let-up in accounting rules for troubled banks

[gwynedd1]

I am certainly on the side of deflation unless... This is the gate. Change accounting rules for lending. So they finally figured out what all these trillions in bailouts are. Its not money that will circulate, its accounting rule compliance duh.. Thats money already out there, some of which they can't collect on, professors. It was never inflationary or helpful to the goods and services economy.

"We might find that the banks are not as bad, or not bad at all, if these assets are marked differently," said Doreen Mogavero, president of the New York floor brokerage Mogavero, Lee & Co.

http://finance.yahoo.com/news/Dow-ga...-14621828.html

So this bears watching. In other words, "lets print the money differently than before" (without restraint). If inflation comes this is from where.

[charliebrown]

Re: let-up in accounting rules for troubled banks

I dont know enough about how a bank works, but this smells bad.
If securities aren't marked to market, does it imply the following?

1. banks can lend more because their capital increases.
2. On a short term basis does this put the bank in a precarious postion?
instantly the bank's capital increases, intantly the bank starts making loans, if there is a "run" on the bank the securities no longer marked to market are still not worth their par value. Therefore less liquid capital to protect against a run.
3. Seems like this takes the cork out of the inflation bottle, as all the money that has been thrown at the banks that was being used to shore up their balance sheet can now be lent out.

Please will some one of you smart guys help me out on this? Maybe EJ would like to comment on this? This seems like a great inflection point in the crisis.

[phirang]

Re: let-up in accounting rules for troubled banks

If M2M is materially changed for banks, you're going to see a rally that will rip the faces off anyone short.

I'm talking S&P 900, folks.

Why? Banks no longer have to make loss provisions for garbage loans and can lend more freely. The downside is, they may lack the cashflow to cover their deposits, but that's what the TAXPAYER is for, eh?

Anyone, Obongo recently said the economy isn't so bad, and so we should all just ride a unicorn to skittle heaven now!

Btw, I went long into this, knowing full well this garbage rally would occur. It's cynical reality that the banks rule us all.

[jtabeb]

Re: let-up in accounting rules for troubled banks

If M2M is materially changed for banks, you're going to see a rally that will rip the faces off anyone short.

I'm talking S&P 900, folks.

Why? Banks no longer have to make loss provisions for garbage loans and can lend more freely. The downside is, they may lack the cashflow to cover their deposits, but that's what the TAXPAYER is for, eh?

Anyone, Obongo recently said the economy isn't so bad, and so we should all just ride a unicorn to skittle heaven now!

Btw, I went long into this, knowing full well this garbage rally would occur. It's cynical reality that the banks rule us all.

WHOOP, There it is!


Poom, baby POOM!
Proposed new thread "goodbye deflation, HELLO INFLATION!!"

(BTW Symbols, your timing was IMPECCABLE!)

[Judas]

Re: let-up in accounting rules for troubled banks

Forget manufacturing, fire up the FIRE!


http://www.cnbc.com/id/29631464
9 hours agoTime To Buy 'Healthy' Financial Stocks

Technology stocks helped investors survive the market plunge, and techs are likely to continue to help, according to Holland & Co.'s Mike Holland, but more is needed.
"The thing can't keep going without the financials," he told CNBC.

How about manufacturing?

"If manufacturing became more important around the world, Asia would do very well. Manufacturing can't do well in the U.S., given the way we're set up now."

But more manufacturing in Asia would mean more business for U.S. financials, Holland said.

Recommendations:

"The healthy financials — if that's not an oxymoron — are the place you want to be," he said.

[rjwjr]

Re: let-up in accounting rules for troubled banks

If M2M is materially changed for banks, you're going to see a rally that will rip the faces off anyone short.

I'm talking S&P 900, folks.

Why? Banks no longer have to make loss provisions for garbage loans and can lend more freely.

Sorry, but I'm still unclear as to who the banks are going to lend to. The consumer is in no position to borrow. They are already in bad shape, the stimuli aren't getting to the consumer level, and the job losses are real and escalating. Are you telling me the FIRE economy intends to reignite without consumers, without shoppers, basically without an economy? The FIRE economy is going to come alive like some sort of Frankenstein monster thanks to this bolt of M2M lightning? Where is the underlying economy? Who are the borrowers?

