditions might be the new normal. Accountant rules shouldn’t try to decide whether this is the case or not.

Nor should they try to distinguish between distressed and orderly sales. This supposes that banks and auditors can divine a seller’s intent and situation.

They can’t. Because of this, the FASB is forced to come up with vague criteria that give banks leeway to disregard prices they don’t like.

Higher Value

Or as the CFA Institute’s Center for Financial Market Integrity said in a comment letter, “This is an almost certain invitation to having toxic and other problem assets being reflected at a value much higher than actual market value.”

There is also the issue of the Treasury’s bailout plan. Will prices resulting from purchases of bank loans and securities be considered market values? Will banks have to use them for similar holdings on their books, even if that results in losses?

The FASB’s proposal makes it more likely banks will argue these sales don’t represent market values they have to use. In that case, banks may be able to use the Treasury program to cherry-pick values they like while disregarding those that would cause balance-sheet pain.

The FASB’s mission is to craft rules that give investors clear, relevant financial information. Its latest proposals are nothing more than sops to the banks.

If adopted, they will only confirm for investors that markets are now a rigged game.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Reilly at dreilly14@bloomberg.net
Last Updated: April 1, 2009 00:01 EDT

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aR516Rnf_Kvc

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