The Obama Depression Deepens–Federal Reserve Executes–QE II Plan–“Operation Pawnshop”–$2,500 Billion In Quantitative Easing–Money Printing–Will It Be Enough?

Posted on October 16, 2010. Filed under: Blogroll, College, Communications, Demographics, Economics, Education, Employment, Fiscal Policy, government, government spending, Language, Law, liberty, Life, Links, media, Monetary Policy, People, Philosophy, Quotations, Rants, Raves, Regulations, Technology, Video, Wisdom | Tags: , , , , , , |

Non-conventional vs. Traditional Federal Reserve System Building

“Credit expansion is the governments foremost tool in their struggle against the market economy. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate the capitalists, to contrive everlasting booms, and to make everybody prosperous.”

“The final outcome of the credit expansion is general impoverishment.”

 

~Ludwig von Mises

Peter Schiff – It’s Scary How Clueless Bernanke Is

The Gold Dollar | Llewellyn H. Rockwell, Jr.

Fed’s Next Move: What Will Boost the Economy?

 

Helicopter Ben Bernanke 10/15/10 Part 1

 

Helicopter Ben Bernanke 10/15/10 Part 2

 

Swonk Says Bernanke Laid Out Rationale for Fed QE: Video

 

Currencies, Phillips curve, inflation target, Ramsey, SchiffRadio.com

 

Bernanke Says Fed Stimulus Move Coming, Amount Unknown

 

Tyson Says Quantitative Easing ‘Only Policy Option Left’

 

Jim Grant on Bloomberg 10/8/10: Quantitative Easing Is Just Money Printing

 

Mandelbrot (Chaos Theory) Taleb (Black Swan) on markets

End the Fed | Ron Paul

 

The primary goal of the Federal Reserve System is price stability or the avoidance of inflation for the U.S. economy.

However, unlike other central banks, the Federal Reserve also was given several other goals by Congress:

“The goals of monetary policy are spelled out in the Federal Reserve Act, which specifies that the Board of Governors and the Federal Open Market Committee should seek “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” …”

http://www.federalreserve.gov/pf/pdf/pf_2.pdf

Since the Fed already has a zero interest rate policy or ZIRP with the Federal Funds rate target range of between 0.0% – .25% and a low inflation rate for the time being under 2%, the Federal Reserve now turns it monetary policy tools on the persistent high unemployment rates, now at 9.6% and headed once again to 10% or more.

 

Series Id:           LNS14000000 Seasonally Adjusted Series title:        (Seas) Unemployment Rate
Labor force status:  Unemployment rate
Type of data:        Percent or rate
Age:                 16 years and over

 

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2000 4.0 4.1 4.0 3.8 4.0 4.0 4.0 4.1 3.9 3.9 3.9 3.9  
2001 4.2 4.2 4.3 4.4 4.3 4.5 4.6 4.9 5.0 5.3 5.5 5.7  
2002 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0  
2003 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7  
2004 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4  
2005 5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9  
2006 4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4  
2007 4.6 4.5 4.4 4.5 4.4 4.6 4.6 4.6 4.7 4.7 4.7 5.0  
2008 5.0 4.8 5.1 5.0 5.4 5.5 5.8 6.1 6.2 6.6 6.9 7.4  
2009 7.7 8.2 8.6 8.9 9.4 9.5 9.4 9.7 9.8 10.1 10.0 10.0  
2010 9.7 9.7 9.7 9.9 9.7 9.5 9.5 9.6 9.6        

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet 

The Chairman of the Federal Reserve, Ben Bernanke, communicated in an October 15, 2010 speech in Boston what the Federal Open Market Committee (FOMC) unconventional monetary policy was targeting– maximum employment–by printing more money and purchasing Treasuries and other bonds:

“…In short, there are clearly many challenges in communicating and conducting monetary policy in a low-inflation environment, including the uncertainties associated with the use of nonconventional policy tools. Despite these challenges, the Federal Reserve remains committed to pursuing policies that promote our dual objectives of maximum employment and price stability. In particular, the FOMC is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation over time to levels consistent with our mandate. …”

Translation, the Fed will be printing more money starting in November to expand the money and credit supply by purchasing Treasury securities including bills, notes and bonds in the market as well other assets such as bonds with the objective of lowering the unemployment rate.

 

 

 

 

http://nowandfutures.com/key_stats.html

The Fed will be attempting to “inflate” the economy out of the current “jobless recovery” into another economic boom.

Call it quantitative easing, credit easing or “nonconventional” monetary policy, I call it overdosing on interventionism.

Quantitative Easing–Videos

What is the size, scope and duration of the “quantitative easing” or overdosing on interventionism ? 

How big will the Fed’s weekly habit be?

My guess it will start “small” with $2 to $5 billion per week and gradually increase to about $15 billion per week?

How long will the Fed persist in this habit before going cold turkey?

At least twelve to forty-eight months or until the unemployment rate is below 6% and core inflation is over 2%.

This will require another massive expansion of the Federal Reserve’s balance sheet.

How much will it take?

My guess is a 1% reduction in the U-3 official unemployment rate would take a minimum of $600 billion per year ($200,000 money or credit expansion times 3,000,000 new jobs in one year)

A 4% reduction in the unemployment rate from 10% to 5% or the creation of about 12,000,000 new jobs would require a minimum of $2,500 billion dollars over four years.

The U.S. official unemployment rate as measured by U-3 is again headed towards 10% with over 15,000,000 Americans unemployed.

The private sector needs to create between 250,000 and 300,000 jobs per month to reduce the official unemployment rate by just .1%.

Currently the private sector is creating less than 100,000 jobs per month.

The United States needs between 100,000 to 150,000 jobs to absorb new entrants into the labor market due to the population growth. There are currently over 1.1 million unemployed new entrants that have not found their first job.

Another 150,000 to 200,000 jobs is are needed to reduce the unemployment by .1%.

Unfortunately, the persistent unemployment problem is even worse.

The U-6 total unemployment rate increased from 16.7% in August to 17.1% in October 2010.

With a total civilian labor force of about 155 million, a 17.1% unemployment rate means that over 26,500,000 Americans are looking for full-time jobs.

This represents over twice the number of unemployed Americans, about 13 million, during the worse month of the Great Depression, March 1933.

Assume it takes a minimum of $200,000 increase in the money and credit supply to create one new job.

Assume it takes 250,000 new jobs per month to reduce the unemployment rate by .1%  or 3,000,000 jobs per year to reduce the unemployment rate by 1.2%.