[gwynedd1]

Re: let-up in accounting rules for troubled banks

If M2M is materially changed for banks, you're going to see a rally that will rip the faces off anyone short.

I'm talking S&P 900, folks.

Why? Banks no longer have to make loss provisions for garbage loans and can lend more freely. The downside is, they may lack the cashflow to cover their deposits, but that's what the TAXPAYER is for, eh?

Anyone, Obongo recently said the economy isn't so bad, and so we should all just ride a unicorn to skittle heaven now!

Btw, I went long into this, knowing full well this garbage rally would occur. It's cynical reality that the banks rule us all.

Hi phirang,

Its really the only way to increase the money supply with the given system. Its really like post Bretten Woods on crack. Close the gold window, close the accounting windows and wipe liabilities whats the difference? I have been watching for this for some time. So I expected someone to start looking at these rules. I just don't see inflation with falling real estate and with current accounting rules and tighter credit. How will they loan enough money into existence without real estate inflationary muscle?

[rjwjr]

Re: let-up in accounting rules for troubled banks

How will they loan enough money into existence without real estate inflationary muscle?

This is similar to my question from above. Where is the market/economy?

[Supercilious]

Re: let-up in accounting rules for troubled banks

WHOOP, There it is!


Poom, baby POOM!
Proposed new thread "goodbye deflation, HELLO INFLATION!!"

(BTW Symbols, your timing was IMPECCABLE!)

Thanks jtabeb, I'm not sure though that can be said yet. I'm afraid there is an important detail I'm still missing, which may delay/change things.

First I'm waiting for a reply from bart or anybody else knowledgeable with respect to the "flow-through valve" hypothesis.

[mmr]

Re: let-up in accounting rules for troubled banks

Elimination of MTM wouldn't make much of a difference in capital levels.

- Loans aren't marked to market; if they were, nearly every bank in the country would be underwater on their deposits.
- Securities prices for non-government-backed securities have come down so far that there's not much downside left.
- Even if MTM is suspended, banks won't be able to write up the value of these securities to some imaginary value; the best that they can do is lock in at current values.

Obviously none of the banks are doing much new lending these days, since in this environment, you wouldn't want to make a loan to anyone who actually wants to borrow.

Regardless of MTM, many of the banks could report pretty solid earnings this quarter - securities prices haven't moved much, and they have a nice carry trade working right now with near-zero borrowing costs thanks to Bernanke and friends.

Unfortunately, the second half of the year is going to be ugly as commercial real estate loans start to perform like California option ARMs.(Bailout Acts 3, 4, and 5 are coming; enjoy the intermission.)

[Quincy K]

Re: let-up in accounting rules for troubled banks

Sorry, but I'm still unclear as to who the banks are going to lend to. The consumer is in no position to borrow. They are already in bad shape, the stimuli aren't getting to the consumer level, and the job losses are real and escalating. Are you telling me the FIRE economy intends to reignite without consumers, without shoppers, basically without an economy? The FIRE economy is going to come alive like some sort of Frankenstein monster thanks to this bolt of M2M lightning? Where is the underlying economy? Who are the borrowers?

The new borrowers are the ones that BK out and are re-issued access to credit without having to re-establish creditworthiness. Instant 50k credit lines after Chapter 7. If losses on banks balance sheets are not to be held accountable and people can default on loans with impunity, hello hyperinflation.

It wouldn't surprise me to see banks giving 50-year payment plans on CC and unsecured consumer debt.

[goadam1]

Re: let-up in accounting rules for troubled banks

Don't ask, don't tell.

[petertribo]

Re: let-up in accounting rules for troubled banks

Simple. When there is a Crime Wave, loosen up on the too-big-to-fail Criminals. More Crime will stimulate the Economy which is failing because of the prior Crimes.

[kelton56]

Re: let-up in accounting rules for troubled banks

"We might find that the banks are not as bad, or not bad at all, if these assets are marked differently," said Doreen Mogavero, president of the New York floor brokerage Mogavero, Lee & Co.

We might find that I am a billionaire if only I mark my assets differently...

[charliebrown]

Re: let-up in accounting rules for troubled banks

Yes, I have 1000 shares of citi which i bought last year at 27.00.
I have no intention of selling them, so will you lend me 27000, if i put this up as collateral??