Friday, April 3, 2009

It Is What It Is

Okay, today is rant post. The big news on Wall Street today was that the Accounting Standards Board caved in and is going to allow bankers to weasel out of having to do a "mark-to-market" on their bad assets.

Oh how boring, what is all this stupid accounting lingo he's talking today?? You might well ask. Well, it is something you ought to know, just so's you know how deceptive your smiling banker really is.

"Mark-to-market" refers to the practice of valuing assets at the lower of cost or market. In other words, it means that if you have an asset, let's say a house, for example, for which you paid $500,000 two years ago and now it is only worth $40,000 and its picture is on one of those infomercials that tells you how to make a fortune buying foreclosure properties, then when you list the value of your assets you have to say it is worth $40,000 (what it is worth today), rather than $500,000 (what you actually paid for it).

That way, someone gets a true picture of how much your assets are really worth. Does it make sense to say you own a $500,000 house if you can only get $40,000 for it if you sold it today?

But that's what banks are now going to be allowed to do. No longer will they have to declare the "true" value of their distressed properties and other impaired assets, but they will be able to estimate what they think it is worth and declare that as the value.

That's just like if I have a brand-new $30,000 car that gets totaled by a bus, I keep going around telling people I have a $30,000 car. Well, let's get realistic. I know it got into a little fender bender so I admit to you that it really is worth more like $26,000. But in reality, the car is only worth its scrap metal value.

I can say whatever I want but the inescapable truth is, no matter what I call my car or how I describe it, it is really a piece of scrap metal.

That's analogous to the bad assets that have infested the banks. A bad asset is a bad asset, but now the Accounting Standards Board has given them their blessings to tell you that a rose is not a rose.

And that's something you should know. Just like people who spell their names one way but pronounce it another, the banks have got a lot of junk that they're not going to tell you about. Somehow they think that makes it go away.

What's that saying? If it looks like a duck and sounds like a duck and walks like a duck.. a bad asset is a bad asset.. a kiss is just a kiss.. a sigh is just a sigh..

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