Fair-Value Accounting & FASB 157
"Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick.''
-Dane Mott , JPMorgan Chase & Co.
Banks don't want to lend to each other because they are not sure how much explosive dreck is in the other guy's balance sheet. Hiding the junk isn't going to help this at all . . .
"The U.S. Securities and Exchange Commission probably will resist calls to suspend the fair-value accounting rules that some members of Congress blame for exacerbating the global financial crisis, people familiar with the matter said.
The SEC and Financial Accounting Standards Board today issued "clarifications'' on how banks should interpret existing rules requiring them to review assets each quarter and report losses if values decline. A moratorium isn't being considered, said the people, who declined to be identified because the plan hasn't been completed.
Congressmen, banking lobbyists and companies including American International Group Inc. have urged the SEC to suspend fair-value accounting, saying it forces firms to report losses they never expect to incur. Federal Reserve Chairman Ben S. Bernanke and other proponents say removing the rule would erode confidence that firms are owning up to losses."
I don't see how transparency and accurately reporting investment holdings works against investors. I can see how allowing banks to hide this junk might prevent them from lending to each other.
SEC, FASB Resist Calls to Suspend Fair-Value Rules
Bloomberg, Sept. 30 2008
Summary of Statement No. 157
Fair Value Measurements
Trusting the Hedgies
Did you get your hedge fund redemption demand in yet? The window closes today!
Best of "Bloomberg on the Economy"
click for iTunes
Excellent series of podcasts by Tom Keene of Bloomberg on the Economy. Highlights include conversations with Nobel Laureates, professors and top economists.
If you don't use iTunes, there is a listing of podcasts at Bloomberg.com after the jump . . .
Markets as Rorschach Tests: Dow up 400
Today's silly market junk is this wingnut nonsense:
On the political front the polls have turned very swiftly against Sen. McCain, and we are certain that that is one reason why share prices plunged so easily yesterday, and why the US market led the way down even as markets around the world fell.
That is a classic example of selective perception. Its one of the reasons why market participants and many of the idiots known as economists should steer far far away from politics.
As we wrote back in January 2008:
Markets are not skittish because the incumbent party is in trouble - that’s getting it ass-backwards. When the ruling party is in election trouble, its because the future discounting mechanism of markets is incorporating a slowing economy into its pricing. Markets may be imperfect and subject to the excesses of crowd behavior, but they eventually get the big picture correct. The current market malaise reflects a recognition what is occurring in the macro-environment.
With the markets up 350 today, we will see that sort of thing turn very quiet very quickly. I guess we all Misunderestimated the Dow again.
Confusing Cause & Effect: Elections and Markets
TBP, January 9, 2008
Confusing Cause & Effect
TBP, July 26, 2004
McCain's Odds Crash Along With Stock Market
Silicon Alley Insider, September 29, 2008 9:00 PM
Obama at 64%, McCain at 36%
Electoral College is 338 to 200 in Democrats favor
Intrade, September 30, 2008
September Madness, Financial Edition
Kudos to Tech Crunch for this fantastic bracket breakdown -- the Financial version of the March Madness:
Michael Arrington credits Mark Slavonia, a general partner at Sansome Partners for the wit.
Hat tip Petey!
Tech Crunch, September 29, 2008
Case Shiller Index Falls 17.5% in July
U.S. home prices show continued record declines and double digit declines in existing single family homes across the United States.
During the 1990-92 cycle the record low was -6.3%. While the annual returns of the two indices continue to reach record lows, the pace of the decline has slowed, particularly over the last three months. For the three months of May thru July, home prices cumulatively fell about 2.2%; whereas for the three months of February thru April, and November 2007 thru January, the cumulative rates of decline were closer to 6.0-6.5%.
“There are signs of a slow down in the rate of decline across the metro areas, but no evidence of a bottom” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Little positive news can be found when cities like Las Vegas and Phoenix report annual declines as large as -29.9% and -29.3%, respectively, and all 20 cities are still in negative territory on a year-over-year basis. The Sunbelt continues to be the story, with the seven cities that basically represent that area reporting annual declines roughly between 20 and 30%.
While some cities did show some marginal improvement over last month’s data, there is still very little evidence of any particular region experiencing an absolute turnaround.” (emphasis added)
Here is the Case Shiller Price Indices, and a table of cities:
chart courtesy of Standard & Poors
S&P/Case-Shiller Index - July 2008
table courtesy of TFS Derivatives
6.875%: LIBOR Tags All Time High
"The money markets have completely broken down, with no trading taking place at all. There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.''
-Christoph Rieger, a fixed- income strategist, Dresdner Kleinwort.
The London interbank offered rate reached an all time high yesterday on the failure of the bailout plan, and the market sell off. For those of you new to the site, this interest rate is frequently used by banks to lend money to each other. When this spikes, it means that credit is very tight.
What did the Fixed Income Markets see that the Equity markets completely missed? Was it availability of credit, the dollar, or unrealized risk?
Most likely, all of the above.
Note that the line below is where LIBOR first started breaking out -- late 2005. For those of you who believe that markets are future discounting mechanisms, what did that tell you?
Sure, markets remained irrational for quite a while, but there was no escaping the inevitable . . .
Chart via Bloomberg
TED Spread Chart since 1984
"The cost of borrowing in dollars overnight surged the most on record after the U.S. Congress rejected a $700 billion bank rescue plan, heightening concern more institutions will fail.
The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers' Association said. The euro interbank offered rate, or Euribor, for one-month loans climbed to record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, advanced to a record. Rates in Asia also rose...
Credit markets have seized up, tipping lenders toward insolvency and forcing U.S. and European governments to rescue five banks in the past two days, including Dexia SA, the world's biggest lender to local governments, and Wachovia Corp. Money- market rates climbed even after the Federal Reserve yesterday more than doubled the size of its dollar-swap line with foreign central banks to $620 billion. Banks borrowed dollars from the ECB at almost six times the Fed's benchmark interest rate today."
Libor Surges Most on Record After U.S. Congress Rejects Bailout
Gavin Finch and David Yong
Bloomberg, Sept. 30 2008
Front Page Crash Coverage
Interesting front page coverage of yesterday's market action:
Bacevich: The Limits of Power
Is an imperial presidency destroying what America stands for?
Bill Moyers sits down with history and international relations expert and former US Army Colonel Andrew J. Bacevich who identifies three major problems facing our democracy: the crises of economy, government and militarism, and calls for a redefinition of the American way of life.
All the Kings Horses and All the Kings Men . . .
Humpty Dumpty sat on a Wall
Humpty Dumpty had a great fall
All the King's horses, and all the king's men
Didn't bankrupt the country and devaluate the currency putting the shifty bastard together again.