SAY WHAT?

Ok, where were we? Oh yes, we were just speculating on how long in will take the administration to ram Our Hero's plan down the throats of a bunch of cowed banks when all of a sudden, HEEEEEEERRREE COMES FASB! By a 3-2 vote, FASB agreed to a somewhat different approach to the accounting treatment banks could employ on troubled assets, recognizing for the first time, in public at least, that there might be a problem out there with the market to which things were supposed to be marked. I have read the release a couple of times and frankly it just goes to prove than accountants are simply actuaries with a sense of humor...albeit a dim one. For the life of me, I can't translate the statement into any known spoken language but that is ok. You see, the important thing is that it purports to condone a different treatment and thus ends the insanity under which we have been laboring for the past two years. The other thing it does, if the industry is prepared to stand up on its hind legs, is to kill Our Hero's plan stone, cold dead.

You see further see, if financial institutions are now given some latitude as to the manner at at what level they can value their portfolios and more importantly eliminate or greatly slow the velocity of asset degradation on their balance sheets leading to additional capital impairment, they are going to be even less willing to participate in any action at fire sale prices that eliminates any up-side recovery. Not surprisingly, the FDIC leapt in the conversation this morning with the statement that it might be willing to allow participating institutions to share in any profits obtained by the managing institutions. Lord. Cannot some Knight rid me of the meddlesome woman? Besides being irksome the statement may reveal, however, that the administration is not prepared to give up without a fight as non-participation will certainly reduce the leverage Treasury has over the financial industry. One for the good guys.

There is a troublesome part to the announcement. FASB is prepared to announce the new approach to be retroactive to the close of the 4th quarter of 2008. We all need but look at the events of the last few years to realize that bankers may not be the sharpest set of knives in the drawer at least in the realm of strategic thinking. Many in this mob have an attention span slightly less as long as that of my dog (she's a very smart dog) and possess a trader's mentality which often leads them to do something incredibly stupid if given the opportunity. I have a real fear that a few of these bozos may well seize upon this outbreak of sanity and attempt to MARK-UP in value assets on their balance sheets and book the transactions as a profit. To do this would create a $*&^-storm that would dwarf all others up to this point and wreck whatever benefit might be achieved in the future. Take what you have been given: we are going back to the future where banking once again is a subjective industry, where time and sound credit can cure most ills and where the maniacal cries for nationalization and over-regulation will slowly fade. What we need is time and an upward sloping yield curve. Forever has it been such.

Now in this regard, loyal readers will remember what I said a few days ago about the Fed's actions as of late. Gentle Ben, having taken the central bank over to the dark side of the political swamp, is busily gearing to replace the Chinese on the long end of the Curve. To the extent this occurs, one result could be the artificially lowering of medium to long term rates and the flattening of the curve--not a good thing for Mrs. Banker's little boys and girls. The IQ results we find in the scores of commercial and investment bankers occasionally bubble up in the personnel folders of Central Bankers as well. But, for the time being, we have a shot to get out of this mess in the old fashioned way; managing risk and earning money. Let's hope we don't screw it up.

One further point. I have never thought that the Senate of the United States was as collectively dumb as the House, but I may have been wrong. In a move so colossally stupid so as to defy explanation, the Senate voted today to require the Federal Reserve to release the identities of all institutions to whom they have provided assistance. If unchanged, the language could include borrowings from the discount window. Never has the Fed made that information public and it's release could damage the reputation of any institution to whom the facility was made available and discourage many institutions from using the facility thereby exacerbating an already touchy situation. Keep thinking confidence and trust gang. That's what this business is all about.

Tomorrow the G20. Initially, it appears little harm was done...yet. But the IMF? Tune in