FASB: OK For USA to Turn Japanese

Just when you think there is a glimmer of hope that some of these ne’er do well, lying, cheating, sniveling, cowardly bank CEOs might finally be forced to step up to the confessional and tell all, this comes along: FASB Postpones Off-Balance-Sheet Rule for a Year.

Which makes me wonder:  How precarious is the financial health of the US banks and brokers that they need yet another year before they can, oh, I don’t know — disclose what they own on their balance sheets?


"The Financial Accounting Standards Board postponed a measure, opposed by Citigroup Inc. and the securities industry, forcing banks to bring off-balance-sheet assets such as mortgages and credit-card receivables back onto their books.

FASB, the Norwalk, Connecticut-based panel that sets U.S. accounting standards, voted 5-0 today to delay the rule change until fiscal years starting after Nov. 15, 2009. The board needs to give financial institutions more time to prepare for the switch, FASB member Thomas Linsmeier said at a board meeting.

"We need to get a new standard into effect,” Linsmeier said, though “it’s not practical” to begin requiring companies to put assets underlying securitizations onto their books this year.

FASB proposed having companies put new securitization structures on their balance sheets for fiscal years starting after Nov. 15 this year. The Securities Industry and Financial Markets Association and the American Securitization Forum complained that the changes, which could affect as much as $11 trillion of off-balance-sheet entities, may make companies appear short of capital to regulators and lenders. Financial companies’ responses may in turn worsen the credit crisis by further constraining lending and investing, they said."

The longer they wait, the worse it ultimately will be. The long Japanese Recession (1989-2003) was caused by precisely this refusal to take the markdown, and engage in all manner of delays, excuses, procrastinations.  Eee-diots — This only will make it worse!

Here’s the money quote:

"Under FASB’s Statement 140, one of the rules the board is
considering changing, the trusts can remain off-balance-sheet if their
activities are "significantly limited” and "entirely specified” in
the legal documents that created them." 

Man, if ever a legal clause was made to be folded spindled and mutilated, this was it.

Question: How can anyone value a financial company if they cannot tell what are on their balance sheets?

Answer: You cannot. If you buy a financial under these conditions, you are flying blind.

Investment Thesis: Ritholtz Rule #1: Know What You Own.

Whoever buys Financials under these circumstances loses the right
to whine down the road about companies not being forthcoming. If you
own them, don’t complain when you get what you deserve. 


FASB Postpones Off-Balance-Sheet Rule for a Year
Jody Shenn and Ian Katz
Bloomberg, July 30 2008

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What's been said:

Discussions found on the web:
  1. HCF commented on Jul 30

    I think we’re turning Japanese, I think we’re turning Japanese, I really think so….

  2. Spud commented on Jul 30

    Stunning. I guess things like Sarbanes-Oxley don’t apply here as well? Probably more selective enforcement like the short selling.

  3. brent commented on Jul 30

    this is overkill. i’m sure we’ve got no more than 2 or 3 more enron’s out there.

  4. wally commented on Jul 30

    Would they take the whole country down to protect the banks?


  5. MitchN commented on Jul 30

    Unbelievable. This is what Sen. Mitch McConnell, that tool from Kentucky, means when he yammers on about “free speech.” Yeah, right.

  6. kensdad commented on Jul 30

    So, let’s count who’s panicking over the banks: we’ve got the Fed, the Treasury, the SEC, and now FASB… they have circled the wagons, because they know that the situation is dire. that is the only excuse (if you can call it that)… but, hey, we’ve had another mega-rally in financials on MER’s “great” news (cough, cough), so i guess they must be happy with their “work” so far… i can’t believe that it’s come to this! Rome is burning, and everyone is fiddling as fast as they can!

  7. Jeff commented on Jul 30

    Merely trying to stretch out this fiasco for as long as possible until the next bubble is created. Then it’s off to the races again! Yippeee!!

  8. Tom commented on Jul 30

    When you add the Fed’s extension of their emergency facility to the end of January 2009 to this, we are in deep yogurt.

  9. Rich_Lather commented on Jul 30

    I think it’s funny, filthy, and dishonest that the truth is getting pushed forward to the next administration. The IMF audit of the US’s books should be coming out shortly after election or swear-in of Obama too.