Then the Federal Reserve would need to expand the money and credit supply by about $600 billion per year.

If the objective is to reduce the unemployment rate official unemployment rate U-3  from about 10% to 5% then the Federal Reserve would need to expand the money and credit supply by about $2,500 billion over a forty-eight month period. 

I fully expect both the U-3 and U-6 unemployment rates to rise by at least .1 to .2% per month for next three to six months.

This would bring the official unemployment rate or U-3 over 10% during the first quarter of 2011 and the total unemployment rate or U-6 over 18% by the start of the second quarter of 2011.

This would represent over 15 million Americans unemployed and over 28 million seeking full-time unemployment.

This in turn will mean the U.S. economy is entering a “new” recession or a “double dip recession” with declining and most likely negative growth rates in the second and third quarter of 2011 and an increased probability of deflation or a declining general price level for goods and services.

Therefore the case for an expansionary monetary policy is still strong and increasing.

With the Federal Funds rate essentially zero, the Federal Reserve will be purchasing assets such as Treasury securities and agency mortgage-backed securities starting in November and continuing for a least six months until the U.S. unemployment rates are down by at least 1% to 2% or more and growth in production or the gross national product is at least above 3% to 4%.

Assuming the Federal Reserve purchases $12 billion in assets or securities each week, the total amount of the quantitative easing will be about $2,500 billion over the next forty-eight months to bring the official unemployment rate U-3 to about 5%. 

The Federal Reserve cannot count upon the central bank of Communist China, the People’s Bank of China, to appreciate the Yuan by more than 5% to 10% per year relative to the U.S. dollar to encourage U.S. exports and reduce Chinese imports to the United States.

The real problem is Federal government spending that should be drastically cut until a balanced or even surplus budget is the result.

The Bush tax rate cuts in 2001 and 2003 need to be made permanent as well.

Until such fiscal economic policies are actually implemented, the only monetary policy “bullets” that the Federal Reserve has left is quantitative easing or money printing to purchase assets by expanding their balance sheet. 

The Federal Government has for the last two years run deficits exceeding 1,000 billion each year and totaling over $2,500 billion not counting interest and this is likely to continue for at least one or two years until the U.S. economy fully recovers and the unemployment rates are well below 7%.

These budgetary deficits need to be financed by the Treasury Department  issuing Treasury bills, notes and bonds.

The Federal Reserve will monetize some of these Treasury debts as part of its quantitative easing operations to the extent other buyers of Treasuries cannot be found.

What is the size or quantity of the quantitative easing?

I do not expect this to be announced, but at least $2,500 billion may be needed in the next forty-eight months to avoid another recession, significantly reduce unemployment to under 6%, and increase the growth of the economy above 4%. 

Will such a “nonconventional” monetary policy work?

Only if the Congress and the President drastically cut the Federal Budget so it balances, do not increase taxes, and repeal Obama care.

In other words,this “nonconventional” monetary policy strategy of asset purchases or quantitative easing is not very likely to work any time soon. 

The problem with government intervention into the economy is it always requires even more government intervention to correct past mistakes.

Both fiscal and monetary policy are generating massive uncertainty and a lack of confidence by consumers and businesses results in the deferral of consumption and investment expenditures and the hiring of new employees.

Bernanke understands this for he wrote in his Ph.D. dissertation at M.I.T.:

“…increase uncertainty provides an incentive to defer investments in order to wait for new information.” 

Massive increases in the size and scope of the Federal government has resulted in huge budgetary deficits and proposed tax increase during a “jobless recovery”.

 

These deficits must be financed and the Federal Reserve will make sure that Treasury debt in the form of bills, notes and bonds will be purchased by printing more money as needed.

The Federal Reserve “nonconventional” monetary policy of printing more money  is essentially government intervention into the economy to accommodate the U.S. Government’s Department of the Treasury need in  financing massive government deficits 

The Federal Open Market Committee will purchase Treasuries, mostly short-term Treasury bills but some notes and bonds in exchange for  Federal Reserve Notes or money.

While the Fed’s cover story may be that this is needed to reduce unemployment, the real objective is financing massive Federal government spending and deficits. This is similar to what was done from 1942 to 1951 where Treasury long-term government bond yields were fixed at very low levels to finance World War II.

In fact, the Federal Reserve will be debasing the U.S. dollar by reducing the purchasing power of the dollar.

 

End the Fed | Ron Paul

This is a hidden tax paid by all the American people.

The cost of exports will rise as the U.S. dollar depreciates  relative to other foreign currencies. 

The price of petroleum will significantly rise and Americans will be paying over $3 a gallon in 2011 and over $4 a gallon in 2012.

The increases in petroleum and gasoline prices will in turn impact food prices. 

The Federal Reserve  uses a core  personal consumption expenditure (PCE) price index approach in measuring and  setting inflation targets, which excludes food and energy. The core personal consumption is a less volatile inflation or price measure than a change in total personal consumption expenditures which includes energy and food.

However, the American people need to eat and use gasoline to power their cars and heating oil to warm their homes.

The American people do not tolerate fools, even educated fools of the ruling class, for very long when they are losing their jobs, homes, health care and retirement plans and their children and grandchildren cannot find jobs or complete their college education. 

The Second American Revolution has started.

On Tuesday November 2, 2010, election day, a shot will be heard around the world that even the world’s central bankers will be able to hear, if not fully comprehend.

During which the Federal Open Market Committee or FOMC will meet to decide when and how much quantitative easing or credit easing is needed to create jobs, avoid another recession and finance the U.S. government massive deficits. 

The U.S. economy is in a liquidity trap where conventional monetary policy is ineffective and “nonconventional”  monetary policy cannot work effectively until the appropriate fiscal policies are a reality and working.

The U.S. economy is slowly drowning in a flood of government intervention that has simply failed in generating jobs and high rates of economic growth and wealth creation.

The American people are paying the price for our ruling class’s continuing failures.

After quantitative easing or “operation pawn shop” fails and the value of the U.S. dollars is further debased, a period of inflation will follow and the Obama Depression will become an inflationary depression–a black swan.

“To be told that the Fed did what it could isn’t much comfort to a family who loses its house to foreclosure, a businessman forced into bankruptcy, a sixty-five-year-old whose retirement fund is devastated, a would-be borrower turned away by a beleaguered bank, a new college grad who can’t find a job, any job. For those victims and all the others, a final verdict on the Fed’s response to the Great Panic must await the health of the U.S. economy in 2010 and 2011 and beyond.”

