Friday 3 April 2009

FASB: time of death 2 april 2009 14.48



US payrolls fall with 663.000 in March and the unemployment rate is rising to 8.5%.
Isn’t there any spark of hope?
Yes. Hat tip to Chris






But markets paid more attention to the FASB 3 against 2 vote to suspend mark-to-market. The nice thing is that this will give some temporary relief. But no way the difficulties will walk away. It repairs something at the valuation side, but nothing changed at the liquidity side. Problems remain: you have to continue stuff that you cannot sell and that’s what you want because the rot is creeping up, every day a little bit. If you have to hold this toxic waste until maturity then the chances grow everyday that the paper will default. Now, is that what you want as a bank?



No…



The bull case is that although accounting changes should not alter the economic reality, this change will change banks’ behavior through less forced selling and less need to raise new capital to bolster their capital ratios. The bear case is that if banks value their assets and liabilities with no reference to market prices, it becomes impossible for external investors to understand exactly what the value of banks’ balance sheets really are and risks undermining market confidence rather than bolstering it.


From Paddypower we have this photograph.



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