April 3, 2009
The Financial Accounting Standards Board (FASB) is the nations rule setter of proper accounting principles for financial institutions. It is not a governmental body. FASB is supposed to be completely immune to any political pressure or political ideology. Their sole existence is to protect the public against any kind of fraud or potential fraud. But now it seems that politics has, more or less, taken control of FASB.
Banks need to attract investors. They claim the only way to do that is to “minimize” their losses. The way to that goal, they say, is to increase the value of the mortgage securities that are held by the banks. (You remember those mortgage securities and what they caused don’t you?) When that is done, they insist investors will come forth. But the value of those mortgage securities can not be increased under current accounting rules. Therefore, they want the rules changed. So they turned to their best partner’s — congressional members.
Naturally, the “bone” in this is that they will be able to not only come off tax payer life support, but will eventually lead to paying back the “loans” from the taxpayer. But could there be another reason?
All those ‘pieces of paper’ the banks have on their hands called mortgage securities are no where near the value they once held. So the keepers of taxpayer money have devised a scheme to buy most of that near-useless paper from the banks. Afterwards, of course, they will sell the more lucrative pieces of that paper back to the banks at less than what the feds paid for it. In the meantime, the banks want to get as much as they can possibly get for that paper from the feds (taxpayers). In order to do that, accounting rules must be changed so they can raise the value to what ever they want it to be. This would also allow the banks to report (somewhat truthfully) even higher profits once the deal is made. And they think that will attract investors, leading to more money to gamble. Unfortunately for us taxpayers, the price placed on the paper will be higher than anyone else would be willing to pay for them. So no investors. This is nothing but another short-term profit scam.
It’s pretty simple really — some once-so-wealthy corporations (& individuals) who literally lost everything overnight because they were caught at committing paper fraud want to now place a fraudulent value on that same paper to make more money. It’s no big puzzle. Even us dummies can figure that out. It’s — called — fraud!
The current generation of bankers we have today know of no other way to earn money except through fraud. Those that have “heard” of another way are too greedy and to impatient to follow that tried & true system. Maybe when this generation of bankers are gone, things will get better. That is, if we still have a system.
Lawrence Smith, a FASB board member, said “there is a perception [bold added] that we are yielding to political pressure”. There is no “perception” — yielding is exactly what it is. Hundreds of members of Congress are heavily indebted to these big bankers and the debt is being called in. For the purpose they once served of protecting the public, FASB might as well pack up and go home. But they’ll stick around so they can serve their new customer — bankers.
Never underestimate the difficulty of changing false beliefs [with] facts.
Economist Henry Rosovsky