SEC Clarification May Help Markets

Some economists are attributing much of the current financial crisis to something as mundane-seeming as accounting.

The Securities and Exchange Commission and the Financial Accounting Standards Board have just made an announcement that, dry as it sounds, may mean a great deal: "When an active market for a security does not exist, the use of management estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable."

The SEC is not telling holders of hard-hit mortgage-backed securities that they can willy-nilly slap any value on them they want.

What the SEC is saying is: You can take other factors into account when valuing them.

There is no market right now for the worthless mortgage-backed securities -- that's one of the reasons we're in this crisis. That means financial institutions that are holding them must value them well below their former value, sometimes near zero. That makes the institutions themselves worth much less.

Accounting is not something that ordinary taxpayers think about much, but it could hardly be more important to businesses: It's the value they place on what they own, what they owe and what they can sell.

An odd-sounding accounting phrase at the heart of this is something called "mark-to-market" accounting. Many think that if this requirement were ended, the crises could be eased.

Simply put, mark-to-market accounting requires companies to set the value for the assets they own at the price they could fetch on the open market right now. The prices must be "marked to market;" hence the phrase.

What does that have to do with the current crisis? The root problem now is that financial institutions have been caught holding value-less, or "toxic," assets on their books, such as the mortgage-backed securities based on sub-prime mortgages that have defaulted.

The government believes that those assets will be worth something soon -- that's why they want to buy them in the $700 billion Wall Street rescue plan. But under mark-to-market rules currently required, they are worth almost nothing, threatening those who hold them with insolvency.

If the holders could place a value on the assets equal to the estimated value they should bring in the future, suddenly the balance sheets of these financial institutions would look a lot healthier.

Today's SEC rules clarifications do not end mark-to-market accounting. But they do let the holders of these low-value "toxic assets" to use other ways to value them, which probably will lead to an increase in their value, even though that is not the SEC's intention.

If all this sounds like voodoo accounting, well, all accounting can sound that way sometimes. But remember this: Even though homeowners have defaulted on sub-prime mortgages, there is a house at the bottom of it all and that has real value.

-- Frank Ahrens

September 30, 2008; 5:03 PM ET  | Category:  business
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Comments

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That's disgusting.

Posted by: Frances | September 30, 2008 4:18 PM

So, why do we need a bailout?

Posted by: ok | September 30, 2008 4:18 PM

What about mark-to-market accounting and the whole Enron fiasco? Wasn't Enron putting a value on the future worth of its products? And look where it got them.

Posted by: Roy Ruhling | September 30, 2008 4:19 PM

Hmm...mark-to-market accounting? Where have I heard that before? Oh yes, Enron.

Posted by: Sadie | September 30, 2008 4:22 PM

Oh no why do you WP allow these idiots to write columns. They will cause more of a problem with their stupidity they profess to know.

They are idiots don't give them the time of day as it was stated above Enron tried this and look at what it got them.

Posted by: ant | September 30, 2008 4:23 PM

This sounds a little too much like the voodoo accounting that fueled the Enron crisis.

Posted by: Rachel | September 30, 2008 4:24 PM

More hogwash from the SEC: going from mark-to-market (there is no market) to mark-to-whatever-you-tell-me-its-worth accounting. In the end, an 80% loss is an 80% loss - no matter which rug you sweep it under.

Simply amazing!

SELL SELL SELL.

Posted by: Reno | September 30, 2008 4:24 PM

Ya know, sometimes you think they do it on purpose, but they're really that stupid.

Posted by: Anonymous | September 30, 2008 4:31 PM

And suddenly just before the finacial institutions unload these worthless securities on the Federal Government they can increase the value of them?

Posted by: Dan | September 30, 2008 4:31 PM

More like Mark-to-What-Number-Do-I-Need-to-Have-to-Make-My-$$$Bonus

Posted by: Nostrodamus | September 30, 2008 4:31 PM

A thing is worth whatever people will pay for it. If nobody wants to buy it, it has no value.

Posted by: cb11 | September 30, 2008 4:35 PM

So, what's the deal? If the assets really were worth nothing, why would we need to chip in considerably more than nothing (!) to buy them? And if they have value after all, and if putting that value on the books will mitigate the problem, what's the problem? Seems to me if there is a market for them (Congress was willing to buy them for 700 bil), they could be carried on the books for that amount. If not, why are we contemplating buying them for that much? Aside from stupid government tricks, I mean.

Posted by: Bill Mosby | September 30, 2008 4:39 PM

This plan was put into place last year and caused homeowners and banks many problems. Here's how it went: One house in your neighborhood on Main Street Bank's books foreclosed. They were forced to then write down YOUR home value to match. Get it? So now YOU look like an upside-down risk as well as the one guy who got foreclosed on--even though you are paying your mortgage and will continue to. By doing this AND looking at values over say, a two or three year period and averaging it all out, the banks don't show good paper as bad paper anymore and have a more realistic "paper" loan-to-value for your home. Now multiply exponentially and you can see the positive affects in liquidity for the banks. Do your homework and understand the process before you start screaming.

Posted by: cyrix1 | September 30, 2008 4:43 PM

Sounds great. Now I can value all my assets the way I want. I am much richer now.

Posted by: JOHN KLINE | September 30, 2008 4:44 PM

Attacking mark-to-market is just shooting the messenger. No business is going to trust another business' non-market-based claims regarding the worth of their toxic securities.

Posted by: godlesspriest | September 30, 2008 4:44 PM

Let me get this straight: On my next net worth statement, I'll list my home's value as what I can get for it in 20 years; what my car will be worth when it's paid off; what my western Nevada, future oceanfront property is worth when CA falls into the ocean; and what my 401K will be worth when I retire. Awesome!

This is the quality decision making coming out of the SEC? This should scare ANY serious investor as it will impossible to ascertain the true value of a security!

Get a clue, Frank.

Posted by: AustinRob | September 30, 2008 4:46 PM

Not having a market for something doesn't mean it is worthless. If no one want to buy my house today it doesn't make it worth zero. Mark-to-market says the bank holding the securities that financed my mortgage have to value those at zero today, (even though they could be worth 1 dollar or 100 dollars or 1000 dollars tomorrow).

Does anyone here even know how we got out of the Great Depression? I'm reconsidering my hatred of all things republican.

Posted by: earthman1 | September 30, 2008 4:47 PM

send them all to jail, starting with the SEC.

Posted by: free man | September 30, 2008 4:48 PM

I STRONGLY disagree with the last two paragraphs of this article. The article suggests actual houses back mortgage backed securities. No, they do not. Here is how it works. Ma and Pa take out a $100 mortgage. The bank sells their mortgage at a discount. The price is one hundred dollars principle, plus it'll earn another $250 in interest over its fifteen years. So that's $350-- but we discount for inflation and the risk of default. Maybe its worth $200. Now Ma & Pa's discounted mortgage is bundled with a thousand others, into a mortgage-backed security. Complex math determines how much these mortgages might--probably--maybe--bring in over five, ten, and fifteen years, and hence determine the market price of the security. Math so complex that in the breeze from the flap of a disappointed realtor's coat tail in California the computation collapses. If Ma and Pa default? All the interest is gone. Gone. Remember interest was by far the larger part of the money involved. And the cost of foreclosure eats into whatever equity is left, assuming you can sell their house at all after a year on the market in a development full of foreclosed houses. The security holder never gets title to their house. He might (might!) get a claim to what little money might be leftover after everybody else has grabbed their share, if that is, the security is liquidated. Buying a mortgage backed security is not buying a mortgage--its the difference between buying donuts, and buying the box the donuts come in.

Posted by: Rafaelo | September 30, 2008 4:48 PM

If "there is a house at the bottom of it all and that has real value" why not figure out what houses are at the bottom of the mess, figure out their market value and then you'll know what you have. The real problem is that once people start looking for the houses, they might discover that they don't exist. How many "toxic assets" are nothing more than paper or $350,000 mortgages on unbuilt condos?

Posted by: Brian | September 30, 2008 4:49 PM

Mr. Ahrens significantly distorts the true state of the matter, in a way that reflects numerous widely held misconceptions about the financial crisis and mark to market. Firms are not required to "mark to zero" any securities that have lost value, just because they can't find a buyer to justify their valuations. They are only required to mark down an asset when it is "permanently impaired," that is, when it becomes a fact that some or all of the mortgages underlying the security have gone into default. The reason so many institutions are having an accounting/capital crisis right now is precisely because so many securities were over-valued in the past and now, when so many firms are trying to raise capital all at once, many are having to unload these securities when the market, in a reaction to previous over-valuations, is discounting them severely.

And this discounting, it must be noted, is not entirely irrational. There is every reason to believe that housing values will have to recede further, which will bring many more mortgages into default. When that is taken into account (and every professional accountant has an obligation to take future developments into account on some level), plus the costs of foreclosure and administration of distressed properties, discounting these securities is entirely reasonable and prudent; it's not just a bookkepping accident. Nor is this "fire sale" accounting. Most of these securities were never intended to be long-term investments. They were designed to be purchased and resold quickly for big profits. Finally, I suspect many would be sellers of these securities are deliberately holding back, so they don't have to sell and book this bad paper's actual lossess, because they think the Feds will give them a deal. In other words, they're speculating in the new, all-powerful "bailout market," based on their political savvy and their ability to drive/manipulate credit markets.

In the long run, accounting tricks and federal largess won't succeeed in reflating the bubble in house prices. Statistical laws are the most grinding and ineluctable; you can't beat the law of regression to the mean. All this intervention will do is drag out the crisis, Japan style. Housing prices need to be allowed to fall to a historical norm. Everything else is just tilting at windmills and will stick the taxpayer with trillions of dollars in cronyist waste.

Posted by: Mark Haag | September 30, 2008 4:49 PM

Abandoned, boarded up, stripped of all resellable valuables (ie applicances, copper, fixtures), massively damaged structurally, infested with animals and vandalized. That is what the house providing collateral for the security may look like. And it may likely have a negative value -- needing more money just to tear it down to get at the naked value of the land. Get real. There is so much crappy real estate in this country that is worth nothing and needs to be torn down and depreciated to zero.

Or do you really believe that the golden jewels in Palm Springs are causing all the problems??

Posted by: AgentG | September 30, 2008 4:50 PM

"there is a house at the bottom" Yeah, but it's underwater, the copper been ripped out by vandals and it will cost less to knock it down and rebuild than it is to make it fit to live.

Posted by: Anonymous | September 30, 2008 4:50 PM

"Not having a market for something doesn't mean it is worthless."

If someone today will pay you $1,000 for a Rolex watch, then it is worth $1,000.

If today no one will purchase that Rolex watch at *any* price, then it is worthless.

How can an asset have value if no one values that asset?

Posted by: AustinRob | September 30, 2008 4:51 PM

A great many of the instruments have NO MORTGAGE BEHIND THEM, they are 2nd and 3rd order uberleveraged bets that are in fact worthless. Now the banks can mark up the values and say that they are transferring it at "Fair Value" to the taxpayer. Suspending MTM is a fraud that will punish responsible banks and ensure they get run over along with the bad banks. Get that endlessly cited car loan soon. We have become a financial banana republic.

Posted by: Shark 89 | September 30, 2008 4:51 PM

CONGRESS YOU NO LONGER REPRESENT WALL STREET
CONGRESS YOU NOW REPRESENT THE WILL OF THE AMERICAN PEOPLE

THIS IS THE AGENDA
CONGRESS WILL REMOVE ALL GOLDEN PARACHUTES FROM THE BILL
CONGRESS WILL ENSURE THAT THE AMERICAN PEOPLE ARE WELL PROTECTED WITHIN THE BILL
CONGRESS WILL PASS THE BILL TODAY

IF CONGRESS FAILS TO PROTECT THE AMERICAN PEOPLE, THEN CONGRESS WILL BE DESOLVED AND A NEW CONGRESS WILL BE PUT IN PLACE TO REFLECT THE WILL OF THE PEOPLE


SOMEONE EXPLAIN TO CONGRESS IN EXTREMELY SIMPLE TERMS THAT THE AMERICAN PEOPLE COME FIRST.

THE DAYS WHEN CONGRESS ACTED AS THE STOOGE OF GOP REPUBLICAN SUPER RICH WALL STREET SPECULATORS HAS COME TO AN END


THE AMERICAN PEOPLE TAKE TOP PRIORITY IN AMERICA

NO MORE GOLDEN PARACHUTES FOR EXECUTIVE CRIMINALS

GOP SUPER RICH REPUBLICAN WALL STREET CRIMINALS PREPARE FOR HANDCUFFS AND ASSETS CONFISCATION


THOSE RICH WALL STREET SPECULATING GOP REPUBLICANS WHO DROVE THE BUS INTO THE DITCH, WILL NOT BE TRUSTED TO DRIVE THE BUS OUT OF THAT DITCH.

SUPER RICH GOP REPUBLICAN WALL STREET SPECULATORS AND THEIR GOP REPUBLICAN HAND PICKED STOOGES IN THE WHITE HOUSE ADMINISTRATION, SENATE, SUPREME COURT, TREASURY, SEC AND CONGRESS TOGETHER HAVE $1 TRILLION WORTH OF THE AMERICAN PEOPLE’S ASSETS (DOMESTIC AND HIDDEN ABROAD) THAT MUST BE RETURNED TO THE CITIZENS OF THE UNITED STATES.

AMERICA WANTS ITS $1 TRILLION BACK NOW AND CRIMINAL TRIALS FOR ALL INVOLVED IN THIS CONSPIRACY AGAINST THE AMERICAN PEOPLE.

ACCOUNTABILITY AND TRANSPARENCY ARE THE NEW LAWS OF THE LAND.

TREASON AGAINST THE AMERICAN PEOPLE WILL NOT BE TOLERATED.

NO MORE GOLDEN PARACHUTES FOR EXECUTIVE CRIMINALS. GOP SUPER RICH REPUBLICAN WALL STREET CRIMINALS PREPARE FOR HANDCUFFS AND ASSETS CONFISCATION.

THOSE GOP REPUBLICAN CORPORATE EXECUTIVES WHO STOLE AND SQUANDERED AVERAGE AMERICANS’ MONEY ON HIGH RISK UNSECURED WALL STREET LAS VEGAS STYLE SPECULATIONS SHOULD NOT BE REWARDED WITH MULTIMILLION-DOLLAR COMPENSATION PACKAGES SUBSIDIZED BY THE TAXPAYERS.

THESE GOP SUPER RICH REPUBLICAN CORPORATE EXECUTIVES, SPECULATORS AND CONGRESSIONAL STOOGES SHOULD BE IN HANDCUFFS. ALL OF THEIR ASSETS SHOULD BE CONFISCATED, LIQUIDATED AND RETURNED THE TREASURY (AMERICAN PEOPLE).

LET THE TRIALS BEGIN: GOP SUPER RICH REPUBLICAN FLEECING OF AMERICA

CITIZENS OF THE UNITED STATES VERSUS GOP SUPER RICH GOP REPUBLICAN CRIMINALS

ACT QUICKLY, ACT QUICKLY, ACT QUICKLY
IS NOT THIS THE SAME THING THAT THOSE GOP REPUBLICAN CRIMINALS SAID TO START THE ILLEGAL IRAQ WAR!