    Poor guy, he doesn’t realize what he’s getting himself into. If he did, he would quit his campaign.

  10. Mich(^IXIC1881) commented on Jul 30

    Talk about financials digging their own grave… let it sink for a day or two, common sense will prevail and long term holders will sell due to 18 month uncertainty this brings.

  11. Jeff commented on Jul 30

    What’s so funny about everything going to shit in this country? I personally don’t find it funny at all.

  12. GaryK commented on Jul 30

    All of this corruption…. This is not the America that I remember. Now I am beginning to understand the rally in financials that has been ongoing for the last couple of weeks. Since the liars and professional thieves will not have to come clean with what is on the balance sheets, they can perpetuate the fairy tale for another year.

    Do morals or ethics ever count anymore?

    Does anyone know who gets to keep the money from a naked short sale? I’m wondering why it is allowed for any stock.

  13. tomd commented on Jul 30

    Oh do I love this decision. If SKF has been a great trading vehicle over the last year, it will be even better over the next year.

    Wake up folks. Yes, I agree what’s going on stinks to high heaven, but why moan about it when you can benefit yourself and your kids by taking some action. The federal government is screwing your kids and grandkids royally, so why not take some defensive action on their behalf?


  14. Mich(^IXIC1881) commented on Jul 30

    Apparently they are running of ideas to hold up the shantytown called Wall Street. Here are some more ideas for them:
    – Force buyers of financials stocks to keep them on their books for 90 days
    – Increase SEC fees on sales of stocks 2% of sale price
    – Brokers are forced to differentiate commissions on stock sales (buying $4.99, selling $159.99)
    – Stop options market makers to create/sell deep in the money puts
    – Brokers are banned from having client stocks on street name, stock certificates are to be snail-mailed to buyers via USPS
    – 401K fund choices to be reduced to “large financials”, “midcap financials”, “small cap financials”, “international financials” “fnm/fre bonds”, money market, and funds of funds made from a combination of these.

    Yeah, that should do it

    That should do it.

  15. John commented on Jul 30

    This continuing nonsense of Balance Sheet Three Card Monty, Mis-statements from some of the CEO’s of Major Investment Banks to either obfuscate how much Bad Debt they still have– or because they do not know how to put a value to it– and SEC and FASB Rule Changes plays into my theory that we won’t see a “Bottom” begin to form in the Financials until one or more of these Major Investment/Commercial Banks gets Bought Out–UnAssisted From the Federal Reserve/FDIC–by another Major Bank.
    Then you’ll have a good idea that said Bank has done some Hard Core Accounting Due-Diligence, can put some market value to their Toxic Off-Balance Sheet Crap, and therefore feels confident about the failed Banks True Valuation.
    And I think we still have a long way to go before we get to that point.

  16. Rob P commented on Jul 30

    Better yet, lets forget about the short selling and only allow transactions that are on the buy side! That way the “value” of equities will just keep going up and up!

    Everyone keeps talking about what the next bubble is going to be… duh… it’s the financials!

  17. Namazu commented on Jul 30

    Lighten up, Barry! Don’t you know Cramer just called a bottom?

  18. Mike in NOLa commented on Jul 30

    Maybe investors will vote with their feet. But then they’d have to know what they were running from and I don’t think CNBC will tell ’em.

  19. Juhuti commented on Jul 30

    After looking at earnings for the past two quarters, I remembered that the only earnings that gets audited is the 10-K. No one knows how bad the numbers really are until then.
    I think you might find this essay on US Tax receipts interesting: http://www.financialsense.com/editorials/benson/2008/0730.html
    How will the US continue to convince other countries to loan us money after this?

  20. Stuart commented on Jul 30

    Anyone who can conduct some independent thought will stay far away from financials. The industry pushed for FASB to delay implementation for a reason. It’s not difficult to figure out what that reason is. Wow. “Caveat Emptor” if it ever applied to anything, at any time, it applies to financials.