~David Wessle, In Fed We Trust, Ben Bernanke’s War On the Great Panic, page 266.

“It is indeed one of the principal drawbacks of every kind of interventionism that it is so difficult to reverse the process.”

“Economics does not say that isolated government interference with the prices of only one commodity or a few commodities is unfair, bad, or unfeasible. It says that such interference produces results contrary to its purpose, that it makes conditions worse, not better, from the point of view of the government and those backing its interference.”

 

~Ludwig von Mises

 

Roubini: U.S. Running Out of Options to Stimulate Economy

 

Roubini On Double Dip

 

Nassim Nicholas Taleb – What is a “Black Swan?”

 

 

Background Articles and Videos

Peter Schiff “We Should Save ‘Person Of The Year’ For People Who Do Good!

 

Ron Paul: Allow The Free Market, Not The Fed, To Set Interest Rates

 

 

Maynard Keynes Inventor of Quantitative Easing

The Financial Crisis and the Death of Macroeconomics | Joseph T. Salerno

Government’s Response to the Crisis: A Fantastic Success, for Government | Robert Higgs

 

Why You’ve Never Heard of the Great Depression of 1920 | Thomas E. Woods, Jr.

 

Keynesian Predictions vs. American History | Thomas E. Woods, Jr.

 

 

Our Wise Overlords Are Just Here to Serve Us | Thomas E. Woods. Jr.

 

 

Nassim Nicholas Taleb Angry

 

 

16. The Evolution and Perfection of Monetary Policy

 

Crisis and Capitalism

 

Understanding the Financial Crisis

 

The Psychology of the Financial Crisis

Money, Banking and the Federal Reserve

How to Abolish the Federal Reserve

 

Speech

Chairman Ben S. Bernanke

At the Revisiting Monetary Policy in a Low-Inflation Environment Conference, Federal Reserve Bank of Boston, Boston, Massachusetts

October 15, 2010

Monetary Policy Objectives and Tools in a Low-Inflation Environment”…

“…However, possible costs must be weighed against the potential benefits of nonconventional policies. One disadvantage of asset purchases relative to conventional monetary policy is that we have much less experience in judging the economic effects of this policy instrument, which makes it challenging to determine the appropriate quantity and pace of purchases and to communicate this policy response to the public. These factors have dictated that the FOMC proceed with some caution in deciding whether to engage in further purchases of longer-term securities.

Another concern associated with additional securities purchases is that substantial further expansion of the balance sheet could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might lead to an undesired increase in inflation expectations, to a level above the Committee’s inflation objective. To address such concerns and to ensure that it can withdraw monetary accommodation smoothly at the appropriate time, the Federal Reserve has developed an array of new tools.7 With these tools in hand, I am confident that the FOMC will be able to tighten monetary conditions when warranted, even if the balance sheet remains considerably larger than normal at that time.

Central bank communication provides additional means of increasing the degree of policy accommodation when short-term nominal interest rates are near zero. For example, FOMC postmeeting statements have included forward policy guidance since December 2008, and the most recent statements have reflected the FOMC’s anticipation that exceptionally low levels of the federal funds rate are likely to be warranted “for an extended period,” contingent on economic conditions. A step the Committee could consider, if conditions called for it, would be to modify the language of the statement in some way that indicates that the Committee expects to keep the target for the federal funds rate low for longer than markets expect. Such a change would presumably lower longer-term rates by an amount related to the revision in policy expectations. A potential drawback of using the FOMC’s statement in this way is that, at least without a more comprehensive framework in place, it may be difficult to convey the Committee’s policy intentions with sufficient precision and conditionality. The Committee will continue to actively review its communications strategy with the goal of providing as much clarity as possible about its outlook, policy objectives, and policy strategies.

Conclusion
In short, there are clearly many challenges in communicating and conducting monetary policy in a low-inflation environment, including the uncertainties associated with the use of nonconventional policy tools. Despite these challenges, the Federal Reserve remains committed to pursuing policies that promote our dual objectives of maximum employment and price stability. In particular, the FOMC is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation over time to levels consistent with our mandate. Of course, in considering possible further actions, the FOMC will take account of the potential costs and risks of nonconventional policies, and, as always, the Committee’s actions are contingent on incoming information about the economic outlook and financial conditions. ..”

 

Bernanke sees case for more Federal Reserve easing

“… Federal Reserve Chairman Ben Bernanke on Friday offered his most explicit signal yet that the U.S. central bank was set to ease monetary policy further, but provided no details on how aggressively it might act.

 

Bernanke warned a prolonged period of high unemployment could choke off the U.S. recovery and that the low level of inflation presented an uncomfortable risk of deflation, a dangerous downward slide in prices.

“There would appear — all else being equal — to be a case for further action,” Bernanke said at a conference sponsored by the Boston Federal Reserve Bank.

With overnight interest rates already close to zero, many economists expect the Fed to launch a fresh round of bond purchases, perhaps on the order of $500 billion, to push borrowing costs lower at its next policy meeting on November 2-3.

Prices for longer-dated U.S. government debt fell after Bernanke’s remarks as investors bet the Fed would be successful in generating more inflation. Stocks were mixed while the dollar briefly hit an eight-month low against the euro.

Bernanke said the central bank could bolster its economy and inflation-lifting efforts by indicating a willingness to hold interest rates low for longer than currently expected.

The Fed pushed overnight rates to zero in December 2008 and then bought $1.7 trillion in U.S. government and mortgage-linked bonds to offer more support for the economy.

 

Officials have said further asset buying, or quantitative easing, would be the course they would most likely pursue to spur a stronger recovery.

Bernanke indicated Fed policymakers were still weighing how aggressive they should be, leaving markets to guess as to the details of any operation. …”

http://finance.yahoo.com/news/Bernanke-says-sees-case-for-rb-4235164349.html?x=0&.v=3

Personal consumption expenditures price index

“…he PCE price index (PCEPI) (or PCE deflator, PCE price deflator, Implicit Price Deflator for Personal Consumption Expenditures (IPD for PCE) (by the BEA), Chain-type Price Index for Personal Consumption Expenditures (CTPIPCE) (by the FOMC )) is a United States-wide indicator of the average increase in prices for all domestic personal consumption. It is indexed to a base of 100 in 2005. Using a variety of data including U.S. Consumer Price Index and Producer Price Index prices, it is derived from the largest component of the Gross Domestic Product in the BEA’s National Income and Product Accounts, personal consumption expenditures.

