The markets upside down
Not long ago releí the famous story of Henry Matisse box "Le Bateau". It turns out that in 1961 the picture was exhibited at the Museum of Modern Art in New York. The success was resounding: in just over a month more than 150,000 people are admired for this work. The odd thing was that the 47 days of being exposed and have seen tens of thousands of people who got rid in praise, they realized ... that had been hung upside down from the beginning. Seeing the picture is not so difficult to pass, but the matter is that thousands of people they admire something that was the opposite of what the artist had drawn.
This is what we intend to do with the SEC rules to change the revaluation of assets "under extraordinary circumstances": pretend that accounts reflect something that is the opposite of what it is.
To understand you I'm going to tell a story that closely because I lived in that year I lost all my money playing (because then I knew so little that he played, not speculation or invested) with the future of MEFF on debt to 10 years: 1994. In that year, I speak of memory, do not pretend to be an encyclopedia, which would be deducted strong decreases in rates around the world and especially in Spain reaching profitability of the bond to 10 years to just over 7% when the official rate of short - period was 8.5% ... in the case is quite the opposite happened and U.S. rates rose 6 times this year with what the Spanish 10-year debt rose to quote above the 12% of profitability. To make matters worse, at the end of that year came the scandal of the GAL and that memories of fleeing foreigners in Spain reverse differential to be our German bond greater than the 4 points (we now miss their hands at the helm for 60 pipos).
The Director General of the Treasury was then Manuel Conthe (yes, the controversy of a few months ago by the theme of Endesa and the CNMV) and was raised by late 1994 a number of savings banks could fail because of a public debt Spanish media buying throughout the year at around 9.25% and is quoted at 12%. True Spanish treasurer who then worked at a U.S. bank with a branch in Spain (and later, he was booked for Booty to manage hedge funds) gave him the idea to save the Spanish financial system: Create an investment portfolio that is the revaluaría rate and other short-term portfolio of speculation to revalue at market prices. And he did.
Automatically every position which was in losses became neutral and that short-term rates were around 9.25 this. Besides the evolution of interest rates and our approach was reduced to € increasingly those guys (in October 1998 and were below 4%) so that the same thing that could have lead to bankruptcy and simply left to die in 2004, it provided enormous benefits to banking. Simply by an accounting skill.
This time there were lucky and now the SEC intends to do something similar, eliminating the revaluation mark-to-market (that is, with market prices) for the assets and, for the time being dad FED injecting liquidity in the short term against those same roles , Reversing losses in positive results for banking. I quote from a report of a house of studies:
The Treasury, the Fed and some bankers believe that suspending this rule could lead to disguise the financial health of companies and put the seeds for the next crisis. In contrast, more than 60 lawyers have gone to the SEC asking for an immediate suspension of this rule. It is alleged that could relieve taxpayers of having to pay millions of dollars in potential losses if the banks were allowed to avoid losses on assets that once the credit crisis has passed, could have far more value.
This is like when someone buys a 10 euros, while the band can not consider that your investment is worth 10 euros even if it is to 9, but a bank or a company can not do that, you should see its loss as it accounted for what he has not worth 10, but 9. And it must provisions for an amount to cover that loss. In the end, both the individual as the company adjusted its output to sell the action, is a 5 or 15.
Clearly it is not the same public debt issued by a state that this debt "toxic" but so is so fast it would eliminate some latent losses and, what is better, having to provisions for them, thus reducing the need for liquidity. Of course, that debt if it finally leads the entire loss unpaid leave at once ...
That is the issue that sack to debate today: Using the engineer to stop the accounting abuses that led to accounting engineer in the past may be a good solution?
And finally, the usual summary of the press:
- Banesto earns 12% more and grow their margins over 10% with late payment of 1.17%
- Australia surprised by the low rates by 1% (6%) and Japan leaves them in 0.50%
- The U.S. Congress is investigating the astronomical salaries at Lehman Brothers
- The optimism has died
- The fear of default on the debt reaches to the Spanish banking
- The EU is considering to raise the money guaranteed for 100,000 euros
- Sarkozy argues that member countries are "united against the crisis'
Written by Droblo on October 7, 2008 with 250 points.
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# 1, Raul_VLC
"The arm that the ZP in the world, eh?" "(Irony)
telaaaaaaaaa go,