  21. investorinpa commented on Jul 30

    Man, Barry, you’re on fire of late. I could not agree with you more. This reminds me of my days in college when I had a bad car but no money. Every time I took it to the mechanic, they said it cost X (small amount) to put bandaids, but cost Y (significantly larger amount) to fix it right. Guess what I chose between car money versus beer/girls money? Had I just took my medicine at the time, I woulda been better off. The US needs to take its medicine.

  22. lew dunbar commented on Jul 31

    I think some of these banks are now Enrons.

  23. JP commented on Jul 31

    Guess what I chose between car money versus beer/girls money? Had I just took my medicine at the time, I woulda been better off.

    Hmmmmm. Maybe someone should define better off. Beer and girls vs car. I know where I stand.

  24. Victor commented on Jul 31

    For that last statement, the SEC will probably investigate Barry for “rumor spreading”. I’m only half joking.

  25. jmf commented on Jul 31

    Moin from Germany,

    I´ll bet that this won´t be the last “delay”……..

    “Enron-esque characteristics”

  26. Andy Tabbo commented on Jul 31

    Yeah. Cramer in rare form today. He was slicing up a bear in a meat slicer tonight. It’s over! Just like that! Just buy it, baby!


    Pure Technicals here…..

    Given the strong rally today, it seems 1291 will be taken out soon. It seems the 1320-1325 zone is the target next several days…as the a=c up from the 1200 lows and the 50% retracement of the larger recent decline.


    When this current Wave 2 the of the larger degree Wave III ends….you want to be OUT of the market or VERY SHORT. Not kidding around. If we’re in the middle of an unfolding five wave move down….then we’re getting very close to commencing a Wave 3 of a larger degree Wave III….which means….watch out down below!

    Truth in posting: I got out of a lot of put options at 1235 level but I’m still long small amount of 1250 puts….and the last few days sucked…but I’m convinced a major move lower is in the offing soon, so I have to be small amount short no matter what’s going on. ( my previous technical posts support this )

    – AT

  27. Ed Miller commented on Jul 31

    My proposal is this: No options, no bonuses, no perks for ibank and bank executives until after they show a profit AFTER Nov 2009. And cut salaries per the Governator’s plan.

  28. RDM commented on Jul 31

    I think it is pretty obvious now that most of the investment banks, commercial banks, and brokers are insolvent. The Fed, the Treasury, the SEC, and now FASB might as well pull out every trick in the book to plug the holes because if it doesn’t work it won’t really matter anyway.

  29. RDM commented on Jul 31

    I think it is pretty obvious now that most of the investment banks, commercial banks, and brokers are insolvent. The Fed, the Treasury, the SEC, and now FASB might as well pull out every trick in the book to plug the holes because if it doesn’t work it won’t really matter anyway.

  30. easy$ commented on Jul 31

    Can’t believe that MER got away with slaughter. Everyone is in on it, FED, SEC, Treasury and now FASB. I have no more confidence in this market. The liars and cheaters won’t stop until we put them out of business. Where’s the darn reset button?

  31. doc1 commented on Jul 31

    Wow, thanks you guys for speaking the truth! And thank you Barry R. for blogging the reality — you’re brave. I’m just a typical finacially dumb M.D. who thought that the financial companies had allowed/caused the housing debacle and would go down first (with the markets trailing) so I’ve been long SKFs since Novemeber — been a good trade but the crap they’re pulling! This is a sham scam! And every time I start to make more money the gov types (read Fed and Treasury) and SEC change the rules. Wow, it’s sad and nightmarishly frustrating because really tough times are probably dead ahead and my family (like everyone’s families, I’m sure) will need every penny to survive BUT they’re gaming us. But it’s helpful to my sleep at night to watch all you finacial types (of which I’m clearly not though I did attend Princeton with a bunch of future Goldman-Sachs employees) reason through this and explain it to us neophytes.

    Maybe I’m reading too much FerFAL stuff?

    Anyway, I’ll hang in there but thanks much…

  32. Philippe commented on Jul 31

    One should remember the 5th Amendment of the US constitution and should not expect any Banks CEO to testify against itself.
    In the French law there is an interesting article of law

  33. Tom commented on Jul 31

    Bernanke, Cox and Paulson remind one of the deck stewards on the Titanic, desperately rearranging deck chairs to no avail. Just as the Titanic, several more financial entities will sink.

