Wednesday, January 26, 2011

Bill Isaac - All Imbecile Team's Newest Addition

It has been some time since the All Imbecile Team drafted uber imbecile Fredrick Mishkin to its ranks back in August this past summer. Not only was Mishkin an uber imbecile but a corrupt one at that via his undislosed renumeration agreement with Icelandic Chamber of Commerce (translation: banking cartel) in exchange for writing a glowing report on said cartels activities. But enough about Mishkin which you can read more about here if you wish, this post is devoted to the newest member to the All-Imbecile squad, one William Isaac. Isaac was the former FDIC chief during the Reagan years.

As an update to those new here the current All-Imbecile Team members include:

Ken Rosen from Cal Berkeley
Roger Farmer -professor UCLA
Alicia Munnell -professor Boston College
Paul Krugman professor Princeton
Allan 'the maestro' Greenspan - former Fed Chair **
Fredric Mishkin - former Fed governor

Why Bill Isaac you ask, decorated banker and financial know all? 

Well, it seems that the accounting rule makers have bowed down before their banking masters and look poised to defeat any proposals suggesting a return to mark to market accounting. Cooking the books is becoming quite the major growth industry in this country. Just as it was during the housing ponzi scheme was firing on all cylinders when legions of mortgage brokers played 'plug in the number to make it work' game with mortgage apps to get through the approval process. 

I know, I know I hear you saying it is a felony to lie on a mortgage application but the problem with this argument is that it assumes we reside in a land of laws that are enforced. Huge assumption readers.

So it comes with no shock that not only are insolvent banks are allowed to continue operating under suspended GAAP rules and traditional mark to market accounting, preferring instead to use cost numbers which I like to refer to as mark to fantasy or mark to make believe. This fantasyland can then be substituted in for real world numbers to show solvency to the sheeple as they head off for another tattoo thus enhancing profitability, provide bonus' to the top brass and sustain the illusion, but they have a former FDIC chairman available to carry their water for them. 

Did I tell you I love free market economics. 

Anyway, the decision today by the FASB as reported by the Wall Street Journal:

The Financial Accounting Standards Board preliminary vote would allow banks to continue valuing many of their loans at amortized cost, an adjusted version of their original cost, as they do now. That backtracks on an FASB proposal last May to expand fair value to bank loans. The reversal is a victory for the banking industry, which says it would have hurt lending and unfairly reduce banks' book value. Supporters of the FASB fair-value proposal say it would have improved transparency and unmasked potential weakness at banks.

The FASB indicated the overwhelmingly negative reaction to its proposal from companies and investors played a large role in prompting the board to change its mind. The board received more than 2,800 comment letters on its fair-value proposal, most of them opposed to the move.

FASB changed direction on how to value loans because of "strong signals from the board's constituents," FASB Chairman Leslie Seidman said during a webcast Tuesday. She also noted that some loans—including those that banks trade actively instead of retaining in order to collect the payments on them—will have to be valued at market prices.

It gets even better. The WSJ article continues with:

At some large banks, their loans' fair value is billions of dollars less than their carrying amount. That would dramatically reduce their shareholder equity—or assets minus liabilities—if the loans had to be carried at fair value.

Investors have said fair-value information is important to them even if they don't think it should be the criteria for valuing loans on the balance sheet, FASB members said.

 Can't make this stuff up people. So given this where does All-Imbecile Bill Isaac come into all this you might be asking. 

Well, Bill Isaac has been the vocal leader of the mark to market abolishment crowd. Bill believes mark to market acounting is the root of all evil in our financial world and should be used only when it helps. He would no doubt blame the Kennedy assaination on it if it had a social security number but I engage in hyperbole far too much. 

Mr. Isaac believes;
  • our ponzi scheme housing economy had nothing to do with the financial meltdown. 
  • banker buddies of his lending 100% of the purchase price of a 750k home to a Walmart stock boy earning $24k had nothing to do with the financial meltdown.
  • Liar and Ninja loans via the bucketshops of Countrywide et al. had nothing to do with the meltdown.
  • free heroin to the stock boy in the form of low low interest rates via a neg am adjustable rate balloon mortgages had nothing to do with it either.

It was all the result of onerous and unflexible mark to market accounting rules. Based on this FASB decision here is what (and why he's the newest All-Imbecile member) Bill Isaac had to say to his flock which I picked up from the boys over at Zero Hedge and you can read here (mucho thanks)

Mark-to-market accounting -- a failed policy that was terminated by the Roosevelt Administration in 1938 because it was inhibiting bank lending -- was revived by the Securities and Exchange Commission and the Financial Accounting Standards Board in the 1990s over strong objections from the Fed, FDIC and Treasury.

The MTM policy senselessly destroyed some $500 billion of capital in our financial system when the markets collapsed in 2008.  This destroyed some $4 trillion of bank lending capacity and was a major contributor to the financial panic and ensuing economic collapse.

The FASB, almost inexplicably, proposed last year to EXPAND mark-to-market accounting to cover all bank loans.  This would have essentially shut down lending except for short-term lending to businesses with impeccable credit ratings.

See the press release below.  The FASB is apparently abandoning its plan to expand mark-to-market accounting.  This is an important first step improving US accounting as it relates to financial institutions.

Best regards, Bill

William M. Isaac,
LECG Global Financial Services
Remember this not some crack head/idiot blogger/community college drop out now working at Starbucks but rather a good ol' boyz network insider former head of the FDIC. 

Stupefying absolutely stupefying. 

Sure Bill, it was mark to market that destroyed everything. It had absolutely nothing to due with drunken lending standards, fraudulent repackaging of notes, unenforced rules, and basically a get rich or die tryin' free for all by everyone involved not to mention the free supply of heroin from the kingpin himself Greenspan to keep it all going.

Acutally Bill, do me a huge favour, tell me sunspots caused the financial meltdown, tell me gamma rays did it or it was the planetary and celestial alignment but please don't patronize me with your hollow, unconvicing drivel of an empty excuse of mark to market accounting. I am slow but not that slow, pretend I went Ivy league for a minute and humor me with something slightly more credible.

My point here is the madness gripping the decision makers and those in positions of influence is utterly mindboggling. There are not adjectives strong enough to describe it. The emporer truly has no clothes.

It all just goes to show you that Orwell was spot on when he said the famous line;

"duing times of universal deceit, telling the truth becomes a revolutionary act."

As for the bankers bought and paid for errand boy, the imbecile Isaac, all  I will say is congratulations to the newest member of the All Imbecile Team.  

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

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