The less volatile measure of the PCE price index is the core PCE price index which excludes the more volatile and seasonal food and energy prices.

In comparison to the headline United States Consumer Price Index, which uses one set of expenditure weights for several years, this index uses a Fisher Price Index, which uses expenditure data from both the current period and the preceding period. Also, the PCEPI uses a chained index which compares one quarter’s price to the last quarter’s instead of choosing a fixed base. This price index method assumes that the consumer has made allowances for changes in relative prices. That is to say, they have substituted from goods whose prices are rising to goods whose prices are stable or falling.

The PCE rises about one-third percent less than the CPI, a trend that dates back to 1992. This may be due to the failure of CPI to take into account substitution. Alternatively, an unpublished report on this difference by the BLS suggests that most of it is from different ways of calculating hospital expenses and airfares.[1] …”

http://en.wikipedia.org/wiki/Personal_consumption_expenditures_price_index

 

 

Black Swan Theory

“…The Black Swan Theory or “Theory of Black Swan Events” was developed by Nassim Nicholas Taleb to explain: 1) the disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology, 2) the non-computability of the probability of the consequential rare events using scientific methods (owing to their very nature of small probabilities) and 3) the psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs. Unlike the earlier philosophical “black swan problem”, the “Black Swan Theory” (capitalized) refers only to unexpected events of large magnitude and consequence and their dominant role in history. Such events, considered extreme outliers, collectively play vastly larger roles than regular occurrences.

Black Swan Events were characterized by Nassim Nicholas Taleb in his 2007 book (revised and completed in 2010), The Black Swan. Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as “black swans” — undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War I, and the September 11 attacks as examples of Black Swan Events.

The term black swan was a Latin expression — its oldest known reference comes from the poet Juvenal’s characterization of something being “rara avis in terris nigroque simillima cygno” (6.165).[1] In English, this Latin phrase means “a rare bird in the lands, and very like a black swan.” When the phrase was coined, the black swan was presumed not to exist. The importance of the simile lies in its analogy to the fragility of any system of thought. A set of conclusions is potentially undone once any of its fundamental postulates is disproven. In this case, the observation of a single black swan would be the undoing of the phrase’s underlying logic, as well as any reasoning that followed from that underlying logic.

Juvenal’s phrase was a common expression in 16th century London as a statement of impossibility. The London expression derives from the Old World presumption that all swans must be white because all historical records of swans reported that they had white feathers.[2] In that context, a black swan was impossible or at least nonexistent. After a Dutch expedition led by explorer Willem de Vlamingh on the Swan River in 1697, discovered black swans in Western Australia[3], the term metamorphosed to connote that a perceived impossibility might later be disproven. Taleb notes that in the 19th century John Stuart Mill used the black swan logical fallacy as a new term to identify falsification.

Specifically, Taleb asserts[4] in the New York Times:

What we call here a Black Swan (and capitalize it) is an event with the following three attributes.

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explains almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives.

Coping with black swan events

The main idea in Taleb’s book is not to attempt to predict Black Swan Events, but to build robustness against negative ones that occur and being able to exploit positive ones. Taleb contends that banks and trading firms are very vulnerable to hazardous Black Swan Events and are exposed to losses beyond that predicted by their defective models.

Taleb states that a Black Swan Event depends on the observer—using a simple example, what may be a Black Swan surprise for a turkey is not a Black Swan surprise for its butcher—hence the objective should be to “avoid being the turkey” by identifying areas of vulnerability in order to “turn the Black Swans white”.

Identifying a black swan event

Based on the author’s criteria:

  1. The event is a surprise (to the observer).
  2. The event has a major impact.
  3. After the fact, the event is rationalized by hindsight, as if it had been expected.

Taleb’s ten principles for a black swan robust world

Taleb enumerates ten principles for building systems that are robust to Black Swan Events:[10]

  1. What is fragile should break early while it is still small. Nothing should ever become Too Big to Fail.
  2. No socialisation of losses and privatisation of gains.
  3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
  4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
  5. Counter-balance complexity with simplicity.
  6. Do not give children sticks of dynamite, even if they come with a warning.
  7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
  8. Do not give an addict more drugs if he has withdrawal pains.
  9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
  10. Make an omelette with the broken eggs.

In addition to these ten principles, Taleb also recommends employing both physical and functional redundancy in the design of systems. These two steps can be found in the principles of resilience architecting. (Reference: Jackson, S. Architecting Resilient Systems: John Wiley & Sons. Hoboken, NJ: 2010.)

http://en.wikipedia.org/wiki/Black_swan_theory

Federal Reserve System: Purposes and Functions

http://www.federalreserve.gov/pf/pdf/pf_complete.pdf

 

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Posted on January 22, 2010. Filed under: Blogroll, Communications, Computers, Economics, Fiscal Policy, history, Law, liberty, Life, Links, media, Monetary Policy, People, Philosophy, Politics, Rants, Raves, Regulations, Video, War, Wisdom | Tags: , , , , |

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BEN-TRAITOR-BERNANKE CONFIRMATION IN DOUBT?

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http://www.youtube.com/watch?v=7cGpbwKKkwQ

 

Gregg Sees Votes in Senate to Defeat Bernanke Filibuster: Video

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Throw the progressive radical socialists of both the Democratic and Republican parties out of office.

Then end the Federal Reserve System.

No Fed.

 No Fed Chairman.

No Bank Cartel.

No Interventionism.

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Ban Bailouts–Stop Inflation Now (SIN)–Stop Socialism of Losses!

The United States is Broke!–Chapter 11 Bankruptcy Time For GM and Ford Is Now!

The Sovereign Wealth Fund Threat: Are Chinese Communists Behind Rush In Passing Bailout Bill?

Pelosi’s Porky Pigout Poison Package–Economy Wrecker and Job Destroyer–Have A Blue Christmas 2009!

 

Depressions and Recessions

President Barack Obama’s Role Model–President Franklin D. Roosevelt–The Worse President For The U.S. and World Economies and The American People–With The Same Results–High Unemployment Rates–Over 25 Million American Citizens Seeking Full Time Jobs Today–Worse Than The Over 13 Million Seeking Jobs During The Worse of The Great Depression!

