FASB Caves In

More evidence the bankers are making the rules. In efforts to keep toxic assets hidden, the FASB, which was told by congress last week to ease up on Mark to Market, caved in and gave them what they wanted.

OH, ask not what you can do for your country, ask what a lobbyist can do for you.

From Bloomberg;

"The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities.'

"FASB’s acquiescence followed lobbying efforts by the U.S. Chamber of Commerce, the American Bankers Association and companies ranging from Bank of New York Mellon Corp., the world’s largest custodian of financial assets, to community lender Brentwood Bank in Pennsylvania. Former regulators and accounting analysts say the new rules would hurt investors who need more transparency, not less, in financial statements.'

“What disturbs me most about the FASB action is they appear to be bowing to outrageous threats from members of Congress who are beholden to corporate supporters,” said Levitt, now a senior adviser at buyout firm Carlyle Group and a board member at Bloomberg LP, the parent of Bloomberg News.'

The FASB has been considered one of the last hopes in forcing more transparency into the financial system. By strengthening mark to market rules, the FASB could have helped bring toxic assets onto active accounting ledgers, and the bloodletting from derivatives losses could then be dealt with. Not now. The new ruling not only allows the hiding to continue, banks will now be able to claim profit from what little cash flows still come from deteriorating credit derivatives, without acknowledging principal losses associated with downgrades.

".....Allowing companies to hold on to assets without writing them down could discourage them from selling the securities, which would work against Treasury’s objective to resuscitate markets, he said.'

“It’s one of the unintended consequences of having the FASB bow to political pressure,” Richard Dietrich said.'

"Conrad Hewitt, a former chief accountant at the SEC who stepped down in January, said representatives from the ABA, American International Group, Fannie Mae and Freddie Mac all lobbied him over the past two years to suspend the fair- value rule.'

"Executives “would come to me in the afternoon with the argument, ‘You’ve got to suspend it,’” Hewitt said in a March 25 interview. The SEC, which oversees FASB, would reject their demands, and “the next morning their lobbyists would go to Congress,” he said.'

‘Is That Fair?’

"At a March 12 hearing of a House Financial Services subcommittee, lawmakers showed impatience with FASB'

“You do understand the message that we’re sending?” panel chairman Paul Knjorski, a Pennsylvania Democrat, asked FASB Chairman Robert Herz.'

“Yes, I absolutely do, sir,” Herz replied'

"After hesitating, Herz said he would try to get a new fair- value rule finished within three weeks.'

“The financial institutions and their trade groups have been lobbying heavily,” Herz said in an interview after the hearing. “Investors don’t lobby heavily.”

"The political action committees of banks including Citigroup, Bank of America, Bank of New York Mellon, Wells Fargo and banking trade groups contributed money to Kanjorski’s re- election campaign last year, according to the Federal Election Commission. CitiGroup gave $6,500, Bank of America $7,000, Bank of New York $8,000 and Wells Fargo $13,000.'

"Kanjorski spokeswoman Abigail McDonough didn’t return calls seeking comment.'

This probably means the losses on credit derivatives will get deeper and deeper. Any CDO that is 50% of its original value today, may be worth half as much a year from now if housing values decline, and foreclosures continue. Since congress, and our Treasury, have committed trillions to saving the banks, these kinds of "hide the losses" games only benefit the corporations that created this mess. And the taxpayer is asked to assume the losses.

The US Legislative process has devolved into a system of lobbying. Only those that can pay for lobbyists have any voice in the system.

Since the lobbyists have but one allegiance, to the client that pays the fees, safeguarding our country is no longer central.