LET THE TRIALS BEGIN: CITIZENS OF THE UNITED STATES VERSUS GOP SUPER RICH REPUBLICAN CRIMINALS (BUSH, CHENEY, RICE, PAULSON, MCCAIN) AND THEIR WALL STREET SUPERCAPITALIST SPECULATING FELLOW CONSPIRATOR FRIENDS

THE AMERICAN PEOPLE WILL PREVAIL

THIS GOP REPUBLICAN SUPER RICH WALL STREET MELTDOWN IS CRIMINAL MISUSE OF THE AMERICAN PEOPLE’S MONEY AT THE HIGHEST LEVEL (TREASON)

D STUDENT JOHN MCCAIN FEARS SHARING THE STAGE WITH HARVARD LAW PROFESSOR BARACK OBAMA

MOOSE COMMUNITY COLLEGE SARAH PALIN FEARS SHARING THE STAGE WITH LAW SCHOLAR JOE BIDEN

Hmmm, let's see. We have a bunch of republicans whining about wanting these CEOs to keep their fortunes, multiple houses and cars, and they want the taxpayers to bail them out. But when the taxpayer wanted help to keep THEIR homes, they were called a bunch of whiners by these SAME republicans and were given NO bailout.

Why are their oversized fortunes more important than the rest of America's modest and undersized ones?

Now, for the last time, once and for all, explain to me how Obama is the elitist and the republicans are "just like you and me." Go ahead. I triple dog dare you.

GOP REPUBLICAN WALL STREET SUPERCAPITALISM AT ITS WORST

Executive salaries, CEO bonuses, grand robberies of the U.S. TREASURY in the $MILLIONS, $BILLIONS, and $TRILLIONS.

GOP REPUBLICAN WALL STREET SUPERCAPITALISTS robbed the AMERICAN PEOPLE of a $Trillion. RULE OF LAW states that the AMERICAN PEOPLE will be protected and all private properties, money, and wealth domestic and abroad owned by GOP REPUBLICAN SUPERCAPITALISTS taking part in robbing the U.S. TREASURY (AMERICAN PEOPLE) will immediately be confiscated and returned to the U.S. TREASURY (AMERICAN PEOPLE).

REPLACE GOP REPUBLICAN CEO GOLDEN PARACHUTES WITH CRIMINAL TRIALS AND PROPERTY CONFISCATION. THE AMERICAN PEOPLE WILL PREVAIL AND THE UNITED STATES CONSTITUTION WILL BE REINSTATED. LONG LIVE FREEDOM AND JUSTICE. CORPORATE TRANSPARENCY AND ACCOUNTABILITY WILL BE THE LAW OF THE LAND.

INSIDE JOB AT THE HIGHEST LEVEL:
GOP REPUBLICAN WHITE HOUSE ILLEGAL WARS AND
WALL STREET CRIMINAL DEREGULATED SPECULATIONS

You asked for it and you got it. GOP REPUBLICANS INSIDERS McCain, Bush, Cheney, Paulson, and Rice were hired by Super-Capitalists (Super Wealthy GOP REPUBLICANS) to start Illegal Oil Wars against Oil producing Nations and DEREGULATE (eliminate AMERICAN PEOPLE PROTECTION) the FEDERAL GOVERNMENT (White House, Congress, Supreme Court), TREASURY and WALL STREET. These INSIDERS did exactly what they were paid to do. Past GOP REPUBLICANS (Nixon, Reagan, Bush I) and current GOP REPUBLICANS (Bush II, Cheney, Rice, McCain, Paulson) have a credibility factor of zero. Americans no longer believe them, the World has never believed them and now they are done. They came in with the 9/11 attack upon the AMERICAN PEOPLE and leave with the Wall Street $1Trillion attack upon the AMERICAN PEOPLE.

Wave after wave after wave the GOP REPUBLICANS attack the AMERICAN PEOPLE based on the premise of disrespect for anyone who is not a GOP RICH REPUBLICAN. Either you are in their group (GOP RICH REPUBLICAN) or out (debt ridden worker bee / victim). GOP REPUBLICANS view the AMERICAN PEOPLE as gullible sheep perpetually fattened with debt and led to the subhuman existence slaughter. When slavery (free labor) ended GOP RICH REPUBLICANS attacked and enslaved the people of the world through unbalanced trade. Now that foreign sweatshops are demanding better pay and treatment, GOP RICH REPUBLICANS are attacking the AMERICAN MIDDLE CLASS. GOP RICH REPUBLICANS are banking on the idea that the AMERICAN MIDDLE CLASS are non-thinking drones fat with artificial food, high on Wall Street sponsored imported drugs (legal / illegal), and choked with clutter, debt and noise.

Through massive GOP REPUBLICAN SPONSORED DEREGULATIONS, GOP REPUBLICAN CEOs, Treasury Secretary, Wall Street Speculators, White House Administration, Cabinet Members, and their insider friends each walked away with more than $20,000,000 annually of money stolen directly from the U.S. TREASURY (AMERICAN PEOPLE). After eight years of GRAND FRAUD AT THE HIGHEST LEVEL, thousands of GOP REPUBLICANS ROBBED OUR UNITED STATES TREASURY OF $1TRILLION (ACTS OF TREASON AGAINST THE AMERICAN PEOPLE).

The AMERICAN PEOPLE will hold ALL GOP REPUBLICANS INVOLVED in these ACTS OF TREASON accountable before a TRIAL. ALL GOP REPUBLICANS INVOLVED in these ACTS OF TREASON will have ALL OF THEIR PROPERTIES (corporate and private, domestic and foreign sheltered) CONFISCATED, SOLD and RETURNED to OUR NATIONAL TREASURY (AMERICAN PEOPLE). The UNITED STATES CONSTITUTION (WILL OF THE AMERICAN PEOPLE) shall prevail, despite the criminal efforts of GOP REPUBLICAN WALL STREET SUPER-CAPITALIST CRIMINALS.


CONGRESS WILL NOT ADJOURN UNTIL AFTER THE GOP REPUBLICAN PARTY FIX THEIR COLOSSAL MESS

GOP (GOOD OLDBOY PRIVATEERS)


Britain has nationalized its banks. The U.S. has nationalized Wall Street and will do the same for U.S. Oil when it hits $6.50 a gallon in two years. Oil is too crucial for speculators' private greed. The United States greed based society is over. We will copy Britain or Germany’s mixed economy system based heavily on the People government oversight. Speculators and gamblers cannot be trusted with the American economy. Wrong is wrong and wolves cannot be hired to protect cash cows. Today you can gamble in Las Vegas with your credit card (money that you don’t have); Wall Street high leverage speculation is the same thing.

Three weeks ago, some Americans stupidly said that we don’t need to consider World Opinion during the 2008 presidential election. It is now clear that America and The World are closely connected and that we need to consider how the World perceives our decisions. The World does not like John McCain and will not cooperate with McCain.

No one wants another Cold War, except McCain. Palin’s childish perceptions are not worth mentioning, especially with the World watching and laughing at McCain’s choices. Russia does not want another Expensive Cold War, but it will play ball if McCain kicks off. While Bush and McCain are building military bases in Poland, Russia is speaking with Latin American Oil Nations about refining and cutting out U.S. Oil Companies. Next Russia will build military bases in Latin American in response to U.S. bases in Eastern Europe. McCain and Wall Street weapons manufacturers are the only ones who want to profit from a new Cold War. In reality, no one benefits from a new Cold War. The American People, Russian People and World People will be injured by a new Cold War. Expect European demands to be rid of all U.S. bases in Europe. The American People, Russian People and World People want peace and cooperation from the United States led by Barack Obama.

The World loves Barack Obama and has signed a letter of intent to cooperate with America under Barack’s leadership. Throughout the World young presidents are emerging and none of them want to return to the bad days of the Cold War (bomb shelters, high interest rates, disproportionate military spending, nuclear buildup, general fear). Nobody wants the return of the Cold War, except McCain and Wall Street weapons manufacturers. The American People are nationalizing Wall Street to prevent weapons manufacturers from dictating unfavorable terms to our economy. Again the American middle class must see pass their ignorance and the emperor with no clothes (Bush, McCain, Palin, Guiliani). Americans must vote for it’s best interest, which includes a favorable World Opinion. America And The World Will Vote Obama to avert financial and military catastrophes.

Let’s not forget that China, Saudi Arabia and India together hold over $1 Trillion in American currency. Do you think that China, Saudi Arabia and India have votes in the 2008 American election? The CEOs of American companies and Wall Street Banks heavily invested with funds from China, Saudi Arabia and India know that foreign governments will be exercising their strong votes in our election. You can thank McCain deregulations and GOP Republican American job outsourcing for dissipating Our American votes.

Obama has 8 years experience as a State Senator, 4 years in the US Senate, taught Constitutional Law at the University of Chicago, etc. Obama’s very high intellectual capacity allows him to analyze situations and make sound decisions. How can you even compare Palin’s GED from Moose Community College credentials to these?

GOP REPUBLICAN JOHN MCCAIN WALL STREET DEREGULATIONS
GOP REPUBLICAN JOHN MCCAIN ALSO WANTED TO PRIVATIZE SOCIAL SECURITY (BONEHEAD)
GOP REPUBLICAN JOHN MCCAIN sponsored landmark legislation in 1999 that removed the walls between banks, investment firms and insurance companies. GOP REPUBLICAN JOHN MCCAIN bill allowed a company like AIG to expand beyond its traditional insurance business (which is still profitable) into exotic new extremely high risk products that brought the company down and created this colossal mess.

WALL STREET SRO - SELF REGULATORY ORGANIZATION
THE GOP REPUBLICAN RUN Government (GOP President, GOP Congress, GOP Supreme Court) looked the other way, while GOP REPUBLICAN Super-capitalist Obscenely Rich WALL STREET SRO Speculators Robbed Our U.S. TREASURY and Forced the $Trillion Debt Upon the AMERICAN PEOPLE.


Average Americans are becoming poorer, because GOP REPUBLICAN WALL STREET super rich SPECULATORS and corporate CEOs are paying themselves, business partners, friends, and family members at least $20,000,000 annually from MONEY STOLEN FROM THE U.S. TREASURY. These major crimes committed by WALL STREET SPECULATORS AND CEOs have gone beyond greed and into acts of treason against the AMERICAN PEOPLE. Seize the stolen money and properties valued in the $TRILLIONS back from these super criminals for attacking America. Those stolen $MILLIONS / $BILLIONS / $TRILLIONS belong to the AMERICAN PEOPLE.

RULE OF LAW states that the People of the United States will be defended. Those who attack American Citizens will be prosecuted. WALL STREET SPECULATORS and CORPORATE CEOs dictatorship over the AMERICAN PEOPLE is over. Average Americans are not going to accept WALL STREET CORPORATE CRIMES anymore. Rights of Citizen and Average Workers of the United States will be enforced. The AMERICAN PEOPLE will always come before corporate interests, because Americans Love America more than Wall Street Speculators love greed.


GERMANY, FRANCE, ENGLAND HAVE GREATER CITIZEN-WORKERS’ RIGHTS, TRANSPARENCY, OVERSIGHT, AND DOMESTIC TRANQUILITY THAN GOP REPUBLICAN WALL STREET RUN AMERICA. AMERICA WILL HONOR AMERICAN CITIZENS WITH DEMOCRATIC WORKERS’ RIGHTS, TRANSPARENCY, OVERSIGHT, AND DOMESTIC TRANQUILITY.

NO MORE WALL STREET DICTATORSHIP OVER CONGRESS
NO MORE WALL STREET IMPORTATION OF ILLEGAL CARTEL DRUGS
NO MORE WALL STREET MASS GUN SALES
NO MORE WALL STREET ILLEGAL WARS
NO MORE WALL STREET WILD SPECULATION AND IRRESPONSIBLE LEVERAGE
NO MORE WALL STREET SOFT PORNOGRAPHY ON PRIME TIME TELEVISION
NO MORE WALL STREET MASS VIOLENCE ON PRIME TIME TELEVISION
NO MORE WALL STREET HATE RADIO
NO MORE WALL STREET UNAUTHORIZED SPYING ON AMERICAN CITIZENS
NO MORE WALL STREET ILLEGAL CREDIT SCORES
NO MORE WALL STREET OVERSEAS TAX HAVENS
NO MORE WALL STREET OUTSOURCING AMERICAN JOBS
NO MORE WALL STREET BUYING AMERICAN POLITICIANS

GOP REPUBLICAN WALL STREET $TRILLION FRAUD AGAINST THE AMERICAN PEOPLE

Direct impact of GOP McCain sponsored deregulations
Bankrupt and floundering
Failure of the investment bank
Government's takeover

GOP REPUBLICAN WALL STREET's business model has collapsed

Greed and fear routinely govern GOP REPUBLICAN WALL STREET financial markets and GLOBAL CRISIS.

GOP REPUBLICAN WALL STREET (giant investment houses, brokerage firms, hedge funds, "private equity" firms) irresponsibly TRADED the savings of average Americans (placed LAS VEGAS STYLE BETS on extremely high risk stocks, bonds, and other securities).

DUBIOUS MORTGAGES were PACKAGED into BONDS and SOLD and TRADED. Investment houses had huge incentives to increase LEVERAGE (OBSCENELY HIGH BORROWING).

GOP REPUBLICAN WALL STREET compensation is heavily skewed toward annual bonuses, reflecting the profits traders and managers earned in the tune of lavish base salaries and obscenely high annual bonuses of $20,000,000.

GOP REPUBLICAN WALL STREET relies heavily on OBSCENELY HIGH LEVERAGE (OBSCENELY HIGH BORROWING). $3 Trillion (stocks, bonds, other securities) backed by only $80 billion in shareholders' equity while the $2.8 Trillion was LEVERAGE (BORROWED).

Leverage (huge borrowing) can create huge debts (huge principal and interest obligations)

GOP REPUBLICAN WALL STREET is a manic machine for gambling.
Traders and money managers are given huge incentives to do whatever would increase short-term profits.

For decades, GOP REPUBLICAN JOHN MCCAIN sponsored legislation that broadly deregulated WALL STREET banking and insurance industries.

GOP REPUBLICAN JOHN MCCAIN swept away Consumer Protection legislation and opened the way for a less restricted high risk financial marketplace.

While the GOP REPUBLICAN WALL STREET boom continued, government (White House, Congress, Supreme Court) looked the other way.

GOP REPUBLICAN Congress resisted tougher regulation and permitted WALL STREET to run out of control at obscenely high LEVERAGE (OBSCENELY HIGH BORROWED MONEY) RATIOS perpetrating intentional fraud against the AMERICAN PEOPLE.

GOP REPUBLICAN WALL STREET leaders intentionally deceived customers and lenders into taking hazardous risks for short-term rewards regardless of the long-term dangers to the AMERICAN PEOPLE.

Mortgages went bad. The powerful high leverage went into reverse. Losses eroded firms' capital bases and raised doubts about their survival.

Financial firms took major stupid and wasteful risks that severely damaged the American Economy and impeded economic recovery.

GOP REPUBLICAN STOCK MARKET $TRILLION FRAUD has deepened consumers' pessimism, fear and reluctance to spend. There may be more failures of FINANCIAL FIRMS.

GOP REPUBLICAN WALL STREET financial crises resemble the GOP REPUBLICAN illegal miscalculated war.


