[Marxism] Accounting change proposal (Was: Karl Marx vs the crisis-deniers ...)

[Marvin Gandall]

Steve Palmer writes:

> Interesting example of this kind of fetishism: the argument over the
> accounting rules, fix incorporated in the handout bill:
>
> http://www.nytimes.com/2008/10/01/business/01audit.html?ref=business
>
> “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.”
>
> Price is the big issue here and determines how badly we get swindled. I
> was worried we'd only be allowed to donate $700bn to the banks, but the
> Republican insurance plan would up that considerably to perhaps $2trn if
> it gets drawn dawn. Watch for financial arson as some of these financial
> institutions inflate their values and then get their buds to torch them by
> calling in loans, precipitating their collapse
===============================
It's not an "insurance plan". It's a proposed accounting change - one
designed to deflate the value of bank losses on mortgage-backed securities.
If the banks are allowed to use their own models, which is what they're
pushing for, they would value their assets as being worth more than they
really are - more than, say, the 22 cents on the dollar Merrill Lynch got on
its MBS's when it sold them to a private equity firm, which is widely being
used as the unofficial market price.

The change would mean the banks wouldn't have to markdown their assets as
drastically as their accountants, interpreting the SEC rule concerning
so-called fair-value accounting, have required them to do. Why would the
banks want to do this? Because the markdowns have sparked investor runs
against the banks and threatened some with insolvency, forcing all of them
to raise more capital through borrowings, forced asset sales, and the
dilution of existing shareholdings.

The conservative Republicans have been pushing for this accounting
sleight-of-hand because they are both ideologically opposed to the
government committing itself to expenditures of this magnitude, even to a
fraction of the ruling class, and because they are feeling populist
anti-banker heat from their constituents in this election year.

They argue that by moving away from mark-to-market accounting, the banks
will be able to disguise the extent of the losses on their balance sheets,
and this will presumably obviate the need for the Treasury to set aside as
much as 700b. to buy up the toxic securities.

Accountant, investor, and consumer groups are against the change precisely
because it would disguise the true extent of the losses.

I'm not sure it matters that much in terms of the proposed legislation
anyway. Even if the lower mark-to-market measure is still used to value
these assets, Bernanke and Paulson have already told Congress they will pay
more for these securities - closer to so-called "mark-to-maturity" prices.
It's likely the strong cash-rich banks, who will be included in the "rescue"
plan, will sweep up their securities at a lower price than they received for
them when the government eventually dumps them back onto the market.

Quite a scam, maybe shaping up to be the biggest example of a
state-sponsored corporate welfare scheme in history.