The Great Depression and the Current Recession–Robert Higgs–Videos

Official Unemployment Rate Hits 10.2%–15,700,000 Unemployed American Citizens–Real Unemployment Rate Hits 17.5%– 26,950,000 Americans Seeking Full Time Jobs–Obama Depression Worse Than Great Depression

The Great Depression–Videos

The Obama Depression Continues–Official Unemployment Hits Rate 9.8% (15,142,000 Seek Full Time Job) and Real Unemployment Rate Hits 17.0% (26,181,000 Seek Full Time Job)!

The Obama Depression Has Arrived: 15,000,000 to 25,000,000 Unemployed Americans–Stimulus Package and Bailouts A Failure–400,000 Leave Labor Force In July!

Banking Cartel’s Public Relations Campaign Continues:Federal Reserve Chairman Ben Bernanke On The Record

The Big Economic Picture–Some Perspectives–Videos

United States Economic Depressions–The Good, The Bad, and The Ugly–Obama’s Depression–Over 15,000,000 Americans Seek Full Time Job!

The Triumph of Capitalism and The Power of Consumer Sovereignty Over Massive Government Failure–Bankruptcy of General Motors–Now Government Motors! 

BO’s Raw Deal: Obama’s Two Year Recession and Two Year Hyperinflation–Hopeless & Small Change!

It Is Official–The U.S. Economy Has Been In A Recession for 11 Months and Continuing!

Recession–Recession–Recession–Scaring People–Have A Hot Dog!

Rush Limbaugh: Obama is Destroying the Economy!–Videos

 

Employment and Unemployment

President Barack Obama’s Role Model–President Franklin D. Roosevelt–The Worse President For The U.S. and World Economies and The American People–With The Same Results–High Unemployment Rates–Over 25 Million American Citizens Seeking Full Time Jobs Today–Worse Than The Over 13 Million Seeking Jobs During The Worse of The Great Depression!

The Great Depression and the Current Recession–Robert Higgs–Videos

Official Unemployment Rate Hits 10.2%–15,700,000 Unemployed American Citizens–Real Unemployment Rate Hits 17.5%– 26,950,000 Americans Seeking Full Time Jobs–Obama Depression Worse Than Great Depression

Rose Colored Glasses:The Economy Is Recovering–Where Are The Jobs? When Will Inflation Hit? 2012–Election Year!

The Battle For The World Economy–Videos

American Citizens Want Jobs and Criminal Alien Removal, Not Criminal Alien Census and Health Care!

The Obama Depression Continues–Official Unemployment Hits Rate 9.8% (15,142,000 Seek Full Time Job) and Real Unemployment Rate Hits 17.0% (26,181,000 Seek Full Time Job)!

Broom Budget Busting Bums: Replace The Entire Congress–Tea Party Express and Patriots–United We Stand!

The Obama Depression Has Arrived: 15,000,000 to 25,000,000 Unemployed Americans–Stimulus Package and Bailouts A Failure–400,000 Leave Labor Force In July!

Banking Cartel’s Public Relations Campaign Continues:Federal Reserve Chairman Ben Bernanke On The Record

Bureau of Labor Statistics–Selected Tables on Labor Force Statistics from the Current Population Survey

Job Creating Businesses and CIT–Videos

President Barack Obama Beats It–President Franklin Roosevelt Record–Worse Unemployment Numbers Since 1933–14,700,000 Unemployed Americans Greater than 13,000,000 in 1933!

The Obama Depression (OD) Starts July 4, 2009–30 Million Americans March To Tea Parties In Washington D.C. and Over 1,000 Cities and Towns Across America!

United States Economic Depressions–The Good, The Bad, and The Ugly–Obama’s Depression–Over 15,000,000 Americans Seek Full Time Job!

Bad Government Intervention Requires Bad Government Bank-The Road Map Out Of The World Economic Crisis–Stabilize–Stimulate–Strengthen–Simultaneously! 

BO’s Raw Deal: Obama’s Two Year Recession and Two Year Hyperinflation–Hopeless & Small Change!

It Is Official–The U.S. Economy Has Been In A Recession for 11 Months and Continuing!

Recession–Recession–Recession–Scaring People–Have A Hot Dog!

Wealth, Income and Job Creation: Let A 1000 Microsofts Bloom

Bill Gates–Hope, Change and Rapid Affluence Development–Creative Capitalism!

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Mark-To-Market Accounting Rules Driving Banks To Bailouts–Change The Rules–Fed Chair Bernanke Explains!–Videos

Posted on March 23, 2009. Filed under: Blogroll, Economics, Investments, Regulations, Video | Tags: , , , , , , , , , , , , |

Peter Schiff Vlog Report 02 Apr 2009

FASB Relaxes Mark-to-Market Rules

 

CNBC’s Mark Haines On Job Loss & Mark-To-Market (HQ)

 

Dissenting View on FASB Mark to Market

 

Today in Washington – Mark-to-Market Hearing – Bloomberg

 

Future of Banking: Credit Crunch, Marking to Market impact. Sub-Prime Crisis – What next after global market chaos and share price collapse? Suspension of Mark to Market Rule.

 

 

Kudlow-McTeer on Mark-to-Market 

 

Mark-to-Market Acounting – Steve Forbes

 

Newt Ginrich: How to dramatically improve the Market Crisis.

 

Bailout Fraud EXPOSED!! Legalizing Book Cooking!!

 

FASB Eases Mark-to-Market Rules

By KARA SCANNELL

“…U.S. accounting rule makers made it easier for banks to limit losses, but in an unexpected move they bowed to critics and backtracked on one proposal that would have let companies ignore market prices in some cases.

The vote by the Financial Accounting Standards Board followed a debate in which members of Congress pushed for steps to help banks weighed down by troubled assets, while some investor groups warned that the plans would allow executives to cover up losses. The rules change spurred Thursday’s stock-market rally.

For the most part, the board ratified proposals it had put out for comment two weeks earlier, including changes that would lessen the need for banks to take an earnings hit when assets run into trouble. Financial stocks led the market up in the morning on the expectation that the rules would be approved, but faded and ended roughly on a par with the broader market. …” 

http://online.wsj.com/article/SB123867739560682309.html

 Everybody favors a mark-to-market accounting rule when there is an active market for a security or investment.

The problem with the  mark-to-market accounting standard is there are times when there is not an active market or even no market for a security or investment for a period of time.

How do you value a security or investment when this is the case?

How does  a bank or financial institution mark-to-market when an active market does not exist and there are only a few or no buyers for a security?