How were we ever made to believe that the now-collapsing GOP REPUBLICAN WALL STREET model ever made sense? Common sense should have told us that making RISKY BETS with HUGE AMOUNTS of BORROWED MONEY was a DANGEROUS GAME; if the bets pay off you make money beyond your wildest dreams, but if they go bad you face utter ruin.

Common sense should have told us that betting fortunes on meaningless fluctuations in stock, bond or currency values (McCain sponsored deregulated hedge funds) was about as productive as a trip to Las Vegas. Common sense should have told us that buying and selling exotic securities based on other securities based on bundles of mortgages that were treated like mere numbers on a balance sheet (no recognition that the whole iffy construct was based on real people living in real houses that they might or might not be able to afford) was not an intelligent endeavor.

Somehow, we all forgot that "HIGHLY LEVERAGED" is just another way of saying "DEEPLY INDEBTED." Now we've had a wake-up call, and maybe the erstwhile Masters of the Universe will have to stop playing with imaginary money and go back to using the real stuff.


RULE OF LAW WILL ENFORCE CONFISCATION OF ALL GOP REPUBLICAN WALL STREET SPECULATORS’ AND CEOS’ PERSONAL PROPERTIES RESPONSIBLE FOR OUR ECONOMY’S MELTDOWN. All money and properties of the Super Rich CEOs and WALL STREET Speculators domestic and abroad will be confiscated and returned to the United States TREASURY and the AMERICAN PEOPLE.

WALL STREET SRO - SELF REGULATORY ORGANIZATION
OUR GOP REPUBLICAN RUN Government (GOP President, GOP Congress, GOP Supreme Court) looked the other way, while GOP REPUBLICAN Super-capitalist Obscenely Rich WALL STREET SRO Speculators Robbed Our U.S. TREASURY and Forced the $Trillion Debt Upon the AMERICAN PEOPLE.

GOP REPUBLICAN LIARS SUPER RICH WALL STREET GET RICH QUICK GREEDY
BILLION DOLLARS RISKY UNSECURED LOANS RISKY UNSECURED LOANS RISKY UNSECURED LOANS
REPACKAGED AND SOLD TO THE AMERICAN PEOPLE.

GOP REPUBLICAN LIARS SUPER RICH WALL STREET ROBBER BARONS
COMMIT TREASON AND GRAND FRAUD AGAINST THE AMERICAN PEOPLE.


WALL STREET SRO - SELF REGULATORY ORGANIZATION
OUR GOP REPUBLICAN RUN Government (GOP President, GOP Congress, GOP Supreme Court) looked the other way, while GOP REPUBLICAN Super-capitalist Obscenely Rich WALL STREET SRO Speculators Robbed Our U.S. TREASURY and Forced the $Trillion Debt Upon the AMERICAN PEOPLE.


HILLARY RODHAM CLINTON ANGERED BY SARAH PALIN’S REMARKS

Comments uttered by Sarah Palin has angered Senator Hillary Rodham Clinton who described Sarah Palin as an opportunist with no qualifications. Senator Hillary Clinton also stated that John McCain and Sarah Palin’s records on women’s rights are abominable. The country cannot withstand anymore George Bush failures cloaked in McCain/Palin. Asking Sarah Palin to become Vice President is like asking the grazing moose behind her trailer to pilot the shuttle.

National Organization of Women (NOW) Endorsed Pro-Women’s Rights ticket Obama / Biden for their outstanding work bettering the lives of women.

During her first term as Mayor, Palin went on an intense firing spree by sacking, or requesting resumes and resignation letters from the chief of police, finance director, public works director, and librarian.

In October of 1996, Palin consulted the city librarian about censoring "objectionable" books. The librarian was shocked and responded that the books were selected "on the basis of national selection criteria of libraries this size" and would resist all efforts to ban or remove any books from the library. A few months later Emmons received a letter from Palin stating that she had been terminated from her job. Emmons was reinstated the next day after public outcry.

Long time Alaskan acquaintance described Sarah Palin as a malicious, conniving opportunist, a reckless spender, and power abuser. Initially Palin supported the 'bridge to nowhere' project and even wore t-shirts that supported the project. When she realized that the project was not supported by the public she decided to back off.

Palin is an avid pro-lifer. Teen pregnancies are a major dilemma facing the nation today. The government spent $1 billion in supporting abstinence-only sex education programs since 1996. In the case of Palin's daughter, such programs are failing us. Palin is comfortable with giving her own daughter a choice, but wants to take away that choice from the rest of the nation.

By picking a young, attractive and vivacious woman as his partner in crime, McCain hoped to pull in all the disappointed Clinton supporters. This was his crucial mistake, because Sarah Palin is the antithesis of Hillary Clinton. She stands against women rights and would reverse women's rights by fifty years. Women are not as gullible as McCain and his advisors had hoped that they would be. Just because McCain placed a young woman in front of the crowd does not mean women will automatically vote for her without any question. Women will soon realize that Sarah Palin is an anti-choice, homophobic, polar bear, wolf, moose, and deer killing machine.

Sarah Palin is incapable of writing a speech. The speech given by her at the Republican National Convention was written long before she was considered for McCain’s running mate by the computer. McCain had never heard of Palin until after the computer printed her name one day before his announcement.

The thought that Sarah Palin will do anything in the White House is unsettling, because she is a unhinged lunatic who will mess up and give the public the perception that women cannot be in power. Hillary Rodham Clinton and women throughout the country are very angry that Sarah “moose hunter” Palin is in such an important position. Four out of Sarah’s five best friends have committed to Barack Obama.


GOP REPUBLICANS ARE AUTHORITARIANS WHO DO NOT BELIEVE IN FREE SPEECH OR DEMOCRACY. GOP REPUBLICAN ONLY INTERESTS ARE POWER AND MONEY.


GOP REPUBLICAN WALL STREET SUPERCAPITALISM AT ITS WORST

Executive salaries, CEO bonuses, grand robberies of the U.S. TREASURY in the $MILLIONS, $BILLIONS, and $TRILLIONS.

GOP REPUBLICAN WALL STREET SUPERCAPITALISTS robbed the AMERICAN PEOPLE of a $Trillion. RULE OF LAW states that the AMERICAN PEOPLE will be protected and all private properties, money, and wealth domestic and abroad owned by GOP REPUBLICAN SUPERCAPITALISTS taking part in robbing the U.S. TREASURY (AMERICAN PEOPLE) will immediately be confiscated and returned to the U.S. TREASURY (AMERICAN PEOPLE).


PALIN FAILIN RETURNED HOME TO 2,000 ALASKAN PROTESTERS WHO CHEERFULLY CHANTED "O-BAM-AH.

Gov. Sarah Palin returned home to 2,000 protesters outside the Anchorage library who wanted to correct the widespread impression that the Last Frontier endorses her candidacy.

"Last week a group of women were sitting around talking about this perception that all of Alaska supports Sarah Palin. We apparently hit a nerve and started a movement,"

A sense of festival obtained. There was a woman in a polar bear suit representing "Polar Bear Moms Say: No Palin Failin." Drivers on 36th Avenue saw a little girl waving a sign "Don't Ban My Books."

"My mom is from Alaska. She's a working mother. She's good looking," said Nolan. "So she seems to be qualified to be vice president."

Asking Sarah Palin to become the Vice President is like asking the grazing moose behind her trailer to pilot the shuttle.

Sarah Palin Failin Protesters Held Signs Reading:

Bush In A Skirt
Palin Be Failin
Jesus Was a Community Organizer
Palin Failin: Thanks But No Thanks
Smearing Alaska's Good Name One Scandal @ a Time
Candidate To Nowhere
Rape Kits Should Be Free
Voted For Her Once: Never Again!
Community Organizers are the Real Patriots
Barbies for War
I Shall Not Be Pandered To
Give Palin Failin Your Vote AND Your Draft Age Child
Sarah Palin Failin: So Far Right She's Wrong
Alaska Is Not Frisco
Coat Hangers for McCain
Sarah Palin Failin, Undoing 150 Years of American Feminism
Hockey Mama for Obama (on a hockey stick)


Cheerful chants of "O-bam-ah.


National Organization of Women (NOW) Endorses Obama / Biden For Their Pro-Women Rights Stance


McCain / Palin Failin are rejected for their anti-women stance and votes against Women Rights

PRESIDENTIAL AND VICE PRESIDENTIAL CHOICES

I'm a little confused. Let me see if I have this straight.....

If you grow up in Hawaii, raised by your grandparents, you're 'exotic, different.'

Grow up in Alaska eating mooseburgers, and its a quintessential American story.

If your name is Barack you're a radical, unpatriotic Muslim.

Name your kids Willow, Trig and Track, you're a maverick.

Graduate from Harvard law School and you are unstable.

Attend 5 different small colleges before graduating, you're well grounded.

If you spend 3 years as a brilliant community organizer,
become President of the Harvard Law Review,
create a voter registration drive that registers 150,000 new voters,
spend 12 years as a Constitutional Law professor,
spend 8 years as a State Senator representing a district with over 750,000 people,
become chairman of the state Senate's Health and Human Services committee,
spend 4 years in the United States Senate representing a state of 13
million people while sponsoring 131 bills and serving on the Foreign
Affairs, Environment and Public Works and Veteran's Affairs committees,
you don't have any real leadership experience.

If your total resume is: local weather girl, 4 years
on the city council and 6 years as the mayor of a town with less
than 7,000 people, 20 months as the governor of a state with only 650,000
people, and cook caribou/grizzly/wolf stew, then you're qualified to become the country's second
highest ranking executive.

If you have been married to the same woman for 19 years while raising 2 beautiful daughters,
all within Protestant churches, you're not a real Christian.

If you cheated on your first wife with a rich heiress,
and left your disfigured wife and married the heiress the next month,
you're a Christian.

If you teach responsible, age appropriate sex education, including
the proper use of birth control, you are eroding the fiber of society.

If , while governor, you staunchly advocate abstinence only,
with no other option in sex education in your state's school system
while your unwed teen daughter ends up pregnant , you're very responsible.

If your wife is a Harvard graduate lawyer who gave up a position in a prestigious law firm
to work for the betterment of her inner city community, then gave that up to raise a family,
your family's values don't represent America's.

If you're husband is nicknamed 'First Dude', with at least one DWI conviction
and no college education, who didn't register to vote until age 25 and
once was a member of a group that advocated: the secession of Alaska from the USA,
your family is extremely admirable.

OK, much clearer now.


National Organization of Women (NOW) Endorses Obama / Biden For Their Pro-Women Rights Stance


McCain / Palin Failin are rejected for their anti-women stance and votes against Women Rights

BRITISH PRIME MINISTER BROWN SUPPORTS BARACK OBAMA

LONDON - BRITISH PRIME MINISTER GORDON BROWN voiced support for UNITED STATES DEMOCRATIC PRESIDENTIAL CANDIDATE BARACK OBAMA, saying he would help Americans struggling with an economic downturn.

In a move seen by some British media as a break with a political convention requiring foreign leaders to remain neutral ahead of US elections, BRITISH PRIME MINISTER BROWN praised MR. OBAMA as a fellow “progressive politician” who would help ordinary Americans in tough times. With eight weeks to go before the presidential election, MR. OBAMA and his Republican rival John McCain are neck-and-neck in domestic opinion polls.

BRITISH PRIME MINISTER BROWN described the race for the White House as “electrifying” and said: “It is the DEMOCRATS who are generating the ideas to help people through more difficult times.”

“To help prevent people from losing their home, BARACK OBAMA has proposed a Foreclosure Prevention Fund to increase emergency pre-foreclosure counselling, and help families facing repossession,” he wrote in an article in The Monitor magazine, a monthly political publication.


2008 UNITED STATES DEMOCRATIC PRESIDENTIAL RACE

DEMOCRAT HARVARD LAW VS. GOP REPUBLICAN D STUDENTS

OBAMA OF HARVARD LAW AND PRESIDENT OF HARVARD LAW REVIEW
BIDEN OF SYRACUSE LAW

MCCAIN OF NAVY ACADEMY LAST PLACE D STUDENT
PALIN FAILIN OF MOOSE COLLEGE

GOP Republican Wall Street SRO (Self Regulatory Organization) Robber Baron Supercapitalism Is Down And Will No Longer Rob the U.S. TREASURY and AMERICAN PEOPLE

STOP DESTRUCTIVE GOP REPUBLICAN WALL STREET SUPERCAPITALISM OIL SPECUALTARS (OIL MILLIONAIRES BUSH, CHENEY, RICE, MCCAIN, PALIN FAILIN)

NATIONALIZE U.S. OIL FOR NATIONAL DEFENSE
NATIONALIZE U.S. OIL FOR NATIONAL DEFENSE
NATIONALIZE U.S. OIL FOR NATIONAL DEFENSE

WHY A BARREL OF OIL ILLEGALLY SHOT UP FROM $24 TO $145 DURING THE GOP REPUBLICAN (MCCAIN, BUSH, CHENEY, RICE, PALIN FAILIN) ADMINISTRATION


GOP REPUBLICAN BUSH I OOOOOIIIIILLLLL MILLIONAIRE AND OIL EXECUTIVE
GOP REPUBLICAN BUSH II OOOOOIIIIILLLLL MILLIONAIRE AND OIL EXECUTIVE
GOP REPUBLICAN CHENEY OOOOOIIIIILLLLL MILLIONAIRE AND OIL EXECUTIVE
GOP REPUBLICAN RICE OOOOOIIIIILLLLL MILLIONAIRE AND OIL EXECUTIVE
GOP REPUBLICAN GUILIANI OOOOOIIIIILLLLL MILLIONAIRE AND OIL STOCKHOLDER
GOP REPUBLICAN MCCAIN OOOOOIIIIILLLLL MILLIONAIRE AND OIL STOCKHOLDER
GOP REPUBLICAN PALIN FAILIN OOOOOIIIIILLLLL COMMISSIONER AND OIL STOCKHOLDER


TOGETHER WHAT DO THEY ALL HAVE IN COMMON?

THEY ARE ALL GOP REPUBLICAN OOOOOIIIIILLLLL MILLIONAIRES AND OIL STOCKHOLDERS


GOP REPUBLICAN OOOOOIIIIIIIIILLLLLLLLLLL IS THE NEW CRACK
GOP REPUBLICAN OOOOOIIIIIIIIILLLLLLLLLLL IS THE NEW CRACK
GOP REPUBLICAN OOOOOIIIIIIIIILLLLLLLLLLL IS THE NEW CRACK


CAN YOU SAY GOP REPUBLICAN CONSPIRACY TO DEFRAUD THE AMERICAN PUBLIC, ROB OUR U.S. TREASURY, AND SPECULATE FOR OBSCENELY HIGH PROFIT RETURNS ON WALL STREET OIL STOCKS

WAKE UP AMERICA, BECAUCE THE WORLD ALREADY KNOWS ABOUT THE CRIMINAL GOP REPUBLICAN PARTY OF CONSPIRATORS

NATIONALIZE U.S. OIL FOR NATIONAL DEFENSE AS A VITAL RESOURCE

AMERICA AND AMERICANS FIRST

NO MORE GOP REPUBLICAN WALL STREET OOOOOIIIIILLLLL SPECULATION AND FRAUD AGAINST THE AMERICAN PEOPLE

IF YOU SAY THAT YOU LOVE AMERICA, THEN PROVE IT AND STOP THE GOP REPUBLICAN RAIDERS UPON OUR U.S. TREASURY AND OUTSOURCING OF U.S. JOBS


GOP Republican Wall Street Get Rich Quick By Robbing America TREASURY Wild Speculators Created The Enormous National Debt, So Make Them Pay For It And Balance Our Budget.
GOP Republican Wall Street Supercapitalism Speculators Have Committed Treason Against Our Country.

