Thursday, April 2, 2009

I Was Not Comfortable

Here are snippets from a "must read" at, in "Honest Man Emerges From Muck of Banking Crisis: Jonathan Weil":

April 2 (Bloomberg) -- Remember this man’s name: Charles Bowsher. He’s one of the few people leaving the banking crisis behind with his reputation enhanced.

Bowsher, who was comptroller general of the U.S. from 1981 to 1996, had a simple reason for resigning last week as chairman of the Federal Home Loan Bank System’s Office of Finance. He didn’t want to put his name on the banks’ combined financial statements, because he was uncomfortable vouching for them. Bowsher, 77, had held the post since April 2007. . .

The job Bowsher left is a crucial one. 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. . .

“I was not comfortable as an audit-committee member in signing off on the financial statements, after I became aware of the standards and processes for valuing the mortgage-backed securities,” Bowsher told me. . .

The year-end balance sheet at the FHLBank of Seattle, for example, showed $5.6 billion of non-government mortgage-backed securities that it says it will hold until maturity. Yet the estimated value of those securities was just $3.6 billion. The bank, which reported a $199.4 million net loss for 2008, said the declines were only temporary. They’ve been anything but fleeting, though. Most of those securities have been worth less than they cost for more than a year.

The FASB’s rules on this subject, which have never been well defined, are now in flux. Today, after caving in to pressure by the banking industry and members of Congress, the Financial Accounting Standards Board is set to vote on a plan to relax its rules on mark-to-market accounting, so that companies can disregardmarket prices and ignore losses on their securities indefinitely.

Pressing for Change

While that wouldn’t make the banks any healthier, it would make their numbers look prettier. The FHLBanks have been among the most vocal lobbyists pressing for the change.

Bowsher said the process of valuing such assets was fraught with doubt already. “Now if you think about it, the FASB might be changing the whole thing, and everybody might mark their assets up,” he said. “Who wants to be part of that?

Meanwhile, Fidelity has a new way to market itself and stocks:  talk like an idiot.  Here is a Fido ad:

Question: I've lost a lot of money during this financial mess and I'm wondering when I should go back to putting 15% of my salary into my 401(K)? --Michelle Bonds, Rocky Mount, N.C.

Answer: Uh, how about like, right now? . .

Oh, I suppose if I really thought about it I could envision some rationale for paring contributions temporarily. . .
So for the sake of your future retirement security, I implore you to get back to contributing to your 401(k).

For companies that sell securities, there's of course never a bad time to make a sale!  Uh, and oh . . 

Who is more believable, Mr. Bowsher saying he is not comfortable, or the casual-talking respondent to Ms. Bonds imploring her to make sure to keep the securities-trading industry from going the way of manufacturers of real things like automobiles that actually keep our world functioning?

Copyright (C) Long Lake LLC 2009

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