I favor changing the accounting rules or standards regarding the mark-to market rule to-reflect that there is actually no market for some assets when you are in a financial crisis.

When there is no market for a security or asset in your investment portfolio, a bank may be forced to raise capital to reflect the fact that one or more assets on their balance sheet has fallen significantly in value when it tries to apply the mark-to-market rule.

When a bank plans to hold an investment to maturity, then it makes no sense to force a bank to mark-to-market an asset that the bank does not intend to sell at liquidation prices or fire-sale prices.

Rumors are flying that the Treasury and the Federal Reserve in conjunction with the Financial Accounting Standards Board will stop forcing companies to mark-to-market those investments they intend to hold to maturity and are/or are receiving a money or income stream from.

Nine minutes into the video below Fed Chairman Ben Bernake speaks to the issue and gives some hints
as to what is going on:

Bernanke Speaks on Economy (Part 2) – Bloomberg

 

Fair Value Accounting: Hero or Villain?

Bernanke 2: Capitalism broadly construed has been enormous success, Mark-To-Market

 

Alfred M. King, Vice Chairman, Marshall & Stevens, Inc

 

Responding to pressure applied by lawmakers on Capitol Hill, the Financial Accounting Standards Board on Thursday voted unanimously to give auditors more flexibility in valuing illiquid mortgage assets that may have long-term value.

The new guidance, which is expected to boost bank operating profits when they report first quarter results later this month, alters so called mark-to-market rules, which have required banks and other corporations to assign a value to an asset, such as mortgage securities, credit-card debt or student-loan investments, based on the current market price for either the security or a similar asset.
Banks have complained that they have viable assets with strong cash flows that can’t be sold because there is no market for them.
Seeking to resolve this situation, FASB’s new guidance allows banks and their auditors to use “significant judgment” when valuing the illiquid assets such as mortgage securities.  …”

http://www.marketwatch.com/news/story/FASB-approves-more-mark-market/story.aspx?guid=%7B33F70684-4207-4EDD-B7C3-1B82B7A7F6B6%7D

Fmarket flexibility ASB approves more mark-to-Panel passes measure unanimously; measure could boost bank profit

By Ronald D. Orol, MarketWatch
“…Responding to pressure applied by lawmakers on Capitol Hill, the Financial Accounting Standards Board on Thursday voted unanimously to give auditors more flexibility in valuing illiquid mortgage assets that may have long-term value.

The new guidance, which is expected to boost bank operating profits when they report first quarter results later this month, alters so called mark-to-market rules, which have required banks and other corporations to assign a value to an asset, such as mortgage securities, credit-card debt or student-loan investments, based on the current market price for either the security or a similar asset.
Banks have complained that they have viable assets with strong cash flows that can’t be sold because there is no market for them.
Seeking to resolve this situation, FASB’s new guidance allows banks and their auditors to use “significant judgment” when valuing the illiquid assets such as mortgage securities. …”
 

Mark to market

Robert Herz, chairman of the Financial Accounting Standards Board (FASB), noted that he has been a long-time advocate of mark-to-market, or fair value, accounting, but that the approach works a lot better with markets that give off strong and clear price signals. …”

 

Mark-to-Market Debate: The Banking System

 

Mark-to-Market Debate: Bank write-down

 

Brian Westbury on “Mark to Market”

 

Special Report Mark To Market

http://www.youtube.com/watch?v=GL5s1Q7OxlY

 

Mark-to-Market Accounting

Warren Buffet on Mark-to-Market

 

Why did the political elites wait so long to address this issue?

This should have been done in September 2008 if not much earlier.

A recessions was needed to guarantee the election of candidate Obama.

Economists should not be intimated by accountants.

Presidents should not be intimated by either economists or accountants.

Get on with it people and show some leadership.

Delay is hurting tens of millions of people around the world that are currently unemployed.

Stop all the nonsense about bonuses for AIG people.

Congress and the President are looking more and more like dilitents and incompetents.

A worldwide recessions largely caused by an accounting rule.

Unbelievable! 

 

Background Articles and Videos

FASB Eases Mark-to-Market Rules

Bernanke Speaks on Economy (Part 1) – Bloomberg

US FASB says to discuss mark-to-market Monday

 

FASB/ (UPDATE 1):UPDATE 1-US FASB says to discuss mark-to-market Monday

“…The Financial Accounting Standards Board, which sets U.S. accounting rules, will discuss mark-to-market accounting guidance at its board meeting Monday, according to its website.

The board says it will discuss “additional application guidance” that would clarify how mark to market is used in illiquid markets, according to the website.

U.S. lawmakers told FASB Chairman Robert Herz on Thursday to deliver new guidance on mark-to-market accounting within three weeks, or face legislation changing the rule that has forced banks to write down billions of dollars in assets. …”

http://www.forbes.com/feeds/reuters/2009/03/13/2009-03-13T224940Z_01_N13459943_RTRIDST_0_FASB-UPDATE-1.html

Ed Yingling on CNBC

 

FASB to discuss mark-to-market accounting rule changes on Monday

March 14, 2009 by Bank REO

“…U.S. lawmakers told FASB Chairman Robert Herz on Thursday to deliver new guidance on mark-to-market accounting within three weeks, or face legislation changing the rule that has forced banks to write down billions of dollars in assets.

The rules, also known as fair value accounting, were aimed at giving investors an accurate view of financial companies’ books, but some banks and investors have blamed the rules for accelerating the financial crisis.

The board also said it will discuss “how best to present” other-than-temporary impairments, which affect how companies write down assets that have suddenly declined in value.

The American Bankers Association has urged FASB and U.S. regulators to look at clarifying impairment rules.

The U.S. Securities and Exchange Commission and FASB oppose suspension or elimination of the rule, saying that such a move would hurt the quality and transparency of financial reporting and further diminish investor confidence in the capital markets.

Last year, the SEC and FASB released guidance saying the financial industry did not need to mark down values of hard-to-value assets to fire-sale prices, saying the “fair value” of these assets should reflect orderly transactions.

However, in the past few months, FASB has been criticized for the “pro-cyclical” effects of mark-to-market accounting, which some claim led to a downward spiral where bank assets valued at market prices had to be written down, causing markets to freeze up and leading to more write-downs.