HILLARY RODHAM CLINTON ANGERED BY SARAH PALIN FAILIN’S REMARKS

Will the GOP Republican get rich by selling America party take credit for any of their disasters? GOP Republicans are successful at failing and hurting OUR COUNTRY in the eyes of the WORLD. Can we really afford to ignore what the ENTIRE WORLD THINKS OF US?


How does the WORLD perceive AMERICA led by Barack Obama? Extremely favorable.

How does the WORLD perceive AMERICA led by John McCain? Extremely negative.

FOUR MORE YEARS ANYONE?

Eventually, Americans will realize that doing the same thing (electing GOP Republicans) will not yield different results (stock market disasters, economic disasters, world view disasters, failed foreign policy disasters, failed domestic policies disasters).

Spraying perfume on a new GOP Republican Pig will not create a bright and shiny candidate. Garbage in equal garbage out. GOP Republican garbage in yield (stock market, economic, foreign relations, domestic policies) garbage out.

McCain has perpetually been a failure from school until now.
Palin Failin has perpetually been a failure (with a hillbilly hockey mom accent) from day one until now. Her bear hunting Arctic outback kids prove it.

Do you really need someone to tell you these basic facts? Under the Freedom of Information Act, all of this information is available free if you choose to type in the questions.

Lets prove to the Europeans and the World that we are not stupid, because they think that we are after two terms of Forrest Gump Bush.

D Student Crash Every Plane McCain and Hillbilly Trailer Palin Failin are not reflective of the AMERICAN PEOPLE.

If Palin Failin had a brain, then she would have considered the immense responsibilities demanded of the Office of the United States Vice President or President; and politely declined McCain’s crack induced invitation. GOP Republican Party is a joke.

If FOX NEWS does not clean up it’s filthy RACIST acts of discrimination, then American and European audiences will B O Y C O T T FOX RACIST NEWS.


GOP Republican Wall Street Get Rich Quick By Robbing America TREASURY Wild Speculators Created The Enormous National Debt, So Make Them Pay For It And Balance Our Budget.
GOP Republican Wall Street Supercapitalism Speculators Have Committed Treason Against Our Country.


REPORT SAYS GOP REPUBLICAN OIL AGENCY RAN AMOK

INVESTIGATION OF GOP REPUBLICAN OFFICE OF MANAGEMENT AND BUDGET

INVESTIGATION OF GOP REPUBLICAN MINERALS MANAGEMENT SERVICE OIL MARKETING GROUP


GOP REPUBLICAN Government officials in charge of collecting BILLIONS of dollars worth of royalties from OIL and gas companies accepted gifts, steered contracts to favored clients and engaged in drug use and illicit sex with employees of the energy firms, federal investigators reported.

Investigators from the Interior Department's inspector general's office said more than a dozen employees, including the former director of the OIL royalty program, took meals, ski trips, sports tickets and golf outings from industry representatives. The report alleges that the former director, also netted more than $30,000 from improper outside work.

The report from Inspector General contains fresh allegations about the practices at the beleaguered royalty-in-kind program of Interior's Minerals Management Service, which last year collected more than $4 billion worth of OIL and natural gas from companies given contracts to tap energy on federal and Indian lands and offshore. The revelations come as Congress is set to consider opening the Arctic National Wildlife Refuge and areas off the coast of Florida for drilling.

The royalty-in-kind program, based near Denver, allows energy companies to pay the government in OIL and gas, rather than cash, for the privilege of drilling on government land. It has been the subject of multiple investigations since 2006 by the Interior Department's secretary, its inspector general, the Justice Department and Congress for alleged mismanagement and conflicts of interest.

In the report released yesterday, investigators said they "discovered a culture of substance abuse and promiscuity" in which employees accepted gratuities "with prodigious frequency." The report cited one e-mail from a Shell Pipeline representative asking a woman in the royalty office to attend "tailgating festivities" at a Houston Texans football game: "You're invited . . . have you and the girls meet at my place at 6am for bubble baths and final prep."

Besides Shell, the energy company employees mentioned in the report worked for Chevron, Hess and Gary-Williams Energy. The social outings detailed in the report included alcohol-, cocaine- and marijuana-filled parties where certain employees of the Minerals Management Service were nicknamed the "MMS Chicks" by the energy employees. The companies paid for federal workers to attend football and baseball games, PGA Tour events, Colorado ski trips, paintball outings and "treasure hunts," investigators found.

"The OIL INDUSTRY holds shocking sway over the ADMINISTRATION and even KEY FEDERAL EMPLOYEES,". "This is why we must not allow BIG OIL'S AGENDA to be jammed through CONGRESS."

The current director of the Minerals Management Service, said that he takes the report "very seriously".
Employees identified in the report told investigators that they didn't think ethics rules applied to them because of their "unique" role in the agency and that they needed to socialize with industry representatives for "market intelligence," according to the report. Those employees, some of whom have been transferred to different offices, have been recommended for internal administrative action.

The inspector general's release comprised three separate reports, including one devoted to the program's director. It alleges that Smith improperly worked part time for Geomatrix Consultants, an Oakland, Calif.-based environmental and engineering firm, and marketed the company to government clients.

Additionally, the report said that the director had an inappropriate sexual relationship with a subordinate whom he paid to buy cocaine, promising her a bonus in return. The director admitted to the sexual encounter.

The director, who now works for a private OIL company in Denver, did not respond to requests for comment. Investigators referred their findings to federal prosecutors.

Justice officials also declined to comment on their decision about the criminal case against the highest-ranking official named in the report director of the Minerals Management Service, who worked in Washington. She is accused of improperly arranging a million-dollar deal for two retired employees.

The wife of the procurement policy administrator for the WHITE HOUSE OFFICE OF MANAGEMENT AND BUDGET, retired from government service Jan. 31. She declined to comment on the report. She told investigators she had a "personal issue. The Justice Department's decision to charge created a rift with Interior officials.

One of the two retired employees pleaded guilty in July to a federal conflict-of-interest charge related to the investigation. Another employee has been under investigation for similar conflict-of-interest allegations.

Before he left, Mayberry created a job for himself by writing the job description and the criteria for selecting the winning bidder, court documents show. He started a company out of his Texas home and was awarded a $150,000 contract in June 2003. He later hired Dial, the report said. Mayberry's firm collected $788,000 worth of contracts.

The royalty-in-kind program, which started as a small pilot project a decade ago, has been touted as a way to simplify the way OIL AND GAS COMPANIES pay for the right to drill on federal land and offshore. Instead of calculating the profit from a well, they can simply give the government one-eighth to one-sixth of whatever they take from the ground.

Revenue rose quickly, from $1.5 billion in 2004 to $4.3 billion last fiscal year. But the growth occurred "in an environment with relatively unstructured in-house oversight," the congressionally convened Royalty Policy Committee said in a December report. Previous reports have said that companies were allowed to revise their million-dollar bids for projects indiscriminately, that government workers routinely failed to seek out legal advice on complicated deals and that the agency used outdated computers and a $150 million software program that resulted in royalty money going uncollected.

A lawyer who represented states and tribes entitled to a cut of the royalties, said it was nearly impossible to get accurate numbers from the agency. "They kept hemming and hawing," she said.

In late 2006 questions arose over its handling of leases written in 1998 and 1999 that allowed major OIL companies drilling in the Gulf of Mexico to avoid BILLIONS of dollars in royalty payments.

Former Interior Department auditors accused the agency of failing to bill companies. "We weren't allowed to audit them. It was disturbing," said an auditor who sued the federal government for not collecting royalties. "You couldn't see what was going on."

The minerals agency director said that the harm done by the royalty employees was to public trust and TREASURY, and acknowledged that financial considerations were given to firms that gave favors to federal employees, and he said the contracts will be audited.


Do you really question the motives of GOP Republicans Criminals? America must Immediately Nationalize U.S. OIL and Gas For National Defense.


DEMOCRAT HARVARD LAW VS. GOP REPUBLICAN CRASH JET AND MUDVILLE

U.S. Presidents From Harvard Law
John Adams
John Quincy Adams
Rutherford Hayes
Theodore Roosevelt
Franklin Roosevelt
John Kennedy
Barack Obama

President and Harvard Law Scholar Barack Obama Contrast With D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain


Growing Up

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain was privileged, given everything by both parents, and worked for nothing.


Irish-American and Harvard Law Scholar Barack Obama grew up poor, raised by his Irish-American single white mother and Irish-American white working class maternal grand parents. Irish-American and Harvard Law Scholar Barack Obama was given nothing and worked for everything.

Education

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain was a D student and graduated last in his class. D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain and McBush Wall Street OOIIILLLL Millionaire share failed academic records. He partied constantly and dependent on favor handouts from his high ranking father and grandfather. D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain earned nothing on his own similar to McBush Wall Street OOIIILLLL Millionaire. D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain is also Internet illiterate which slows down his information processing capacity. Is this good for the country?


Irish-American and Harvard Law Scholar Barack Obama worked hard and became PRESIDENT OF THE HARVARD LAW REVIEW. Everything that Irish-American and Harvard Law Scholar Barack Obama accomplished he did on his own. Irish-American Barack Obama’s HARVARD Scholarship ranks among the best. Irish-American and Harvard Law Scholar Barack Obama’s hard work represents the American Dream.


Community Service

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain poor studies translated into poor performances in the military where he crashed several planes and recklessly endangered the lives of others. D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain was never trusted by his colleagues nor loved by his peers. The highlight of D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain’s career was getting shot down and becoming a prisoner. D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain served his country by getting handouts from his guards. Getting handouts seems to be D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain’s modem of operations. WillObscenelyRich Crash Every Plane McCain, who finished 894th out of 899 at the Naval Academy and who lost five jets, return competence to the White House? To lose one plane over Vietnam may be a heroic tragedy; to lose five planes here and there is carelessness.

Irish-American Barack Obama turned down large profits after graduating from HARVARD LAW to serve the community in Chicago where help was needed most. The community learned to trust and love Irish-American and Harvard Law Scholar Barack Obama for his dedication to public service.


Marriage

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain walked out on his family to chase a younger woman who was on drugs, embezzling money from her company, stealing, and facing criminal charges, until her privileged family saved her from trial. D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain’s dysfunctional family represents chaos and lack of respect when he curses her in public.


Irish-American and Harvard Law Scholar Barack Obama married an intelligent IVY LEAGUE attorney and adores his beautiful young daughters. Irish-American and Harvard Law Scholar Barack Obama’s First Family represents what America is striving for. Irish-American and Harvard Law Scholar Barack Obama has always been surrounded by and still maintains a great respect for women (Irish mother, Irish grandmother, sister, wife, and two daughters). If anyone is in tune with and favors the betterment of working American women, then it’s Irish-American and Harvard Law Scholar Barack Obama.

International Diplomacy

The World wants no more chaotic McBush Wall Street OOIIILLLL Millionaire-D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain.


The World loves Irish-American and Harvard Law Scholar Barack Obama and will follow America’s leadership behind Irish-American and Harvard Law Scholar Barack Obama.

If D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain had to make another emergency landing on a deserted island with Irish-American and Harvard Law Scholar Barack Obama onboard as one of the passengers, then it is safe to say that D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain would assume the role of Gilligan, while Irish-American and Harvard Law Scholar Barack Obama would assume the role of the professor.

Hillary Clinton Will Destroy Sarah Palin Failin From Mooseville College.


Navy pilot John Sidney D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain III should have never been allowed to graduate from the U.S. Navy flight school. He was a below average student and a lousy pilot. Had his father and grandfather not been famous four star U.S. Navy admirals, D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain III would have never been allowed in the cockpit of a military aircraft.

His father John S. "Junior" McCain was commander of U.S. forces in Europe later becoming commander of American forces in Vietnam while D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain III was being held prisoner of war. D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain III's grandfather John S. McCain, Sr. commanded naval aviation at the Battle of Okinawa in 1945.

During his relative short stunt on flight status, D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain III lost five U.S. Navy aircraft, four in accidents and one in combat.

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain III lost jet number one in 1958 when he plunged into Corpus Christi Bay while practicing landings. He was knocked unconscious by the impact coming to as the plane settled to the bottom.

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain's second crash occurred while he was deployed in the Mediterranean. Flying too low over the Iberian Peninsula, he took out some power lines which led to a spate of newspaper stories in which he was predictably identified as the son of an admiral."

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain's third crash three occurred when he was returning from flying a Navy trainer solo to Philadelphia for an Army-Navy football game.

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain's fourth aircraft loss occurred July 29, 1967, soon after he was assigned to the USS Forrestal as an A-4 Skyhawk pilot. While seated in the cockpit of his aircraft waiting his turn for takeoff, an accidently fired rocket slammed into D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain's plane. He escaped from the burning aircraft, but the explosions that followed killed 134 sailors, destroyed at least 20 aircraft, and threatened to sink the ship.

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain's fifth loss happened during his 23rd mission over North Vietnam on Oct. 26, 1967, when D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain's A-4 Skyhawk was shot down by a surface-to-air missile. D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain ejected from the plane breaking both arms and a leg in the process and subsequently parachuted into Truc Bach Lake near Hanoi.

"Demands for military information were accompanied by threats to terminate my medical treatment if I [D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain] did not cooperate. Eventually, I gave them my ship's name and squadron number, and confirmed that my target had been the power plant."

When the communist learned that D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain's father was Admiral John S. McCain, Jr., the soon-to-be commander of all U.S. Forces in the Pacific, he was rushed to Gai Lam military hospital.

The communist Vietnamese figured, because POW D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain's father was of such high military rank, that he was of royalty or the governing circle. Thereafter the communist bragged that they had captured "the crown prince."

For 23 combat missions (an estimated 20 hours over enemy territory), the U.S. Navy awarded D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain a Silver Star, a Legion of Merit for Valor, a Distinguished Flying Cross, three Bronze Stars, two Commendation medals plus two Purple Hearts and a dozen service medals.

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain had roughly 20 hours in combat. Since D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain got 28 medals, that equals out to a medal-and-a-half for each hour he spent in combat. There were infantry guys -- grunts on the ground -- who had more than 7,000 hours in combat where I'm sure a prison cell would have looked pretty good to them by comparison. The question really is how many guys got that number of medals for not being shot down.

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain has been an unchecked master at manipulating an overly friendly and biased news media. The former POW turned Congressman, turned U.S. Senator, has managed to gloss over his failures as a pilot and collaborations with the enemy by exaggerating his military service and lying about his feats of heroism.

D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain has sprouted a halo and wings to become America's POW-hero presidential candidate.

Former naval officer and the owner of an OOIIILLLL-trading company that inked defense contracts worth $1 billion is the modern presidential money man. The law forbids high-level supporters from writing huge checks, but with help from friends in the Middle East D Student Obscenely Rich Wall Street OOIIILLLL Millionaire Crash Every Plane McCain is receiving large donations.

