Thinking out loud.

It seems to me that there is some dishonesty among bankers at the moment (shocking, I know). I hear them in public interviews and televised congressional hearings talking about how they take responsibility for the crisis… how it was their fault… on and on. Then I pick up the Journal of Accountancy or CFO Magazine and all I see are articles about how the true problem is the fair-value accounting rules. Seems to be a consistency issue here.

Fair-value accounting rules require financial companies to record the value of certain securities (like the “toxic assets” we hear so much about) on their books at their current market value. Seems straight-forward enough, except the accounting standards setters think this means the price a third party would pay whereas the bankers feel this is the price managers and regulators would like them to get for them. I think you can see the gap between these two stances. So really the question is, are the bankers being treated unfairly because the accountants make them take losses to write down these assets to “fair market value” when (the bankers claim) from a long term perspective they are actually worth much more?

Well if you put lipstick on a pig, is it still a pig? Also, wasn’t it the bankers perspective on pricing these assets that got us in this mess in the first f$#%ing place?

I may not be the brightest accountant on the block, but I think I have a handle on this one. When I was in third grade and wanted to trade Bo Jackson’s rookie card to the flea market, the Beckett price guide said it was worth $5. However, the man at the flea market only offered me a $1.50 on trade. I was outraged… then my father explained to me a simple concept I would call FAIR MARKET VALUE.

“The card, just like anything else, is worth exactly what someone will pay for it” he told me. How the hell can you argue with that? The price guide could say it was worth $10,000… still gonna get that whopping $1.50 for it.

So to you whiny excuses for businessmen (and yes it is men I see doing all of the whining)… THE VALUE OF THOSE ASSETS IS EXACTLY WHAT SOMEONE WILL PAY FOR THEM. If no one will pay any money for them, that means the value is (you guessed it)… ZERO! This is not complicated to understand, yet you would think it is given the fact that legislators ARE ACTUALLY GOING FOR IT. So to all of the financial-genius lawyers in congress who think that letting banks assign values to these assets out of thin air (and who are asking the standard setters to make that possible) will make the economic problems go away… GUESS WHAT, IT WON’T. In fact, pricing outside of reality was the whole problem in the first place.

That brings me to my final quandary on this topic before I move on to my next rant… if fair value is higher than what someone will pay for these assets and the value is therefore written up on the bank’s books, where does this money actually come from? It clearly is not cash that can be loaned out to generate additional revenue is it? If it is in fact just “vapor money” (fake money written on a piece of paper somewhere) how does that help the bank stay solvent?

Quit playing accounting games and go to work on solving the damn problem please. The alternative is to go ahead and go bankrupt which, believe me, I am also fine with. Accountants are the messenger, the voice of reason in the madness… so don’t shoot the messenger, shoot the banker.