FASB had said last month that it had started two projects to further improve fair value accounting in illiquid markets and that it hoped to complete the work by the end of the second quarter. FASB also said it has plans to work with the London-based International Accounting Standards Board on a broad review of impairment rules. …”

 

“…CPA’s continued to struggle with asset valuation. What is fair? What is conservative? Enter Enron. Inside accountants at Enron recognized correctly that valuing assets at cost was often invalid, so they started playing fast and loose with asset values, using something called mark-to-model. A sharp CPA could design a believable computer model that could make the value come out wherever his boss wanted it to be. He could also convince outside auditors and regulators of the soundness of his model.  Embarrassed that they had been caught looking the other way, FASB (Financial Accounting Standards Board) passed rule 157 that requires assets to be marked to market. Asset valuation based on the optimism of its owner was replaced with the skepticism of a risk-averse buyer. Sounds nice and conservative.

 

Enter the law of unintended consequences.

 

Suspending the mark-to-market rule would allow banks and accountants to revalue their assets based on more sound criteria than the euphoria or panic that pervades the floor of the New York Stock Exchange minute-by-minute. Sub-prime mortgages will likely have much higher values if considered in a longer-term perspective — such as hold-to-maturity. I believe that the vast majority of mortgages will perform in the long term.

 

Presto. Up goes assets; up goes capital; banks can make loans again. Cash infusions may still be required, but this will buy us enough time to seriously examine what steps need to be taken to get runaways like Fannie and Freddie under control, how to renegotiate rates with distressed borrowers who really can handle a mortgage, and how to keep this from happening again. Can this be done? If we can approve 700 billion, surely we can do this and keep our money.”

http://www.bankreorealestate.com/policy-news/fasb-to-discuss-mark-to-market-accounting-rule-changes-on-monday.html

 

The Trillion-Dollar Question: Are the Bookkeepers At It Again?

By Jim H. Ainsworth

 “…Why should America attempt an expensive, controversial, and possibly ineffective bailout strategy for the current financial crisis when a virtually costless and simpler change could solve much of the problem?

We accountants don’t like publicity. Fortunately, we don’t get much. Most of the public remembers Enron, but fewer remember Arthur-Andersen, the big accounting firm that went down with them. Questionable accounting was a big part of the reason for Enron’s failure. I think accountants may be behind the scenes again in the current financial crisis. Are there any of us bean counters in those meetings? If there are, my bet is that they are sitting on their hands and keeping their mouths shut even though they might know about a much better (and cheaper) solution. Accountants, after all, don’t talk much; and they don’t like to admit errors.

 

Pouring 700 billion of our money into failing financial institutions seems akin to throwing spaghetti against the wall. Keep throwing until something sticks. They tell us that credit will dry up if we don’t inject cash. No credit would be disastrous for the economy, but they have not explained well enough why the banks have failed so suddenly and drastically that emergency room surgery is required. Knowing why would help us poor taxpayers feel better about how the problem should be solved. Ever wonder how many other bank failures are out there waiting behind the curtain to take their bows? Are we going to throw even more money at them too?

 

Should we consider a solution that requires no money, or at least a lot less? Here’s one. Have the SEC suspend the accounting rule called mark-to-market. By a relatively simple accounting adjustment, troubled banks’ assets and capital could be increased and credit kept available. Accounting purists, cover your ears. Eyes glaze and minds wander when I say balance sheet, so let’s use the acronym BS, a more appropriate description. BS’s have two sides: assets on the left, liabilities and capital on the right. Banks are required to maintain certain levels of capital (the difference between assets and liabilities) in order to make loans. When assets shrink, capital shrinks. When the ratio of capital to assets drops to a certain level, (think ten-to-one), banks are not allowed to make loans. And if it drops too low, they can be classified as insolvent. This can happen overnight, and it did.

http://www.americanthinker.com/2008/09/the_trilliondollar_question_ar.html 

Mark-to-market accounting

“Mark-to-market or fair value accounting refers to the accounting standards of assigning a value to a position held in a financial instrument based on the current fair market price for the instrument or similar instruments. Fair value accounting has been a part of US Generally Accepted Accounting Principles (GAAP) since the early 1990s. The use of fair value measurements has increased steadily over the past decade, primarily in response to investor demand for relevant and timely financial statements that will aid in making better informed decisions. …”

History and development

The practice of mark to market as an accounting device first developed among traders on futures exchanges in the 20th century. It was not until the 1980s that the practice spread to big banks and corporations far from the traditional exchange trading pits, and beginning in the 1990s, mark-to-market accounting began to give rise to scandals.

To understand the original practice, consider that a futures trader, when taking a position, deposits money with the exchange, called a “margin”. This is intended to protect the exchange against loss. At the end of every trading day, the contract is marked to its present market value. If the trader is on the winning side of a deal, his contract has increased in value that day, and the exchange pays this profit into his account. On the other hand, if the market price of his contract has declined, the exchange charges his account that holds the deposited margin. If the balance of this accounts falls below the deposit required to maintain the position, the trader must immediately pay additional margin into the account to maintain his position. As an example, the Chicago Mercantile Exchange, taking the process one step further, marks positions to market twice a day, at 10:00 am and 2:00 pm.[1]

Over-the-counter (OTC) derivatives on the other hand are formula-based financial contracts between buyers and sellers, and are not traded on exchanges, so their market prices are not established by any active, regulated market trading. Market values are, therefore, not objectively determined or readily available (purchasers of derivative contracts are customarily furnished computer programs which compute market values based upon data input from the active markets and the provided formulae). During their early development, OTC derivatives such as interest rate swaps were not marked to market frequently. Deals were monitored on a quarterly or annual basis, when gains or losses would be acknowledged or payments exchanged.

As the practice of marking to market caught on in corporations and banks, some of them seem to have discovered that this was a tempting way to commit accounting fraud, especially when the market price could not be objectively determined (because there was no real day-to-day market available or the asset value was derived from other traded commodities, such as crude oil futures), so assets were being ‘marked to model’ in a hypothetical or synthetic manner using estimated valuations derived from financial modeling, and sometimes marked in a manipulative way to achieve spurious valuations. See Enron and the Enron scandal.

Internal Revenue Code Section 475 contains the mark to market accounting method rule for taxation. Section 475 provides that qualified securities dealers that elect mark to market treatment shall recognize gain or loss as if the property were sold for its fair market value on the last business day of the year, and any gain or loss shall be taken into account in that year. The section also provides that dealers in commodities can elect mark to market treatment for any commodity (or their derivatives) which is actively traded (i.e., for which there is an established financial market that provides a reasonable basis to determine fair market value by disseminating price quotes from broker/dealers or actual prices from recent transactions). …”

http://en.wikipedia.org/wiki/Mark-to-market

 

FASB Chairman Robert H. Herz Testifies on Mark-to-Market Accounting

“…Addressing misconceptions that mark to market is a broadly applied rule, Herz explained that so called “mark to market” accounting generally only applies to trading accounts and derivatives that don’t qualify as hedges. Additionally, Herz clarified that the use of fair value for measurement depends on both the nature of a financial asset and its intended use by an institution. Herz added that current financial reporting in the U.S. and elsewhere across the world included the use of both fair value and historical cost.