If FOX NEWS does not clean up it’s filthy RACIST acts of discrimination, then American and European audiences will B O Y C O T T FOX RACIST NEWS.

Barak Obama proved why November's presidential election will end in a 50-state sweep. John Crash Every Plane McCain has no chance. It's like George Bush climbing into the ring with Mike Tyson; one thundering left hook and the Crawford Caligula would be sprawled across the canvas. "No mas"! The same fate awaits the crabby senator from Arizona. The polls are skewed to look like there's a political horse-race going on. There isn't. It's a complete rout. There's one well-toned thoroughbred striding from venue to venue electrifying the ever-increasing throngs, and one doddering, old mare limping towards the glue-factory. Someone should put a stop to it before Crash Every Plane McCain gets hurt.

At the Victory Column in Berlin's Tiergarten, Obama extracted Old Glory from the burn-pile and gave Brand America a desperately needed shot of adrenaline. 200,000 ecstatic Germans jammed the streets in what turned out to be the political shindig of the year. Many of them were waving American flags and chanting, "Obama, Obama, Obama". It was like Jack Kennedy had risen from his moldy sepulcher and made his way across the pond for one last rousing ovation. Obama has the very same affect on crowds. Its a gift and he knows how to use it to great advantage.

"People of Berlin, people of the world, this is our moment, this is our time," Obama boomed. "I know my country has not perfected itself, we've made our share of mistakes and there are times when our actions around the world have not lived up to our best intentions. But the greatest danger of all is to allow new walls to divide us from one another."

What can we say about Obama's oratory skills that hasn't already been said? He is one of those unique characters who knows how to tap into the collective psyche and put them under his spell. He is the closest thing to a Pied Piper we've seen in the last half century. Whatever one thinks of his politics, his speeches are a welcome reprieve from the simian blabbering of President Dimwit.

"I speak to you not as a candidate for president, but as a citizen; a proud citizen of the United States and a fellow citizen of the world." (Roaring applause)

JOHN Crash Every Plane McCain: Maverick or Freak?
Have you taken a look at the crowds at a Crash Every Plane McCain event. Usually, there aren't any. Typically, there are more journalists and cameramen then people; and even they look bored. It's the truth. He generates no enthusiasm at all. None. He may be the most uninspiring, tedious, pure-vanilla candidate of all time; a complete dud. I challenge anyone to recite from memory anything John Crash Every Plane McCain has ever said in his 40 years in office. Time's up! When Crash Every Plane McCain begins to talk, its a signal for women to pull out the nail-files and for men to figure out how they're going to get out of cutting the lawn this week. Really. No one listens.

And the people that do manage to drag themselves to his speeches out of a sense of obligation are (you guessed it) scowling white guys with baseball caps pulled tightly over their ears or nearly-ambulatory Korea-era Vets who think the United Nations is a communist front-group that's planning to air-drop blue-helmets into Duluth to take over the United States. Tin-foil hats anyone?

Popularity and charisma, how does one survive in politics with neither. That's the question, and it may be the biggest mystery of Crash Every Plane McCain's candidacy. He's just not a likable guy. No one ever talks about hanging out and having a beer with John Crash Every Plane McCain, because they know that he might go "Jackie Chan" and start busting the place up. And he's utterly impossible to listen to. His high-pitched squeaky voice is about two octaves higher than a dog-whistle and twice as annoying. So how is he going to beat Obama. It's a total mismatch.

Crash Every Plane McCain is the perfect candidate for the GOP Republic party that has completely collapsed. He's like the "Jolly Roger" on the front of an iodine bottle; Brand X. In 2000, the Republican Party boasted it was the "party of ideas". What ideas? The Republican Party has never had ideas because the corporate mandarins and blue-blooded kleptocrats that run the party are suspicious of ideas, ideology, doctrine, philosophy or anything else that veers from their primary objectives of crushing the poor, despoiling the environment, carpet-bombing brown people wherever they may be, and enriching themselves. That's all they care about. The task of the right-wing think-tanks is to treat "war and tax cuts" like they're ideas. They're not. But war and tax cuts ARE the two foundation blocks of the Republican Party. There's nothing else; there never has been. Don't look for ideas; there aren't any. GOP Republican get rich quick by defrauding the AMERICAN PEOPLE, robbing the National TREASURY, sending American jobs overseas, and raising the national debt.

Hold Bush, Cheney, Rice, and Crash Every Plane McCain accountable for the crimes they've committed during their time in office.

Obama is not a candidate; he's a phenomenon. Obama is an explosive, vital, charismatic politician. When he speaks people feel better about themselves and their country. And, they're more hopeful about the future, too. That's what makes him unbeatable.

Crash Every Plane McCain, on the other hand, is the perfect embodiment of his party; a rusty, broken-down hulk that's been stripped of its engine, its fenders and all its moving parts. Even the steering wheel is gone. It's a dead-loss; nothing is salvageable.

Crash Every Plane McCain is in way over his head. This election is going to be a real embarrassment for him. It's too bad. He should be back at the Phoenix Rest Home shooing kids off the front lawn instead of waiting for the ax to fall in November. It's a rotten way to end a career.


GOP Republican Wall Street SRO (Self Regulatory Organization) Robber Baron Supercapitalism Is Down And Will No Longer Rob the U.S. TREASURY and AMERICAN PEOPLE


GOP REPUBLICAN PLANE/TRAILER WRECK MCCAIN/PALIN FAILIN

With Wall Street OOOIIIIILLLLLL stocks paid under the table to Sarah Palin Failin OOOOIIIIILLLLLL Commissioner from OOOOOIIIIIILLLLLLL Millionaires Crash Every Plane McCain, Bush, Cheney, Rice and Guiliani; it appears that Sarah Palin Failin OOOOIIIIILLLLLL Commissioner, her large family, dogs, cats, chickens, and hogs can now move out of their trailer. Guiliani went from GOP front runner to anonymous polygamist. Guiliani is the biggest joke and shares home dysfunction with Bush, Cheney, Rice, Crash Every Plane McCain and now Sarah trailer Palin Failin OOOOIIIIILLLLLL Commissioner. OOOOIIIIILLLLLLL MILLIONS stolen from Our TREASURY did not help their dysfunctional families.

GOP Republican Wall Street Get Rich by robbing the American TREASURY and outsourcing American jobs party has officially been dissolved. Plane wreck McCrash and Train wreck Trailer Palin Failin OOOOIIIIILLLLLL Commissioners have destroyed the already dysfunctional GOP Republican Party of Corporate Welfare Thieves.

Democrats and Independents are the official parties. Blessings to America and the World for peaceful cooperation and the elimination of unjust wars for GOP profits. The People First Party has arrived and Rich Wall Street millionaires will no longer use the AMERICAN PEOPLE as their cattle. Americans today are all free independent Democratic People in pursuit of happiness in the spirit of cooperation.

“We joined up with an altruistic vision of promoting freedom and justice around the world,” said Vince Emanuel, a Marine lance corporal who did a tour of duty in Iraq from August 2004 to April 2005, explaining why he was marching and protesting the GOP Republican Convention.

“Except we saw the killing of innocent people and the destruction of property ... for a lot of us it was very disenfranchising."

The veterans group tried to hand a message to the campaign of GOP Republican John Crash Every Plane McCain calling for a withdrawal from Iraq, reparations for the Iraqi people, and full medical benefits for veterans. No one from John Crash Every Plane McCain’s campaign received them.


If FOX NEWS does not clean up it’s filthy RACIST acts of discrimination, then American and European audiences will B O Y C O T T FOX RACIST NEWS.


GOP Republican Wall Street SRO (Self Regulatory Organization) Robber Baron Supercapitalism Is Down And Will No Longer Rob the U.S. TREASURY and AMERICAN PEOPLE

Prerequisite for the United Stats President and Vice President is advance degrees, especially in Constitutional Law. D student McCain and hillbilly Palin Failin are excluded from the highest offices in the World. The debates will be fun: Harvard Law vs. Crash Jet and Mudville.

GOP Republican Wall Street Get Rich Quick By Robbing America TREASURY Wild Speculators Created The Enormous National Debt, So Make Them Pay For It And Balance Our Budget.
GOP Republican Wall Street Supercapitalism Speculators Have Committed Treason Against Our Country.


What has WALL STREET SUPER-CAPITALISM brought you besides:

Cluttered homes full of useless crap

Semi-illiterate teenage sons on alcohol and drugs

Semi-illiterate teenage daughters on drugs and having unwanted babies

Divorce rates off the chart

Depress people living alone and addicted church on TV or pornography

Guns deregulation freeing children to murder each other in school and after school

Prime time (dinner hour) soft pornography for the kids to mimic

Daughters dressing like prostitute

Sons dressing like the homeless

GREED GREED GREED steal money from your neighbors through wild WALL STREET speculations

SELL SELL SELL BUY BUY BUY (It is all enslaving crap)

Super Rich becomes more Super Rich, while the middle class becomes poor

College graduates cannot afford a small home and must live in their parents’ basements

Clinton left the United States with a surplus

GOP Republicans have stolen all of the Treasury surplus plus another $Trillion. Let the trials and confiscation (America versus GOP Republican Criminals) begin

The American People will prevail over Super Rich Greedy Lawless GOP Republicans


HILLARY RODHAM CLINTON ANGERED BY SARAH PALIN FAILIN’S REMARKS

Posted by: AMERICANS COME BEFORE WALL STREET FRAUD SPECULATORS | September 30, 2008 4:52 PM

The foremost supporter of "mark to market" accounting was Jeffrey Skilling, the financial genius who brought down not only Enron, but before everyone forgets, Arthur freakin' Anderson an...wait for it..ACCOUNTING FIRM. Remember, one of the big five, sterling national reputation, the gold standard in accounting firms, destroyed by allowing "mark to market" booking, which allowed Enron to BOOK future earnings as current ASSETS because they considered any lame-brain "idea" as a fully formed vehicle for profit, never mind the actual work of building and creating the infrastructure for said profit. Now allowing this with regard to securities valuation is supposed to SOLVE the current problem. The inmates have officially taken over the asylum. Please, on the last revolution around the toilet, please have Wall Street turn off all the neon.

Posted by: mikewilmingtonnc | September 30, 2008 4:56 PM

Enron's 'mark-to-market' was completely different than what's being proposed now. Basically, if Enron had a 30-year contract that would total $10 million, then they would post the whole $10 mill as earnings (even tho they weren't getting the balance for 30 years). Hence the daily mark-to-market regulation that's in now. It was an overreaction to Enron, and needs a little more breathing room.

Posted by: Anonymous | September 30, 2008 4:56 PM

It looks to me that if the change in the mark-to-market accounting is accompanied by the gov't beginning to make a market in the toxic securities by buying some from banks that hold them, this would establish a baseline where other banks could begin to mark their toxics up somewhat, based on what the gov't is buying them at. This would eventually assist liquidity, and could result in the gov't spending less $ to buy the toxics, and other banks that are reasonably well off could come in and start buying them from the hobbled banks somewhere near the established discounts, further enhancing liquidity.

Posted by: snark | September 30, 2008 4:56 PM

If the accountants are going to allow this method of valuation the appraisers how provide the specific values must use a hard and fast formulation method.

Posted by: Mark Sharff | September 30, 2008 4:57 PM

Now, the banks got just what they wanted...WITHOUT the Bailout Bill.

Posted by: truthteller | September 30, 2008 4:58 PM

Frank,

If people buy a stock and its value goes down, that someone beleives the stock will be worth more later is immaterial. Balance sheet is a snapshot of assets at a certain time and all that matters is what the underlying asset is worth at that time.

Doing anything different--inflating asset value based on expectation-- won't convince anyone.

Posted by: Ted | September 30, 2008 4:59 PM

Ahrens brings up an interesting detail, however he is missing a critial bit of information. Mark to Market is the accounting vodoo that allowed Enron to inflate reported profits year over year. Yest

Posted by: David Muter | September 30, 2008 5:04 PM

Enron did NOT use mark-to-market (M2M) accounting. Enron used its own BS method of accounting. Enron essentially picked up the undiscounted FUTURE value of the receive legs of its energy swaps, not the discounted PRESENT VALUE as required by M2M. The difference is enormous, one of night and day. Further, Enron refused to recognize the liability leg of its swaps, which is required under M2M. Had Enron used real M2M accounting, it would not have been able to inflate its earnings. Real M2M accounting would have forced Enron to report far lower earnings than it did under its own BS method.

Another flaw was the auditors signing off on various "shortcut" hedging methods that allowed management to improperly use FAS 133 hedge accounting and hide volatility. Not good for the CEO's stock options.

godlesspriest is right. Attacking M2M is shooting the messenger. We do not want to follow the Japanese model and sweep problem assets under the rug of historical cost accounting. That lead to a decade-long recession that Japan is only now exiting.

These assets are worthless. No one will buy them because the markets know this. To assume that an MBS of subprime toxic waste will magically turn around is naive. Housing prices are too inflated, and earning power too low, to allow this. Not to mention the outright fraud in the mortgage origination process that created this toxic garbage. Yes, there is a liquidity crisis, but that was triggered because the markets finally admitted that all those MBS's and CDO's backed or referenced by subprime toxic waste are never going to turn around. Management should have admitted this long ago, but didn't have the guts to do so.

Posted by: Garak | September 30, 2008 5:04 PM

Ahrens brings up an interesting detail, however he is missing a critial bit of information. Mark to Market is the accounting vodoo that allowed Enron to inflate reported profits year over year. The SEC's plan to clean up Mark to Market accounting will help, but we should be aware of some of the history here.

Posted by: David Muter | September 30, 2008 5:07 PM

Ahrens explains Mark-to-Market very well. The precursor of M2M was Historic Cost Accounting. The asset was recorded at the value it was purchased at. If there was doubt as to it continued value at the historic rate, an allowance for that doubt was recorded. For an asset bought for $100, but potentially diminished by 30%, the asset was still recorded as worth $100, where in M2M, it would be worth $70. The problem for both methods is that the amount by which the asset is potentially diminished is an arbitrary guesstimate. The problem with M2M is that you must assume wild swings in the value that may never even be close, even thought the underlying assets (mortgages) are still good.

Looks great on the upswing, but you can see the mess on the way down. European markets went to M2M some years ago; however, since they were not as heavily leveraged from the use of CDS' the downswings were never as wild. M2M and CDS leverage at up to 30:1 cannot coexist. CDS is the sham leverage that overvalued the U.S. market, and they need to be abolished, or at least limited.

As for the $700B bailout or loan or whatever, that needs to be tied to the sunsetting of Phil Gramm's 1999 disastrous legislation which gutted the protections of the Glass-Steagall Act. Some regulation is good. Those who say otherwise are trying to rob you.

Posted by: eed017 | September 30, 2008 5:07 PM

Umm. Ok, move to Russia or someplace that was not build on capitalism if you do not like it.

Posted by: Bob | September 30, 2008 5:07 PM

The ignorance in this thread is amazing. The change in accounting rules is a good idea and should be part of a better "bailout" bill that will not cost taxpayers $700 billion (but that bill is better than nothing). I've been in the securitization busines and the "assets" are worth significantly more than what you can account for them right now bc it is a illiquid market during this crisis, which means - stock markets fall, loans dry up, housing prices of the underlying assets go down, companies go bankrupt, etc etc etc.... It's a vicious cycle that feeds itself!!! And sometimes fear and panic make markets much worse so the government should step in to provide some level of confidence before a complete collapse occurs. If that happens, we'll be in a depression not a recession!!!

