The following Bloomberg article points out why I have repeatedly argued that banks will be earning a lot of money, Meredith Whitney’s counter-arguments notwithstanding. It also points out why the likes of John Hempton believe that the FDIC ‘stole’ Washington Mutual from shareholders and awarded it to JPMorgan, a view I have not supported (hat [...]

Kyle, a long-time reader, recently asked why I think mark-to-market accounting actually matters.  After alI, savvy investors know that accounting does not necessarily change cash flows.  I think his question has a lot to do with not just accounting, but also with the stress tests.
Kyle writes:
My point is that it has really NOT changed, and [...]

Back on the 16th, I posted a link to a Wall Street Journal article by James Hagerty which detailed how the Federal Home Loan Banks were able to prevent asset writedowns because of guideline changes to mark-to-market accounting.  I think the implications will be significant.  Here is what the article said (emphasis added):
A change in [...]

If you read my recent post on How big banks earned so much money this quarter you would see that much of the income at Wells, JPMorgan, US Bank and others came from refinancing old mortgages. While this may be a boon to present income, it is very much a problem for the legacy [...]

I last posted on Thursday before the Easter Holidays in two posts very much at odds with one another. The overall thrust of the first post was that the financial services industry in the United States was due to gain from some very advantageous circumstances in 2009. Meanwhile, the later re-post pointed out the continued fragility of the U.S. economy and banking system and focused on liquidity and solvency as unresolved issues. I would like to bring these two posts together here because I believe the concept behind the dichotomy is best described as the Fake Recovery.

Because I received a message via e-mail that my previous post on mark-to-market was misleading, I thought I would clarify what is happening with FAS 157 and provide some good links.
The long and short of the rule is it gives more specific guidance as to when a market is distressed and an asset must not [...]

This comes via Marc Chandler of Brown Brothers Harriman and is an even-handed review of what just happened:
As widely expected FASB modified fair value accounting rules. The key seems to be for assets for which there is not a market. The last traded price does not have to be used. Rather other [...]

Everyone is talking about marking to market as if its elimination is a silver bullet. So far as the economics goes, I am not sure that mark to market is such a big deal. The whole point of the banks is to make loans and hold them. Look at it this way- why should banks own anything that IS marked to market?

This news comes via Reuters:
Bank of America Corp is carrying loans on its balance sheet marked at more than $44 billion above their fair value, the company said in its annual report filed with U.S. regulators on Friday.
The bank said it ended 2008 with $886.2 billion in loans, but estimated the fair value — or [...]

There is quite a buzz in the German press about Hypo Real Estate. But, what should really get oe’s attention is its massive off-balance sheet exposures (hat tip Ulrich). The long and short of reports is that Hypo Real Estate has assets valued at 1 and 1/2 times its entire balance sheet in off-balance sheet vehicles. This would bring total exposure to German taxpayers to a cool one trillion euros (1,000,000,000,000).