Friday, April third was the day that the Financial Accounting Standards Board (FASB) announced the modification of its rules for assessing the value of assets held as collateral by financial institutions. Wall Street reacted to the good news by continuing its rally.
Here's the way it works: With the slump in real estate sales at inflated bubble prices, the sellers were forced to accept lower offers in order to move these "assets". In many cases the properties could not be sold for prices at or above the balances owed on them to the banks. The situation resulted in borrowers owing more on their mortgages than they could sell their homes for. As a result properties recently "valued" at $500,000.00 are now worth $300,000.00 and falling daily. Banks that had loaned $495,000.00+ on such properties were forced under the old rules (mark to market) to assign the true market value on their balance sheets causing them to be insolvent.
Under the new rules (issued two days subsequent to All Fools Day) the banks will be allowed to carry these mortgages on their balance sheets at their original (inflated) values and voilá, the problems are solved due to political pressure.
It is important to note that the Financial Accounting Standards Board made their rule modifications only after intense pressure had been applied by Washington and Wall Street....The banks and the government have argued that the assets should be valued based solely on current cash flow. Most mortgages, after all, are not delinquent. Therefore, a few bad apples should not spoil the whole cart, and those that are not yet delinquent should be valued at par. This method assumes we have no ability to look into the future and make assumptions about what is likely to happen, which is presumably what the market is already doing by valuing the assets lower than the banks wish.Pay no attention to the fact that foreclosures are accelerating exponentially and the foreclosed properties are only being liquidated at "fire sale" prices with the slack being taken up with freshly printed and borrowed bailout money.
The Marxist Messiah and his Keynesian economic advisors continue to kick the day of reckoning down the road for our grandchildren to pay for while assuring us the we can borrow, print and spend our way out of this debt crisis by creating trillions of dollars out of thin air and borrowing the rest from the Chinese.
Welcome to Zimbabwe lite.
The above pictured banknote as of this posting is roughly equivalent to 10 grams of gold.