Posted by: Rob P | September 30, 2008 5:12 PM

I lost my house because of the over valuation on the tax assessment not a bad mortgage. (4% down on 135K at 8.5% on fix FHA is not a bad mortgage) But an increase of over 400% in property taxes in less than 4 years, well thats just criminal.

Real Estate law dictates that the fair market value is what a buyer will pay for it. Not what the government decides the value is.

Mark-to-market is BS accounting. Let the wall street die!

Posted by: Bill C | September 30, 2008 5:12 PM

AMERICANS COME BEFORE WALL STREET FRAUD SPECULATORS:

9741 words is a bit long. WAY too long. Spare us, please. Your heart is in the right place, but you make Joe Biden seem terse.

Posted by: Garak | September 30, 2008 5:14 PM

Settle down folks. MTM accounting is certainly contributing to this situation:

Many banks and funds have large positions in high quality munis, traditionally a very safe investment. In the last few weeks, and previously in February, many firms have been forced to unload these positions in a hurry to raise cash to cover losses in other areas. Muni prices have tanked temporarily as a result.

So what happens if you are a hedge fund long in AAA munis with a buy and hold strategy? Since you must mark to market, the above selling translates into a loss in the value of the portfolio. This leads to a margin call. This forces the hedge fund to sell some munis to raise cash. This further freezes the market and leads to a further price decline. This in turn leads to more margin calls...

Many firms have suffered severely this year as a result of this cycle even though the underlying asset is perfectly sound. This is not a subprime mortgage remember - all future cashflows are still expected to be met. It is just worth less right now because of a temporary liquidity crush caused by forced selling.

Specifically because of MTM accounting, this hedge fund incurs huge losses quickly as they are forced to sell. It doesn't matter that prices will revert to norm in 4-8 weeks or that they have a buy-and-hold strategy. The damage is swift and final.

Check out the price of any fixed income muni fund on Google Finance over the last month to get a good visual. Try GNYMX. Check out Feb/Mar timeline to see the bounce.

MTM accounting is a major problem here. This is not Enron.

Posted by: Geo | September 30, 2008 5:14 PM

Good post Mark Haag. Listen to the guy, he's made the only lick of sense so far here...

For a bit of background there has been a long historical controversy about MTM accounting vs more analytical approaches. Both have their good and bad aspects. MTM is not always the best way to put a valuation on something however. For example what if you owned an oil well, 5 years ago the MARKET value of the oil in your well would have been X, but now it is something like 2X. If you could reasonably analyze the market for oil you could have said 5 years ago there was a pretty darn good chance it would be worth a lot more in 5 years than not. That is only a prediction, but that doesn't mean it is a worthless 'gimmick' basis for accounting, just that some amount of markdown needs to be done to account for the uncertainty in your prediction.

Of course the problem with any sort of 'analytical' approach to valuation is that it is obviously subject to bias or outright lying and it can be very difficult to say whether or not the analysis was fair and reasonable.

Also it is pretty silly for someone to say that the real estate backing these securities is worthless, nobody can say for certain what these assets will bring, and it would be perfectly legitimate to give them some sort of speculative value. Most of the mortgages will NOT default, and I seriously doubt that most of the homes which WILL go into default are in a state of ruin. As Mark says the best thing to do is allow the market to deflate, as it must and inevitably will. In the meantime picking up a lot of these loans at super bargain prices might be a VERY lucrative move. Great fortunes are made in panic situations. How do you think the Joseph Kennedy made his fortune? (shorting the '29 crash).

One of the real fundamental problems with the mortgage backed securities is that as pointed out they were sold based on the return on the loans. Thus if only a fairly small fraction of the loans default, then the security is returning a negative net return, and nobody wants to touch it because they are all out to make their fast buck. Investing requires patience, and the patient will be rewarded.

Posted by: Alhazred | September 30, 2008 5:15 PM

Well, that was an amazing rant.

If anyone is still reading this blog after all that, perhaps you'll think of Douglas Adams' discussion of the marketing department of the "Sirius Cybernetics Corporation" in "The Hitchiker's Guide to the Galaxy" who were destined to be "the first against the wall when the revolution came."

I guess it's time to call in Pol Pot and the Khmer Rouge to clean things up. Anything else would be "elitist".

Posted by: ldmjr | September 30, 2008 5:15 PM

The mark to market rules are there for good reason. Otherwise, what the banks will have are fantasy books.

Worthless loan? No problem. In 1000 years, with inflation, it might actually be worth something.

It's a recipe for trouble. Why can't these people get it into their heads that the money is gone. It's not coming back. They screwed up, and it won't work to pretend it's still there.

Posted by: John | September 30, 2008 5:16 PM

Mark-to-market is gone? Cool! I think my little townhouse is worth $5,000,000! I think my car is a classic worth $500,000! And I think the box of early 1980s baseball cards I have sitting in my attic is worth eleventy trillion dollars!

I'm rich!

Posted by: AK | September 30, 2008 5:19 PM

Holy shiit I can't believe they're contemplating this. So this'll be the next bubble to drive artificial growth until the next accounting gimmick comes along......how bout we start building and making things here again so we have concrete economic growth and not a shadow economy?

Posted by: Mike | September 30, 2008 5:20 PM

"Today's SEC rules clarifications do not end mark-to-market accounting. But they do let the holders of these low-value "toxic assets" to use other ways to value them, which probably will lead to an increase in their value, even though that is not the SEC's intention."

Not the SEC's intention? I don't understand, why else are they doing this? Can someone explain.

Posted by: Madeleine | September 30, 2008 5:21 PM

" Even though homeowners have defaulted on sub-prime mortgages, there is a house at the bottom of it all and that has real value."

Not only might it be a house in poor condition, or one in a market that has slumped - but if there are 35 more senior security holders in the pool the investor has an interest in, the house at the bottom of it all will do them no good at all.

Posted by: Pilgrim | September 30, 2008 5:21 PM

And Garak nailed the origination problem on the head. The "self-regulated" appraisal industry is very much to blame. They are the worst-paid, least educated chain in the mortgage origination link. To earn their $325 per report, they had to please two masters - banks and brokers - who both had an interest in jacking up the values. And if they wanted to make the next $325..., well you can do the math. It adds up to $700B.

Posted by: eed017 | September 30, 2008 5:22 PM

The reason for the problem is deregulation and greed, so the SEC chooses the option of more deregulation?

Can I change the accounting on my taxes next year?

Posted by: faithfulservant3 | September 30, 2008 5:22 PM

Yes, the Republicans suggested this would make the crisis go away... and it just means that no one will know what the value of the bad loans really are. It doesn't solve anything. Like some have said... just Enron all over again. Banks can hide their problems. The Republicans... they are awful.

Posted by: len | September 30, 2008 5:23 PM

It is amazing to me. Absolutely amazing. That people are allowed to write articles such as this.

Of course you could mark value to these assets.

Of course, in the end, the homes have value.

That's not the point.

THE POINT IS THAT THESE DERIVATIVES ARE OVER-LEVERAGED, IN SOME CASES - 30 TO 1!

The only place you read about leverage? Is in the comments of readers to this article. Not from the writer himself.

This just demonstrates the lack of understanding the media has - as to what's going on, and why the LIBOR squeezed even tighter today.

And why we have writers who say: Ah, trust us! It's ok to mark the value wherever you want!

God almighty. This is no different from a nightmare. A nightmare that you know you are in, and can't wake up from. It's as if God himself angry at the economic system, and is showing up these people for their lack of knowledge.

Posted by: Airelon | September 30, 2008 5:23 PM

My favorite part of that lunatic's rant was this:

"What has WALL STREET SUPER-CAPITALISM brought you besides:

Daughters dressing like prostitute"

Posted by: AK | September 30, 2008 5:24 PM

I don't think the author here is referring to a new rule announced today, it's language that went into effect this year and existed in the accounting literature prior to any of the recent bank failures. So nothing new has been announced by the SEC? If you're reading these comments, can you clarify?

Posted by: mainer61 | September 30, 2008 5:25 PM

Reading the majority of the comments here, I can see why we are in a financial crisis. Ignorance passes for wisdom on Main Street and Congressmen react like Pavlov's dog to phone calls and emails when it is less than two months to a General Election.

Check out the sleeper movie, "Idiocracy." We are just about there.

Posted by: NoVa | September 30, 2008 5:26 PM

Check out the sleeper movie, "Idiocracy." We are just about there.

Well I for one am Not Sure who I'm voting for.

Posted by: AK | September 30, 2008 5:28 PM

So the administration, Congress and Wall Street have decided to follow the "Japan" model....wow, what geniuses.....NOT. We continue to learn from history that people do not learn from history.

Posted by: Anonymous | September 30, 2008 5:28 PM

It's like I've been saying the past year. The Gov. sadly cannot hire the best and brightest because they just don't pay as well as the private sector. So the Fed. Gov. is over run with C+ graduates at best. It's like the 100 posts before me. This type of acct. caused Enron to debacle as well as a couple of others courtesy of Arthur Anderson. But then again the Feds new this was bound to happen considering the fact that Arthur Anderson had been sued by the Feds 4 times in the 1900’s. No they want you to trust them LOL and let them buy the foreclosed properties from these greedy SOB’s never mind the countless families that were destroyed. I say NO WAY. Let Wall Street solve their own problem. After all we have bailed them out twice since 1975. Maybe they can locate the Keating 5 and borrow a little money from them. Basically it would be the same thing considering the money once belonged to the people of the US. The one positive thing here is, the SEC showed the US how pathetic they are (old ideas equal the same mistakes) and hopefully we'll all take notice. Everyone needs to contact their state reps and voice their opinion before we go down with this ship.

Posted by: askgees | September 30, 2008 5:30 PM

The politicians and media are not telling you about all those mortgage derivatives, those are probably worth much less than 0, because they have liabilities attached to them. And Wall Street wants to stick that to the taxpayers. The sub prime mortages should not be the main worry, they have real houses attached to them and are in the $250 billion range. Its those over leveraged toxic derivatives. The Wall Street sharks and their corrupt politicians want the tax payer pigeons to pay for their losses. DO YOU THINK AMERICAN TAX PAYERS ARE A BUNCH OF IDIOTS - I HOPE NOT!!!

Posted by: luszlips | September 30, 2008 5:33 PM

Does anyone give credence to how simply gullible we as consumers are?

Why do we accept an accounting process that created the credit bubble,as now worthy and credible enough of saving itself?

I guess we have no choice but to trust accountants to find the answer in the problems they've created; but isn't this simply stupid governance and consequently financial fraud over and over and over, again?

Posted by: JML | September 30, 2008 5:33 PM

Of course this is all intended to raise the value of assets on the books. So, what's going to happen when the market goes up? Are the value of the assets then also going to go up? And supposedly, to what? How will investors have any confidence in the real value of the assets if mark to market goes away? I'm sorry, but this is nothing more then a tricky way to overvalue assets on the books. It's also very, very dangerous. So, if this can be done with mortgage backed securities, why cannot it be done with equities? I mean, isn't the value of a stock more potentially then it's current sale value? As for those who say many mortgages will not ultimately default, I have news for you. Many of them will, and already have. Mortgages given by lenders as ARM's or without documentation that the borrower even had a job or good credit. It seems the market is punishing the bad behavior of banks and mortgage lenders. I think it's better for them to take the medicine then try to "change the rules" with fantasy accounting procedures, don't you?

Posted by: Joseph | September 30, 2008 5:35 PM

I know. Let's play pretend. Why don't we just make up a value?

Posted by: Wilda Hughes | September 30, 2008 5:37 PM

Gotcha,

So what this new accounting scheme means is that if I have a security that I purchased for $50 Million and I have no chance to collect on this security that I can value it at $75 Million, and then when the bailout comes around, instead of receiving $50 Million I can now get $75 Million.

Or maybe I'm preparing to put my bank on the auction block. I've got a lot of bad debt on my books, and in order to fetch a higher price on the sale, I'll artificially increase the value of the security and totally screw the new owners.

It all sounds reasonable to me!

Posted by: Hello | September 30, 2008 5:38 PM

Does anybody with any basic accounting or economic understanding ever comment on these boards?

This rule IS important and SHOULD be changed as the SEC has done. Companies like Wachovia, Bank of America, Citi, and MANY others packaged their mortgages and sold them to Fannie and Freddie (at the govts. request). The idea was to spread subprime risk by combining it with safer mortgages in the hopes of creating safer overall assets. The problem is that a large number of subprime mortgages started to go bad, and the market for these debt obligations (CDOs) started to evaporate. The bonds were sliced and diced and resold so many times that it was difficult for any financial institution to know what crap any other bank was holding, and they stopped issuing all sorts of short term debt and commercial paper to one another.

Under the prior rules, these banks were writing these assets down billions of dollars at a time. The problem is that once certain debt to asset thresholds are crossed, capital requirements rise as well as borrowing costs, greatly squeezing the liquidity of these organizations. Often times they are forced to sell the assets at pennies on the dollar.

When the assets are sold for so cheap, a REAL loss instead of a paper loss occurs. This creates a vicious cycle. The reality is that when Bear Stearns had to sell $40 billion worth of assets for $100's of millions, the paper represented title to thousands of homes with real value. Just because there was no market for the debt instrument doesn't mean there wasn't a market for the underlying asset. The reason vultures are buying these paper instruments is that they can collect the mortgages and forecloses on the bad homes. Even if EVERY single mortgage was defaulted on, and even if every single home was worth half the value of the mortgage, they still made a killing. It is quite plausible that changing the requirement to mark an asset to market when it can't be valued properly causes huge losses, gums up credit markets, and has numerous downstream effects.

Just because a term mark-to-market applies to another crisis does not a connection make. It would be like saying "we hear there were debits made during the great depression, now we're hearing debits. Must be shenanigans.".

Posted by: wow | September 30, 2008 5:38 PM

IT IS NOT THE RIGH TIME TO CHANGE THE RULES!
Are they to make the crisis even worse!

THIS NEW SCHEME DOES NOT SEEM HONEST! IT SMELLS!

Posted by: CommonSensePlease | September 30, 2008 5:39 PM

Note to readers: This is a complex issue that broke late in the day. After doing some interviews, I have tweaked a couple of sentences but have not substantially changed the posting.

Some Republicans would like a complete end to mark-to-market accounting; today's SEC/FASB clarification does not do that.

What it does is give people who have to value these exotic, bundled mortgage-backed securities, and other assets, some wiggle room in valuing them.

Posted by: Frank Ahrens | September 30, 2008 5:41 PM

Another bailout WITH windfall profits for the crooked banks and their slime management.

If I want to sell my house, the value is determined in the marketplace. I can't put an arbitrary value on it and get the government to underwrite it.

This is exactly what these corrupt bank managers and their SEC accomplicies are trying to do.

Instead of the market determining what these toxic assets are worth, the SEC will allow them to inflate the value so when the taxpayer purchases go forward, the banks and their managers will reap windfall profits while the taxpayers will be left holding the bag.

DON'T LET THEM DO IT! WRITE OR CALL YOUR REPRESENTATIVES.

RESCUE THE FINANCIAL SYSTEM; DON'T REWARD THE WALL STREET THIEVES AND THEIR INFLUENTIAL LOBBYISTS!

