The banks may have had their wrist slapped by congress recently about exorbitant salaries and their long legacy of credit card ripoff policies, but where the rubber meets the road it is really business as usual. Bankers want something done to bolster their profits, they summon legions of lobbyists and start doling out campaign contributions to key congressional committee members--bingo, the rules and laws are changed. Their latest victory was pushing aside the "mark to market" accounting rules that were forcing them to devalue securities. Even when valued at 50 cents on the dollar because of current market woes, there were no buyers. While this was clear evidence that the free market thought these securities were now worth even less that 50 cents on the dollar, admitting that on bank accounting sheets was causing massive losses and forcing them to raise truckloads of new capital. The bankers didn't like that, so they just changed the rules.
The Wall Street Journal reported today: "Earlier this year, financial-services organizations put their lobbyists on the case. Thirty-one financial firms and trade groups formed a coalition and spent $27.6 million in the first quarter lobbying Washington about the rule and other issues, according to a Wall Street Journal analysis of public filings. They also directed campaign contributions totaling $286,000 to legislators on a key committee, many of whom pushed for the rule change, the filings indicate."
Tuck enough cash into the pockets of our Senators and Representatives and you can get most anything accomplished. "Mark to Market" was transformed overnight into "Mark to Fantasy," and the banks can now use their own internal models to assign value to these securities. No more massive losses, and the pressure to raise new capital is off. The banks can now continue to pretend they are solvent and turn their attention to the next lobby--stopping reform in the derivative markets, a big profit center for most banks. They are also fighting to prevent another accounting change that would effectively close "the other set of books." The off balance sheet reporting measure would end the practice of hiding assets off the balance sheet. The misnamed "assets" are usually securities, CDOs, etc. that have depreciated in value.
The mark to market accounting rule change took full effect in April, so expect another round of bogus profit reports from the banks in the second quarter. It gives April Fools Day a whole new meaning. Gee, wouldn't it be nice if all the millions of homeowners out there who have lost most or all of their equity could just wave a magic wand and decide what the value of their home is now, in spite of what anyone in the real market would pay for it? Let's lobby congress. Maybe they'll pass a law that says the housing crash never happened, there isn't really a recession, and those people in the unemployment lines out there simply have it all wrong.
The Wall Street Journal reported today: "Earlier this year, financial-services organizations put their lobbyists on the case. Thirty-one financial firms and trade groups formed a coalition and spent $27.6 million in the first quarter lobbying Washington about the rule and other issues, according to a Wall Street Journal analysis of public filings. They also directed campaign contributions totaling $286,000 to legislators on a key committee, many of whom pushed for the rule change, the filings indicate."
Tuck enough cash into the pockets of our Senators and Representatives and you can get most anything accomplished. "Mark to Market" was transformed overnight into "Mark to Fantasy," and the banks can now use their own internal models to assign value to these securities. No more massive losses, and the pressure to raise new capital is off. The banks can now continue to pretend they are solvent and turn their attention to the next lobby--stopping reform in the derivative markets, a big profit center for most banks. They are also fighting to prevent another accounting change that would effectively close "the other set of books." The off balance sheet reporting measure would end the practice of hiding assets off the balance sheet. The misnamed "assets" are usually securities, CDOs, etc. that have depreciated in value.
The mark to market accounting rule change took full effect in April, so expect another round of bogus profit reports from the banks in the second quarter. It gives April Fools Day a whole new meaning. Gee, wouldn't it be nice if all the millions of homeowners out there who have lost most or all of their equity could just wave a magic wand and decide what the value of their home is now, in spite of what anyone in the real market would pay for it? Let's lobby congress. Maybe they'll pass a law that says the housing crash never happened, there isn't really a recession, and those people in the unemployment lines out there simply have it all wrong.
