BEWARE THE RISK OF FASB
After getting pressured into changing the M2M rules in early April, FASB is now talking about reversing parts of the rule change. In the same way that this sent banks stock soaring in March and April we could be looking at an increasingly risky time to own bank stocks as FASB sorts out the potential rule change. This could pose as a substantial headwind for the recent bull run.
Bloomberg reports:
Aug. 14 (Bloomberg) — Investors should beware the Financial Accounting Standards Board’s decision yesterday to consider expanding fair-value rules, said Brian Wesbury, chief economist at First Trust Advisors LP in Wheaton, Illinois.
“Like a horror flick monster that just won’t stay dead, FASB’s accountants are proposing to expand the application of mark-to-market accounting rules across the board to include all financial assets, including regular loans,” Wesbury said.
The CHART OF THE DAY, fashioned from one Wesbury is presenting to investors, tracks the performance of the Standard & Poor’s 500 Index since the Securities and Exchange Commission and FASB clarified the meaning of the rules in September 2008.
“Twice the market was teased with a sense of potential changes for mark-to-market accounting. Twice those hopes were dashed and twice the market fell to new lows,” Wesbury said.
The biggest reason that stocks have rallied since March, Wesbury said, is that the House Financial Services Committee forced FASB to loosen its mark-to-market rules. Other reasons for the rally are the easiest monetary policy in the Federal Reserve Board’s 96-year history and the end of panic selling, he said.
Every time someone makes this case [I'm talking about Mr. Westbury, not you TPC, you're the man], I’m going to ask the same question, because this concept of a rally because of the “changes” is utterly false. Do you read 10-Qs? If you do, and you STILL make this claim, then you also lack reading comprehension ability. Can we visit a few 10-Qs to make this point explicit?
BAC 10-Q: The Corporation elected to early adopt FSP FAS 157-4 effective January 1, 2009 and the adoption did not have a material impact on the Corporation’s financial condition and results of operations.
RF 10-Q: Regions adopted FSP 157-4 during the second quarter of 2009, and the effect of the adoption on the consolidated financial statements was not material.
STT 10-Q: Our fair value methodologies already incorporated these concepts and, accordingly, adoption of the FSP’s provisions did not materially change our valuation methodology or underlying process.
C 10-Q: The adoption of the FSP had no effect on the Company’s Consolidated Financial Statements.
FRE 10-Q: The adoption of this FSP had no impact on our consolidated financial statements other than expanding our disclosures on fair value measurement in “NOTE 14: FAIR VALUE DISCLOSURES.”
I could go on, but really, I think the point is clear. Can we please move on from this topic and start calling out the idiots who keep trumpeting this?
Brian Wesbury has been remarkably wrong throughtout the crisis.
Here’s a 157 primer:
http://blogs.wsj.com/marketbeat/2007/11/15/a-fas-157-primer/
To be honest, I have never heard of him prior to this post, but A TON of respectable folk get this issue entirely wrong [and a lot of the time], and it is a shame. It just makes me stop and question whether people are as sophisticated as they should be, given their titles. I would really expect a chief economist to understand something simple and obvious like this. Of course, since I’ve never heard of him, he might just be Lawrence Yun’s secret brother, which would explain everything.
I hate to bad mouth anyone, but Wesbury was so wrong during the downturn that it was almost unbelievable. It is amazing how much attention he gets from the TV networks and the general media. He misled millions of people for years.