Posted by: A.S. | September 30, 2008 5:42 PM

Right. The problem was that the securities being traded weren't obscure enough. We need our banks to revalue those securities according to a schedule of the bonuses upper management wants to achieve.

The SEC, running scared from talk radio and faux news, is doing its best to make the problem bigger. What is funny is that the supposed "conservatives" can't seem to trust what the market does well - which is pricing. Transparent markets mean that the pricing of commodities of whatever type responds efficiently to the forces of supply and demand. But the "conservatives" like the idea of a pig in the poke market, where you can unload a lemon on your goober neighbor - Yee ha! It is the redneck code of (non) honor, and has served peckerwoods for centuries. So they want it transposed so that they can get to speculatin' with the real estate - which they were doing so brilliantly till the "minorities" come and, with the help of them their democrats, ruined this great thing. Why, many of em bought great bass fishing boats with their home equity loans. What could be wrong with that?

What clueless yahoos. The Red States are the heavy burden the U.S. has to bear in this world, but lately, the burden is getting ever heavier.

Posted by: Roger | September 30, 2008 5:47 PM

The banks MUST be forced to TAKE A HAIRCUT ON THE TOXIC WASTE!

Paulson wants to give them "stated value" which means "100 cents on the dollar"...

How about .35 cents on the dollar?

THAT IS WHAT A PRUDENT BUYER WOULD PAY UNDER THIS NEW ACCOUNTING RULING!

Posted by: HAIRCUT | September 30, 2008 5:50 PM

That's right. What we need now is looser accounting rules.

Posted by: trotucor | September 30, 2008 5:50 PM

The writer argues for mark-to-market because "asset holders could place value EQUAL TO the ESTIMATED vaue the assets SHOULD bring in the future".
Who decides what the future value should be? The same individuals who as of today can't sell it in the open market? Please .
Another reason for marking to market is supposedly because there an actual house which MUST have some value.
Oh sure. One could spend millions of dollars building a house on top of Mt Everest and the owner could place that cost as the value of the asset.In terms of the housing market, the value of that structure would be close to zero.It has no exchange value.
This is the reason why assets ought to be valued at cost (net of depreciation) OR net realisable (ie re-sale) value WHICHEVER IS LOWER. This used to be called the prudence principal when I was in school in the 70s.
I still think it is a good guide to valuing asset even in the dot com age. Thank you

Posted by: kibeethi macharia | September 30, 2008 5:55 PM

Much needed move according to Bill Isaac and many others....

Posted by: CBAlexander | September 30, 2008 6:01 PM

Democrats blame the Republicans.

Republicans blame the Democrats.

You're all perfect idiots.

It's simple. Greed. Which has bred corruption.

Now, if you trust Mr. Obama to weed out corruption in our government and firms, then you have one of two problems:

Either you haven't spent a lick of time researching the candidates or you are not a thinker. Hey, it could be both. Obama is a muslim with deep-rooted beliefs in Black Liberation Theology. Research Obama's adivsors. Now that's a laugh (or a good cry), but I won't spoil it for you! Seriously. You're kidding me. This guy? Eliminate corruption? Right. Keep thinking, keep researching, and try not to hurt yourself.

You're telling me that the SEC is allowing firms to paint a pretty mathematical picture? And that is supposed to provide liquidity we can count on? Again, laughable. Here's an idea... Equal Protection, right? Let's simply mandate all financial operations by all firms be disclosed of exhaustively, summarized in plain terms, and available to anyone on Earth via the Internet.

Can't you feel these rich execs cringe at the thought? Nobody likes prison.

Question is, who's gonna put 'em there? Nevermind how exactly it gets done, who is going to be a President who will NOT BE TOLERANT? I mean, that's how we prevent this from happening again, right? Let's a make an example out of these greedy executives who care nothing for the interests of the common man. Oh come on, don't say Obama. When y'all talk like that, I feel like I'm getting more and more stupid with each passing word you say. Obama won't even put his hand over his heart when the Pledge of Allegiance is recited or when the National Anthem is played. What kind of American is that? He rarely actually votes (votes "Present") on issues that pertain to the very people he was sent to represent. That isn't right. I want a President with "cojones". I want a bulldog in office. If that means I'm for McCain, then fine... I'll be for McCain. He won't get pushed around. Obama, for Heaven's sake, got to where he is by making promises. He owes favors. Yeah, I'll pass. What does McCain call himself? A maverick? Good. Fine. Let's solve this crisis.

Posted by: Voice of Reason | September 30, 2008 6:01 PM

Democrats blame the Republicans.

Republicans blame the Democrats.

You're all perfect idiots.

It's simple. Greed. Which has bred corruption.

Now, if you trust Mr. Obama to weed out corruption in our government and firms, then you have one of two problems:

Either you haven't spent a lick of time researching the candidates or you are not a thinker. Hey, it could be both. Obama is a muslim with deep-rooted beliefs in Black Liberation Theology. Research Obama's adivsors. Now that's a laugh (or a good cry), but I won't spoil it for you! Seriously. You're kidding me. This guy? Eliminate corruption? Right. Keep thinking, keep researching, and try not to hurt yourself.

You're telling me that the SEC is allowing firms to paint a pretty mathematical picture? And that is supposed to provide liquidity we can count on? Again, laughable. Here's an idea... Equal Protection, right? Let's simply mandate all financial operations by all firms be disclosed of exhaustively, summarized in plain terms, and available to anyone on Earth via the Internet.

Can't you feel these rich execs cringe at the thought? Nobody likes prison.

Question is, who's gonna put 'em there? Nevermind how exactly it gets done, who is going to be a President who will NOT BE TOLERANT? I mean, that's how we prevent this from happening again, right? Let's a make an example out of these greedy executives who care nothing for the interests of the common man. Oh come on, don't say Obama. When y'all talk like that, I feel like I'm getting more and more stupid with each passing word you say. Obama won't even put his hand over his heart when the Pledge of Allegiance is recited or when the National Anthem is played. What kind of American is that? He rarely actually votes (votes "Present") on issues that pertain to the very people he was sent to represent. That isn't right. I want a President with "cojones". I want a bulldog in office. If that means I'm for McCain, then fine... I'll be for McCain. He won't get pushed around. Obama, for Heaven's sake, got to where he is by making promises. He owes favors. Yeah, I'll pass. What does McCain call himself? A maverick? Good. Fine. Let's solve this crisis.

Posted by: Voice of Reason | September 30, 2008 6:01 PM

There is definite value in these assets, which the current illiquid markets will not allow to show up on companies balance sheets using M2M. Foreclosures may be higher than were modeled into the structures, but you still have the underlying value of the asset and the cash flows from the 85% + of loans, which are still not going to foreclose. Keep the downward spiral going and it will feed itself with higher foreclosures, etc....

Someone mentioned appraisers being the culprit in all this. Are you joking? Appraisers based their numbers on comps, which are what people paid for comparable homes in the neighborhood. Who cares if they have a slight bias to inflate values ever so slightly? If the buyer is not there, it does not matter one bit.

This situation started during the CLINTON administration where social engineering entered the housing markets and deregulation began. Then, Alan Greenspan lowered the fed funds rate too low for far too long before he left office bc he did not want his "legacy" tarnished by retiring with a bad economy, which only delayed and worsened what we are seeing now. Then, the BUSH administration did nothing to correct any of it and lauded homeowner % rates etc... during speeches including some State of the Union addresses. Banks, Wall Street, Lenders, and borrowers just pounced on the historically low rates and deregulation to make a ton of money for a few years. And, finally, borrowers were all too eager to purchase properties with ever increasing exotic mortgages to buy properties they could not afford.

So, there is plenty of blame to go around and everyone is culpable to some degree including the borrowers. It was a kind of a perfect storm that lead to a very large housing bubble that has now burst big time. I'm just a little shocked that it has gotten this bad. Have we hit bottom yet? I certainly hope so!

Posted by: Rob P | September 30, 2008 6:01 PM

Doesn't Jeff Skilling's tramp stamp read:
"Mark to Market!"

Posted by: spicer | September 30, 2008 6:01 PM

One big reason for the problems at Enron was that Skilling used mark-to-market accounting in the same voodoo-accounting manner in which the new accounting could be used. What Skilling wanted to value using mark-to-market, was current contracts to provide petroleum products in the future. Since we don't really know what the petroleum products will be worth in that future time, Enron had to estimate what it would be. Which meant, of course, that they estimated what they wanted to.

And if a bank bases any of its loans on the assets of the person or business borrowing money, and that bank uses the the new accounting rules to calculate its own assets, would that mean that it would have to accept its customers using the same rules to calculate their assets, and, therefore, their trustworthiness? Would someone applying for a loan be able to say, "Sure, I currently couldn't sell that for much, but recently I could have."?

Posted by: Sharen | September 30, 2008 6:04 PM

The change in accounting rules is a great move towards some sanity, now lets forget about the bailout!!


Posted by: Jeff Crocket | September 30, 2008 6:13 PM

Both accounting ideas are imperfect--the one doesn't work well on the downward slide, the other doesn't work well when trending up. Buyer beware! (And, that includes you Paulson, and you American people.)

Posted by: rusty 3 | September 30, 2008 6:16 PM

Too late for Wachovia. Too bad for me. My retirement fund is now 20% smaller than if this "relaxation" occurred a week ago after the OTS took down WaMu. JPMorgan made "marks-to-market" on WaMu's assets that were then used to take WB under. What is this? Cox learning as he goes? Pretty tough lesson for Wachovia's employees, for me and for all the other WB investors.

Posted by: HWDuncan | September 30, 2008 6:16 PM

On a sunny day, there's no market for umbrellas. That doesn't mean the umbrellas are valueless. It means their value will be realized when in rains, and it WILL eventually rain. Same here. Behind all this worthless paper is real property that WILL eventually appreciate in value. So the paper is simply worthless today, but not necessarily forever (which is exactly why the gov't was willing to buy it). This annoncement just changes the rules from something completely artificial (requiring your inventory of umbrellas to be valued as worthless on sunny days) to something that fits reality better.

Posted by: Dave H | September 30, 2008 6:17 PM

I want EVERYONE to read what I posted on September 16th; TWO WEEKS AGO! I love the Obama campaign; but if someone is reading these posts, I would love to get paid! Both Obama and McCain are suggesting what I wrote below. Isn’t common sense, with a touch of advanced education, great? (see below)
-----------------------------------------------------------------------

Comment on: Stocks Plunge as Crisis Intensifies at 9/16/2008 11:23 AM EDT
I’ll have to do some calculations; but I think that if the FDIC decides to insure monies up to 250K - instead of 100K - less people would feel forced to invest their excess (anything above 100K). This idea, coincided with Obama’s plan to cut taxes for those making less than 250K a year, might be an answer to stimulating the Economy. This idea goes a little deeper, but hopefully you guys get the gist of it.

Posted by: BasicInstinct | September 30, 2008 6:17 PM

Accounting is not something that ordinary taxpayers think about much, but it could hardly be more important to businesses: It's the value they place on what they own, what they owe and what they can sell.
________________________________

Really? We Dummies don't know a Credit from a Debit huh? Look the last thing we "DUMMIES" will vote for is some "ACCOUNTING MUMBO-JUMBO"!!! More Regulation..NOT LESS!!

Posted by: harried | September 30, 2008 6:20 PM

Just what we need. More deregulation and make-believe pricing.

What is the value of a dollar if trillions of assets designated in "dollars" can be valued as companies see fit? They can inflate or deflate as needed, while "paycheck" dollars remain fixed.

Posted by: Nelson Alexander | September 30, 2008 6:22 PM

For all you finance geniuses in the comments ...
The Eron scam and pricing collateralized bonds are not even close to the same thing ...
If you are trying to sell your house today and nobody wants to buy it then in a mark-to-market world you would be forced to value it down, possibly to near zero ... a month from now when there are buyers you can get 75% of what you paid, today nothing ...
so in a mark to market world you would be wiped out ... today ...

That is what is happening in the CMO market today and even if someone wants to purchases these depressed assets many banks are unwilling to sell because they expect that the government bailout will over pay for the bonds, so they are holding out ...

Posted by: Jeff | September 30, 2008 6:27 PM

Now multiply exponentially and you can see the positive affects in liquidity for the banks. Do your homework and understand the process before you start screaming.
Posted by:
cyrix1 | September 30, 2008
4:43 PM
----------------------------
When did you MUMBO-JUMBO Economist first confuse Multiplication with Exponentiation!!! Go learn some math Ahole...and while you are at it...BALANCE YOUR FRIGGIN BOOKS!!!

Posted by: Harried | September 30, 2008 6:33 PM

"User reviews and comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site."

About half of the the absurd comments here need to be removed. Why are the commenters at newspapers so much more than those on blogs?

Posted by: James Destro | September 30, 2008 6:34 PM

wow wrote:
The bonds were sliced and diced and resold so many times that it was difficult for any financial institution to know what crap any other bank was holding, and they stopped issuing all sorts of short term debt and commercial paper to one another.
+++++++++++++++++++++++++++++++++++++
WOW,
So what you're saying is, let's allow these institutions to stick an artificial value on the currently worthless security that may take a year to ten years to increase in value before any institution can make money on the security.

This allows Bank "A" who has already lost money on his investment, sells a bunch of risky securities to Bank "B" at a discount. Bank "B" discovers he can't make any money on it takes his hit and sells the securities to Bank "C" and on and on. This way we're spreading the bad debt around to more institutions.

wow, what a scheme! Everyone buying in to someone else’s bad loan.

Wouldn’t it make more sense to work a little bit of transparency in to the process instead of everyone trying to screw someone else for their bad judgment?

Maybe it will take a little of the GREED factor out of the transaction. But we wouldn't want that would we?

Posted by: Anonymous | September 30, 2008 6:35 PM

A.C.B.W.S.F.S. wins the award for the most insane rant I've ever seen on the internet. Go seek therapy, right now. No, you may not add another comment of all caps. Go.
What are you still doing here? Go. Now. This article will still be here when you get back.

Posted by: bloatboy | September 30, 2008 6:36 PM

It's amazing how few people here realize how important this clarification should be. It DOES NOT mean that these securities can be valued at whatever the seller wants. What it means is that the seller is no longer FORCED to value them at zero simply because others are valued at zero. This will allow some of the better securities to move more quickly. Get an education before you start posting socialist drivel.

Posted by: rob | September 30, 2008 6:36 PM

As an accountant in the mortgage industry, I can see by reading these ill-informed comments that my job is safe! Most of you have no clue how this stuff works.

Posted by: CPA | September 30, 2008 6:38 PM

when did this turn into a youtube comments section?

Posted by: brett | September 30, 2008 6:40 PM

"User reviews and comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site."
About half of the the absurd comments here need to be removed. Why are the commenters at newspapers so much more than those on blogs?
Posted by: James Destro | September 30, 2008 6:34 PM
___________________________________

The last Resort of the Retard "CENSORSHIP"!!!

My comment is simple: "ANY ONE THAT VOTES TO GIVE WALL STREET A BAILOUT ON OUR KIDS BACKS IS DEAD MEAT"!!!
Got that "MUMBO-JUMBO ECONOMIST"!!

Posted by: Harried | September 30, 2008 6:43 PM

Comon, people. We just had a 700+ point drop in the stock market followed by an almost 500 point recovery.