In response to the current challenging market conditions and feedback from a wide array of investors and constituents—including the SEC—the FASB recently announced projects intended to improve the application guidance used to determine fair values as well as improving disclosures in financial reports. (http://www.fasb.org/news/nr021809.shtml). Earlier in the crisis, the FASB and SEC jointly issued new guidance on the application of fair value in illiquid markets. (http://www.fasb.org/news/2008-FairValue.pdf).

“The fact that fair value measures have been difficult to determine for some illiquid instruments is not a cause of current problems but rather a symptom of the many problems that have contributed to the global crisis—including lax and fraudulent lending, excess leverage, the creation of complex and risky investments through securitization and derivatives, the global distribution of such investments across rapidly growing unregulated and opaque markets lacking a proper infrastructure for clearing mechanisms and price discovery, faulty ratings, and the absence of appropriate risk management and valuation processes at many financial institutions,” Herz said.

http://www.fasb.org/news/nr031209.shtml

 

Mark-to-Market: The Bogeyman of the 1930s Is Back

By Mark Sunshine

“I wonder how many people realize that FDR got rid of mark-to-market accounting in 1938 after it virtually destroyed the banking sector. According to Brian Wesbury and Robert Stein, mark-to-market accounting was the law of the land for most of the Great Depression until it was outlawed by FDR in 1938. Wesbury and Stein report that the rationale for mark-to-market accounting in the 1930s seems similar to today’s argument for the rule: the need for greater price transparency based upon the efficient markets hypothesis in the banking sector.

FDR rejected the arguments of the efficient markets crowd because he thought that mark-to-market accounting contributed to the Great Depression. For approximately 70 years after FDR’s decision, banks operated without mark-to-market accounting and the economy didn’t have the threat of another depression. Years later Milton Friedman wrote that mark-to-market accounting was responsible for the avoidable failure of many banks in the 1930s. Maybe it is just coincidence, but immediately after mark-to-market accounting was restored in 2007 the banking sector started into a death spiral. Unfortunately, even though history seems to be repeating itself, few people are trying to learn from the past. Even so, today’s Congressional hearings on mark-to-market accounting are hopefully the first step towards stopping this terrible man-made economic disaster. …”

 http://seekingalpha.com/article/125914-mark-to-market-the-bogeyman-of-the-1930s-is-back

 

Gibbs on Geithner: “Uhhhh….uhhhh…uhhh”

By Michelle Malkin  

Mark-to-Market Rules – Worsening the Credit Crisis?

“Despite the fact that the majority of MBS owned by banks are not in default, the fair market value for them is very low.  Why?  The market is illiquid, no one is buying them.  The spread between the bid and the ask is too large—and mark-to-market values assets based on the bid.

Normally, it would be fair for banks to value securities at the price they are fetching on the open market.  But these aren’t normal times, and most Banks argue that the value of the securities they are holding is actually much higher than their current market value.  Meanwhile, the value of bank balance sheets are plummeting—forcing them to write-down losses and seek outside funds to maintain required capital ratios. European regulators suspended mark-to-market accounting in early October, 2008.

Proponents of mark-to-market accounting argue that the rule helps prevent banks from understating the gravity of their situations.  Investors and creditors have the right to know the true value of publicly-traded companies.  Says Dane Mott, Analyst with JPMorgan Chase:  “Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick.”

This is a great analogy, but to what extent should you believe the doctor?  In the current situation it could be said that using mark-to-market accounting on mortgage backed securities is like the doctor telling you that you have brain cancer when in fact you are just suffering from stress-related headaches. I am keen to hear your views! …”

 

http://michellemalkin.com/2009/03/20/gibbs-on-geithner-uhhhhuhhhhuhhh/

 

The David Copperfield School of Economic Recovery

By Michelle Malkin  

“…The Federal Reserve performed another empty magic trick yesterday to the tune of $1 trillion.

While the Kabuki Theater of AIG outrage played out in Washington, the Fed was pulling its David Copperfield School of Economic Recovery routine. They’ll be printing up a trillion buck and “pumping it into the U.S. economy”…by buying up bonds and mortgage securities…sold and backed by the government. Voila:

The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The illusion melts: …”

http://michellemalkin.com/2009/03/19/the-david-copperfield-school-of-economic-recovery/

The David Copperfield School of Economic Recovery, Pt. II

By Michelle Malkin  

Now what?

Last week, the Obama administration brought us a $1 trillion Federal Reserve magic trick hatched by the David Copperfield School of Economic Recovery — printing up a trillion bucks and “pumping it into the U.S. economy”…by buying up bonds and mortgage securities…sold and backed by the government.

Today, hapless, truth-challenged tax cheat Treasury Secretary Tim Geithner officially unveils another $1 trillion magic trick. Instead of letting failed banks fail, we’ll have another desperately massive and massively desperate attempt to prop them up through a “public private partnership investment program.” Eager to get the still-unfolding Bonus-gate behind them (see “Geithner Aides Worked With AIG for Months on Bonuses” and “AIG paid over $218 million in bonus payments”), Team Obama leaked details of the plan over the weekend. World stock markets were up this morning, full of audaciously blind hope.

Geithner ’s WSJ op-ed this morning lays out some of the details he failed to deliver when he first unveiled his non-plan plan a month ago: …”

http://michellemalkin.com/2009/03/23/the-david-copperfield-school-of-economic-recovery-pt-ii/

 

Mark-to-Market Debate: Mark to Market Accounting Definitions

 

Mark-to-Market Debate: Difference between Mark to Market accounting and Fair Value Accounting

 

Mark-to-Market Debate: Fair Value Defined

 

Mark-to-Market Debate: Volatile Markets

 

Mark-to-Market Debate: Models in Accounting

 

Mark-to-Market Debate: What is OTTI?

 

Mark-to-Market Debate: Better than Mark-to-Market?

 

 

ENRON Created Mark To Market Book Cooking!

 

Mark to market

 

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