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FHLB Chairman Disgusted With FDIC Accounting Alchemy, Quits

From Naked Capitlaism:  Submitted by Tyler Durden, publisher of Zero Hedge

When the man in charge of the second largest borrower in the U.S. is willing to lose his job due to his discomfort with the FASB's shift in accounting rules, you can bet that the tragic fallout of all the "market buoying" recent events is only a matter of time.

Somehow this noteworthy event, which happened over a week ago, passed substantially unnoticed until Zero Hedge friend Jonathan Weil at Bloomberg dug it up. Charles Bowsher, who was most recently Chairman of the Federal Home Loan Bank System's Office of Finance and previously served as U.S. comptroller general may be the only truly honorable man in the socialist nexus of politics and finance. The reason for his departure from this critical post - his discomfort in vouching for the banks' combined financial statements. And as Weil puts it succinctly: "Now the question for taxpayers is this: If Charles Bowsher can't get comfortable with these banks' financial statements, why should anybody else be?" Why indeed.

If Bowsher was merely involved with some marginal organization, this could be perceived as a hypocritical attempt to score populist brownie points. However, the FHLB is among the governmental entities at the heart of the current problem. Zero Hedge has written previously about the FHLB and its critical role in the ongoing housing crisis, but in a nutshell "The Office of Finance issues and services all the debt for the 12 regional Federal Home Loan Banks. That's a lot of debt -- $1.26 trillion as of Dec. 31, making the FHLBank System the largest U.S. borrower after the federal government. The government-chartered banks, which operate independently, in turn supply low-cost loans to their 8,100 member banks and finance companies. If any of the FHLBanks were to fail, taxpayers could be on the hook."

Local banks throughout the US have wound up their congressional representatives about "mark to market" accounting rules.  The head of the FASB was pummeled recently when testifying before a House committee.  Two days later he announced a change in the rules.  The formal announcement was April 2.


"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Apr 3rd, 2009 at 12:58:08 AM EST
[ Parent ]
FT.com | Willem Buiter's Maverecon | How the FASB aids and abets obfuscation by wonky zombie banks

The Financial Accounting Standards Board (FASB), at its meeting on April 2,  has once again relaxed mark-to-market accounting rules. This occurred after the House Financial Services Committee, a wholly owned subsidiary of the American Bankers Association, had, at hearings on March 12, 2009, effectively ordered the FASB to revise its guidance on fair value in inactive markets.  The HFSC used the threat that, if the FASB were not sufficiently accommodating, Congress would legislate on the matter off its own bat to give the zombie banks what they wanted.
...
Basically, the new guidance allows banks to shift a whole load of toxic and impaired securities from level 2 to level 3.  Up till now, a frequent source of level 2 information were prices achieved by competitors' asset sales to help determine the fair-market value of similar securities they hold on their own books. Banks are now allowed to ignore prices achieved in competitors'  asset sales when these transactions aren't "orderly".  This includes transactions in which the seller is near bankruptcy or needed to sell the asset to comply with regulatory requirements.  This is vague and broad enough to drive a coach and horses through fair-value accounting for most imperfectly liquid assets.



"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Fri Apr 3rd, 2009 at 09:26:32 AM EST
[ Parent ]
Melanchthon:
Basically, the new guidance allows banks to shift a whole load of toxic and impaired securities from level 2 to level 3.  Up till now, a frequent source of level 2 information were prices achieved by competitors' asset sales to help determine the fair-market value of similar securities they hold on their own books. Banks are now allowed to ignore prices achieved in competitors'  asset sales when these transactions aren't "orderly".  This includes transactions in which the seller is near bankruptcy or needed to sell the asset to comply with regulatory requirements.  This is vague and broad enough to drive a coach and horses through fair-value accounting for most imperfectly liquid assets.
This appears sensible. However, it would potentially allow people to ignore a lasting drop in stock prices caused by "unwinding" of positions by a hedge fund in distress, which is nonsense.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Apr 3rd, 2009 at 09:29:07 AM EST
[ Parent ]
...the socialist nexus of politics and finance.

Where do they get this garbage?


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Apr 4th, 2009 at 01:19:05 AM EST
[ Parent ]
He signs as "Tyler Durden"... He's probably young enough to be impressed by Atlas Shrugged.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Sat Apr 4th, 2009 at 04:06:42 AM EST
[ Parent ]

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