  34. CNBC Sucks commented on Jul 31

    BR definitely is brave. Sooner or later, this whole shell game is going to come down hard on somebody. If “they” move all of this financial landfill into the Fed’s balance sheet, that somebody will be us.

    Speaking of the Japanese, they have other assets that could be “written down”: trillions in US dollars and treasuries. Let’s hope they continue to be Japanese and prevent the dollar from sinking further as they have for years.

  35. Jas commented on Jul 31

    FASB probably did not have the support of congress and decided to delay. Look back at how long it took them to adopt expensing of stock options. It was all political with senators proposing to eliminate funding for FASB. It sucks when banks and brokers have better lobbyists.

  36. Better Informed commented on Jul 31

    You’re oversimplifying the situation here, and obviously you’re not familiar with the changes and their implications. FAS140 and FIN46 still allow for off-balance sheet transactions. They actually do very little to solve the issues that are out there, and they introduce new issues that would hurt the marketplace rather than help it. The rule should be thrown out and re-worked.

    Regarding FASB’s support, your commenters (@CNBC Sucks) are off-base as well. FASB not only has support, they’re under tremendous pressure (especially from the SEC) to get something done.

    Instead of glibly commenting, let’s look at an example. XYZ Insurance company invests in a AA bond for $10 million from a $2 billion deal, and it turns out the deal is not that great, the economy is horrible, and the collateral defaults at an abnormally high rate. However, they only own $10 million and will never lose more than $10 million dollars.

    How much do they have on their balance sheet from this deal? You didn’t guess it – they have to consolidate the entire $2 billion.

    How much do you think they have to pay their accountants under the new audit rules? Well, several million at any rate – they have to audit the entire deal and all of it’s $2 billion of collateral.

    I challenge you, and every person who has commented in agreement to first read what the proposal actually proposes to do, put on your critical thinking cap, and then make a comment. http://www.fasb.org/pdf/fas140.pdf

  37. John commented on Jul 31

    Obviously they rolled under pressure from some or all the interested parties but mainly I’d say it was Treasury and the Fed. Congress wasn’t a player in this, and they just don’t want to rock the boat. The SEC wasn’t a player either despite the fact the FASB is an offshoot. This was Bernanke and Paulson. It is of course a joke which will prolong the agony. Basically they’ve told the world we know the banks have all this junk which they are keeping off their balance sheets but we have to let the fiction continue. As to the reaction. Hard to tell. The whole world knows it’s a political decision but the whole world has a vested interest in preserving the fiction that all is well. Given the events of the past few days when the markets went up against the background of some horrible economic news I’m giving up trying to explain it.

  38. Drew commented on Jul 31

    Postponed until November.



    Something else happens that month whose outcome depends a lot on how much bad news comes out prior.

    Just can’t quite put me finger on what the hell it is…

    Starts with an ‘E’ I think.

  39. Michael F. Martin commented on Jul 31

    When I read the headline for this post, I got excited, thinking: “Wow. Are they really going to change GAAP to make just-in-time and throughput accounting GAAP compliant?”

    …but then I descended to reality.

  40. monday1929 commented on Aug 1

    How can any fiduciary (pension fund etc.) justify holding any bank stock or bond which has billions of unknown liabilities hidden off balance sheet? Anyone who holds these toxic banks in pension or other vehicles should write to the fund manager to question these holdings, request divestiture, and establish legal standing for future lawsuits when these pension funds go belly up and claim ‘No one could have forseen the bankruptcy of major money center banks”.

  41. BobC commented on Aug 1

    It’s Friday. I wonder if any more banks will be taken over.

  42. BobC commented on Aug 1

    Florida First Priority was just taken over. Suppose this will become a regular Friday event for awhile?

  43. Josh Neumann commented on Aug 16

    Absolutely ridiculous, but there’s nothing we can do about it. I guess I will be avoiding bank investing for at least the next year.

    Instead of complaining about something we don’t have any contorl over, let’s just turn our attention to investing in something other than banks. There’s still plenty of opporutnity out there, folks…

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