What will the Fed do ?
- Thread starter goofer
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You may when the rout begins.
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Good thread. I would be interested to know if you guys are concerned about "Rule 157" and the date Nov 15th? I have a real concern that Citi might be insolvent?.and Ben looked worried today.
From Minyanville:
November 15
We continue to read more and more about this November 15 "deadline" for implementation of U.S. Financial Accounting Standards Board Rule 157 (FASB 157 for short) that make it harder for banks to avoid "mark-to-market pricing" of securities.
CFO Magazine has an article titled, "FASB 157 Could Cause Huge Write-Offs."
Why? Because under the new provisions firms are forced to whenever possible use "observable inputs" in pricing their Level Three assets.
In somewhat overly simplified terms, Level Three assets are those that may rely on mark-to-model inputs since they so rarely trade.
In may cases there is no way to price the securities. This gives the firms a lot of leeway in determining their value.
But when something does trade, under the new rules it forces that asset out of Level Three based on the pricing data that becomes an "observable input."
"It you think banks are writing off large amounts of assets now, wait until new accounting rules take effect this month," the CFO article says.
But Goldman Sachs (GS), Merrill Lynch (MER), JP Morgan (JPM), Morgan Stanley (MS) and Citigroup (C) already adopted early implementation of FASB 157 beginning in the first quarter of 2007.
Still, we keep reading vaguely grim predictions of looming disaster beginning on November 15.
What gives?
We think there may be confused causality here.
Firms such as American International (AIG) in their 10Q said they are "currently addressing the effect of implementing this guidance."
A lot of firms out there are in this boat.
Meanwhile, Wall Street's major firms are about the only firms that have already adopted the FASB 157 provisions.
The issue is not increased writedowns based on this FASB 157 "implementation date."
The issues remains the fear of forced sales creating "observable inputs" at distressed prices that will force assets to be valued at starkly lower levels.
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Saudi Prince Al-Walid has $10 Billion tied up Citigroup...I think he's probably more than a bit pizzed at the company--but I don't think he'll let it go under. He already bailed them out once in the 90s (also due to their dabblings in RE :roll
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Shelly I wholehartedly agree with your last two post. So, does Ben and team bail out Citi with taxpayer dollars? This could make the 1500 people screwed by Netbank looks like peanuts, check out how many $100K+ depositors citi has on fdic website. What about the poor fools in citi offshore accounts in other currencies. (Jersey & etc)
betting equals stock market