[Cid_Yama]

US accountancy rules changed November 15, affecting the upcoming financial year. "FASB 157" dictates that banks and securities firms can no longer hide their worst assets as Level 3, which allowed them to be kept off balance sheet. Trade in classes of commercial paper theoretically worth more than entire countries will have to be valued using observable inputs for the first time (where possible), rather than mark-to-make-believe.

In addition, as of January, banks can no longer indemnify their auditors for signing off on accounts they cannot verify, leaving the auditors potentially liable over the virtually unquanitfiable exposure of their clients to the derivatives market. Auditors are therefore likely to make every effort to verify valuations where evidence of true value can be found.

A cascading failure of financial institutions is all too possible.

http://cid-yama.livejournal.com/76306.html

[americandream]

Lol...this will be an amusing spectacle to observe.

[canis_lupus]

I guess I can't understand why it always hasn't been like this. Why are these rules just going into effect now? Is the banking lobby that powerful?

I have a very smart younger brother whom I consult on all matters macroeconomical. He told me last year that as long as China's economy is smoking, all is good with them. He says that as soon as it cools or drops, the receding markets will uncover the bodies -- the instances of funny accounting that got them where they are.

It looks like we're seeing that with these new rules, doesn't it?

[americandream]

There was a time when these rules weren't needed...this is prior to when securitisation took on a life of its own. Now that we have bogus instruments being shielded by front entities to keep them off the books, who knows whats out there. These rules are an inevitable consequence of debt factoring thats way off the radar. I guess there will be a few nervous regulatiors out there wondering whether they've opened a closet they may not be able to shut. Time will tell.

[Cid_Yama]

<i>Why are these rules just going into effect now? Is the banking lobby that powerful?</i>

The Banking Families ARE TPTB that everyone is talking about. (Although privately owned Big Ag may have surpassed the power of the banking families.)

[FoxV]

$this->bbcode_second_pass_quote('Cid_Yama', 'A') cascading failure of financial institutions is all too possible.

[Cid_Yama]

<i>and then the whole matter will just be quietly swept under the carpet</i>

Not this time. If it was contained within the purview of US banking control or the the US Fed, or even the World Bank or IMF, they possibly could pull it off. Hear that sucking sound? It's the vacuum created by the lack of ANY bank reserves in US banks. The banks are about to implode. Reported negative reserves show the banks hold nothing but the continually evaporating loans from the Fed. The bond insurers, starting with MBIA, are folding. As, long as Derivitives remain insured, they can be marked to insured value. Once it's clear there is no coverage, derivitives will have to be marked-to-market. Since NO ONE is buying, that is 0. Everyone's pension fund ceases to exist. Everyone's hedge fund ceases to exist. The floor opens up, and traders begin their descent to Hell.


<i>As BIS currently states the derivative market at $517Trillion which is around 10X global GDP, the ability for parties to pay up is effectively 0.</i>

From this statement you understand. You just don't want to. Actually it's closer to $750 trillion 15X global GDP, but at these levels there is no difference. The fraud was so big, so global, when it comes down, I would be surprised if foreign nations do not seek retribution. I just want to say, the people of the US, the common working man, had nothing to do with this. I hope they understand this and target their retribution to those responsible.

(Hint: Targeting the Hamptons will probably take out most of them)

[americandream]

$this->bbcode_second_pass_quote('Cid_Yama', '&')lt;i>and then the whole matter will just be quietly swept under the carpet</i>

Not this time. If it was contained within the purview of US banking control or the the US Fed, or even the World Bank or IMF, they possibly could pull it off. Hear that sucking sound? It's the vacuum created by the lack of ANY bank reserves in US banks. The banks are about to implode. Reported negative reserves show the banks hold nothing but the continually evaporating loans from the Fed. The bond insurers, starting with MBIA, are folding. As, long as Derivitives remain insured, they can be marked to insured value. Once it's clear there is no coverage, derivitives will have to be marked-to-market. Since NO ONE is buying, that is 0. Everyone's pension fund ceases to exist. Everyone's hedge fund ceases to exist. The floor opens up, and traders begin their descent to Hell.

[eastbay]

This entire banking 'accountancy rule' matter is mostly a great mystery to me.

Could someone please be so kind as to summarize this for me in a few simple sentences or less? Please use short words.

Thank you

[Cid_Yama]

I'll try.

1. Banks have held non-performing (losing) investments off their balance sheets so they could continue to report profits (or less in losses) in their quarterly reports. They can no longer do this.

2. Auditors will now be held responsible for verifying the true value of all assets, including derivitives. In other words, If the banks lie, since the auditors will now be responsible if they verify the banks lie, will not do so. Therefore the banks will be less likely to lie since the auditors will call them on it.

[eastbay]

Thanks,

Since they're all going to have to perform using the same rules, it sounds as though the adverse effects should be somewhat mitigated by being distributed sector wide.

It seems like banking stocks have fallen quite a bit lately and have probably priced in this accounting adjustment as well as the sub prime problems, among other issues.

[SchroedingersCat]

FASB = Financial Accounting Standards Board
GAAP = Generally Accepted Accounting Principles

Contrary to common sense, accounting is not a science but is more of an art. There are many ways to classify an expense or an income. There are boards that set standards so that everyone is more or less on the same page.

Pacioli, the monk who is credited with codifying modern accounting principles, is widely believed to have gone mad and lived out the remainder of his life sealed in a cave.

[Cid_Yama]

<i>It seems like banking stocks have fallen quite a bit lately and have probably priced in this accounting adjustment as well as the sub prime problems.</i>

In your dreams. We are on the Highway to Hell. You can't price this in. You can't bail this out. We are talking 15 years of Global GDP at current industrial production, as in no recession, no depression, certainly no GREATER DEPPRESSION we are facing.

We will NEVER recover from this. The world as we know it will soon come to an end.

Actually that is rather harsh.

Once most of the people on the planet die because sufficient food is no longer grown and distributed, those remaining will probably have a better life than we have now.

http://www.youtube.com/watch?v=erJc4dzZ3IA