The point is, companies (even the good ones) would benefit from some insulation from raw market swings.

This is not the magic bullet, but it is one good step. We need to follow this up with many more good steps.

Posted by: Mattsoundworld | September 30, 2008 6:45 PM

CPA wrote:
As an accountant in the mortgage industry, I can see by reading these ill-informed comments that my job is safe! Most of you have no clue how this stuff works.
++++++++++++++++++++++++++++++++++
Thanks CPA,
If our laws were written in a concise and straightforward manner, rather than in a way CPA's and Tax Lawyers can find loopholes, you'd be out of a job.

Sounds like a good idea!

Posted by: Anonymous | September 30, 2008 6:45 PM

"MOOSE COMMUNITY COLLEGE SARAH PALIN FEARS SHARING THE STAGE WITH LAW SCHOLAR JOE BIDEN"

Joe and his crew are why we are in this mess.

Mark to MArket causes all items that are worth something to be devalued because one asset is bad. If you want to see it in action, The neighborhood median rate is $200,000. Neighbor A sells his house at $150,000 for a net -$50,000 loss. Now, the market says, everyone in the neighborhood's houses are worth only $150,000. i.e. A lot of neighbors got screwed because of ONE greedy neighbor who wanted out.

The Mark to Market devaules valuble assets because of one bad sell.

This is the issue in America...the mortgage values dropped because of mark to Market!

Posted by: WSass | September 30, 2008 6:45 PM

The lack of critical thinking here is amazing!

Show of hands - who here is current in paying their mortgage?

That's what I thought... most of you... I'll guess more than 90% of you are current.

With M2M, what is your mortgage worth to someone else if no one wants to buy it? Guess what - it's zero, even though there is absolutely NOTHING WRONG WITH IT!!!

But in reality, there's nothing actually wrong with it, it's all "in the accounting"...

Same thing with the "subprime mess"... some of them (maybe 25%-30% by some estimates I've heard) are NOT current and probably no one knows which ones or how many more will go "bad"... In that state, would you buy any of them at all? No? Then they are worthless by M2M, even though they are current and paid regularly. But that doesn't mean they are ALL worthless (except by M2M).

That means they have some actual positive non-zero value in a non-M2M world that needs to be recognized somehow.

Posted by: Scott | September 30, 2008 6:45 PM

This was a very useful article.

I have wondered why these assests were being valued at zero when there are houses and land involved (that can't be worth zero -- if you cut the price by say 1/2 its value, the market would be flooded with bargain hunters). Now I know why.

I am concerned that this, too, could be abused by the financial sector that is prone to over-excitement. But maybe the Plaintiffs bar will help keep them in check.

Posted by: Anonymous | September 30, 2008 6:49 PM

These SEC bozos are about to create another financial nightmare down the road. It's only a matter of time until some other wretched, greedy banker figures out how to abuse the heck out of this in cohoots with their spineless, "yes sir" accountants, and we will then have the next crisis.

How stupid can you be? We are back to the artificial, pie-in-the-sky value creation again!

Posted by: AR | September 30, 2008 6:51 PM

We don't need a bailout.

Posted by: Janine | September 30, 2008 6:51 PM

I love it! I've been trying to unload a 1981 Chevy Impala with a blown head gasket but nobody wants it. Can I now value it as a collector's item and borrow $20,000 from the government?

Posted by: David | September 30, 2008 6:53 PM

Mattsoundworld wrote:
Comon, people. We just had a 700+ point drop in the stock market followed by an almost 500 point recovery.

The point is, companies (even the good ones) would benefit from some insulation from raw market swings.

This is not the magic bullet, but it is one good step. We need to follow this up with many more good steps.
++++++++++++++++++++++++++++++++++++++

Prior to reducing the capital gains on investments, investor would weigh the pluses and minus'of selling a stock. (Whether he would make a profit from selling.)

Today with the availability of online investment firms, stocks are being bought and sold in a matter of minutes by an individual investor. Years ago, an investor may have held on to the stock through his lifetime before he sold it to use for retirement.

Volitility in the market doesn't just happen, there has to be a reason for the volitility. This is all brought about by unregulated GREED.

Posted by: Anonymous | September 30, 2008 6:54 PM

Auditors (and their critics) need to get more quantitative. Engineers would not buy off on either discarding MTM entirely, nor entirely discard the idea that a market might be temporarily out of equilibrium. Rather, they would assign some time period (a "time constant" in engineering terms) over which the value of the asset could be averaged. Maybe six months or a year after a rapid fall the value could be assessed again in real market terms. This would avoid the subjective quality of having no MTM evaluation at all, but not require all assets to be immediately revalued to their lowest point, which can obviously trigger instability in and of itself.

Think, people.

Posted by: James Fox | September 30, 2008 6:56 PM

AMERICANS COME BEFORE WALL STREET FRAUD SPECULATORS | September 30, 2008 4:52 PM

Hmmmm, is that you Barack? Sounds like you with all the America and Republican hatred, the serious problem with verbal diahrrea, and generally incoherant hateful ranting. OTOH it could be your friend the Rev. Wright. Hard to tell.

Posted by: wadikitty | September 30, 2008 6:58 PM

Hey, "Americans come before...", stop your ranting and raving and take an economics course as well as look at the REAL players in this situation. It is NOT the GOP that caused this mess. It started under Carter with his CRA. It continued under Clinton and got worse and worse as time went on. The vast majority of those who participated in this fraud were DEMOCRATS.

So, go ahead and rant and rave and make a fool out of yourself. But the truth is that the theives who stole most of the money and set up those wild derivative instruments were Democrats and part of the whole incestuous Washington crowd.

Posted by: Anonymous | September 30, 2008 6:58 PM

All of the players in the structured finance scheme knew that it was a fraud. From the originators of the mortgages, to the investment banks who packaged and securitized them into MBS, and then immediately repackaged and securitized them into CDOs, to the rating agencies who gave out AAA ratings on the sh*t, to the monoline insurers who provided credit enhancement, to the CDS market counterparties. Mark to model accounting was the code of the road. The music was hot and if you didn't dance you missed out on making a ton of money. Everyone knew this wasn't sustainable because it was all based on a house of cards of extreme leverage and way overvalued assets. A ponzi scheme. Now the music has stopped. Everyone is screaming "start the f*#$&ng music!!! We got to get this sh*t out of our system!! Where is big daddy?

Posted by: Ponzi | September 30, 2008 7:01 PM

I am in complete agreement with Mr. Ahrens. Mortgage-backed securities are not intrinsically worthless as the panic in the market may suggest (attempt a purchase for $5 on a foreclosed property if you'd like). This is not Enron - these are collateralized loans. Housing prices deflating on average 20%, say worst-case 50%, would mandate similar mark-downs, not down-to-zero. Unfortunately however many financial institutions are over-leveraged and cannot afford to put the loans on their balance-sheets and manage them to maturity, and must retain them in the form of (unsaleable) securities. In effect this accounting rule change decreases capital ratio requirements. Now in the question of derivatives, mark-to-zero would be the only way to go, as they represent nothing but foolish gambling and are intrinsically worthless.

On another point, for those who wish to stick it to Wall Street, I'd suggest that we're punishing ourselves and hundreds of thousands of middle-class workers in financial institutions eeking out a living and working their hardest. I'd instead suggest publicly hanging participating CEO's and even Greenspan himself as treasoners (after due process of course). This proposed accounting rule change appears a much lesser evil than the socialist property seizure / bailout by the Federal Government, which should truly make us all tremble.

Posted by: JMS126 | September 30, 2008 7:03 PM

A bailout will NOT only not help but it will hurt by driving the Federal Government into a post WWI German style stag-flation. The pundits will decry this but then a few weeks ago they stated we were not even in a recession.
This economy needs to transform the financial markets from Las Vegas rules to sensible, transparent, coherent, and independently enforced financial rules. The fact that investment brokerages placed large bets with investor money and then bet that those investments would go down, says it all. And why do we think Paulson is an expert on the economy when is resume is having set up Lehman for the trash bin, took a 25 million dollar bonus and was then picked by BUSH to be the Sec. of the Treasury?
The fundamentals of this economy are unsound and contradictory - bad, bad consumers using credit - bad, bad consumers not spending because 70% plus of our economy is based on consumer spending.

Posted by: Kathleen | September 30, 2008 7:04 PM

Sweet talk thin air into an asset - good luck and see you later !

Posted by: ratl | September 30, 2008 7:05 PM

Someone please find AMERICANS COME BEFORE WALL STREET's meds for him/her.

Posted by: d. McArthur | September 30, 2008 7:05 PM

I loved John Kline's response to cyrix1 explanation. I guess I am ubra-rich. Unfortunately I can't take it to the bank - assuming I can find a sound one or even the 7-11 for that matter. Perhaps an investment in a wheelbarrow to carry my cash . . .
Funny in tough times. It gives me faith in the American mindset.

Posted by: Olivia | September 30, 2008 7:10 PM

Oh, and AustinRob is a hoot! Wow, everyone gets it but the author of the article. Or, is he just lying? WP - fire the dude and find a conservative to balance your coverage that has a brain and I don't mean the one from OZ.

Posted by: OGH | September 30, 2008 7:14 PM

As an accountant in the mortgage industry, I can see by reading these ill-informed comments that my job is safe! Most of you have no clue how this stuff works.
Posted by: CPA | September 30, 2008 6:38 PM
________________________________

2+2=5.5?

Posted by: harried | September 30, 2008 7:28 PM

As an accountant in the mortgage industry, I can see by reading these ill-informed comments that my job is safe! Most of you have no clue how this stuff works.
Posted by: CPA | September 30, 2008 6:38 PM
____________________________
Around 1959 me and Bob Winkowitz took our differiential calcuus. I passed, Bob flunked and got sent to the business school, BARUCK CCNY. Years later I met Bob,,he was running Radio Electronics down on Borden Avenue. Ran it right into the friggin ground! Accountants should never be allowed to do anything but count beans!!

Posted by: Harried | September 30, 2008 7:36 PM

As an accountant in the mortgage industry...
Posted by: CPA | September 30, 2008 6:38 PM
_______________________________

And you have the nerve to ADMIT IT!!!
Boy that's Stupid, Twice Over!!!

Posted by: Harried | September 30, 2008 7:45 PM

Does the SEC 'clarification' mean that these two paragraphs in the bail-out package no longer apply?

**
Section 132 of the proposed Emergency Economic Stabilization Act of 2008, titled "Authority to Suspend Mark-to-Market Accounting" restates the Securities and Exchange Commission’s authority to suspend the application of FAS 157 if the SEC determines that it is in the public interest and protects investors.

**
Section 133 of the proposed Act, titled "Study on Mark-to-Market Accounting," requires the SEC, in consultation with the Federal Reserve Board and the Department of the Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including its effects on balance sheets, impact on the quality of financial information, and other matters, and to report to Congress within 90 days on its findings.

http://banking.senate.gov/public/index.cfm?Fuseaction=Articles.Detail&Article_id=6b93824f-c8c3-4478-82a8-e39f49a3a8fd

Have these two provisions (oversights kinda or requirements depending on your point of view) been dropped now?

Wow.

Posted by: gracefulboomer1 | September 30, 2008 7:46 PM

What a number of commenters do not seem to understand, is that asset valuation methods that are based on the intrinsic value of individual assets (as opposed to mark-to-mark valuation method) incorporate the caveat that valuation cannot exceed original cost.
This eliminates the inclusion of unearned "profits" as well as the wild day-to-day fluctuations in the wider markets. Note also that this clarification by definition can only be applied to "illiquid" assets.
Not all accountants and auditors are crooks. The vast majority apply diligence, experience, and sound professional judgement in deciding upon these 'valuation adjustments' which are, after all, estimates.

Posted by: PeterF | September 30, 2008 7:57 PM

The biggest financial scam in history is Fannie Mae and Freddie Mac. Republicans tried in 2004, 2005, 2006, 2007 and 2008 to reform both scam companies and they were blocked by Democrats. 90% of teh financial implosion is due to Fannie & Freddies $5 trillion scam and the ex-exec now working for Obama who looted both companies to the tune of $500 million.

Posted by: Freddy | September 30, 2008 8:14 PM

Peter F is correct. In addition many of these securities are comprised of mortgage loans that are paying and creating cash flows. Those cash flows have a value and to allow some reasonable valuation of that cash flow is logical and fair. It will allow well run banks who are being unfairly panelized by an irrational market to regain some strength on their balance sheet.

Posted by: John F | September 30, 2008 8:20 PM

We did everything we were supposed to do; we went to college and saved our money to buy a home and then have a child. Now, neither of us can afford to quit our jobs. Whether we call it a “rescue,” an “investment,” or a “bailout,” it is, what it is – corporate welfare. We do not have a small business and raising the federal deposit insurance limit from $100,000 per account, to $250,000 per account, does not do a thing for us considering our extra money goes to making ends-meet.

Yesterday, September 29, 2008, Federal Reserve Chairman Ben Bernanke and his colleagues pumped an extra $630 billion dollars ($630,000,000,000) into the global financial system. Now, our politicians are pushing for a $700 billion dollars ($700,000,000,000) to bailout American and non-American financial institutions and/or businesses. That comes to a total of $1.3 trillion dollars ($1,330,000,000,000) of taxpayer money pumped into the financial system in less than a week.

Wall Street's five biggest firms paid more than $3 billion dollars ($3,000,000,000) in the last five years to their top executives. Merrill Lynch & Co. paid its chief executives the most, with Stanley O'Neal taking in $172 million dollars from 2003 to 2007 and John Thain getting $86 million dollars, including a signing bonus, after beginning work in December. The company agreed to be acquired by Bank of America Corp. for about $50 billion dollars on Sept. 15. Bear Stearns Cos.'s James ``Jimmy'' Cayne made $161 million dollars before the company collapsed and was sold to JPMorgan Chase & Co. in June. Our current U.S. Treasury Secretary pushing for the bailout, Henry Paulson, former Goldman Sachs Group Inc. CEO, received about $111 million dollars ($111,000,000) between 2003 and 2006.

We feel betrayed, we feel lied to and we want those financial institutions and individuals responsible for this mess to be held accountable. If our politicians want to let them off the hook by giving them our money, our $700,000,000,000, then we need to hold those politicians accountable when we vote this November.

Posted by: Anonymous | September 30, 2008 9:39 PM

Can anyone tell me where I can get a good rebuttal to the accusations that the Democrats were the primary cause of this financial mess. I have seen the evidence from the other side and it sure is strong. I like to be opened minded about this, but I haven't seen any satisfactory response to these charges. They really do not address the points. Did the federal government intimidate mortgage companies to give loans to the less credit worthy? Was Freddy/Fannie the main catalyst behind this crisis? Did the Democrats block any kind of regulation of these agencies? (Based on the you tube videos, I think this one would be hard to deny) If you claim they weren't the primary reason, what was their role? Would regulation have helped to ease the current crisis?
What caused the housing bubble? What distorted the housing and mortgage markets? We are investigating the Bush administration for everything, do you think we could have some investigations into this mess. Once those questions are answered then we can pass a bill to fix the prior problems and prosecute and investigate the primary politicians and CEOs responsible for this mess.

Posted by: Tom | September 30, 2008 9:57 PM

This is not always true. An awful lot of this stuff is literally worthless.

-- As soon as houses in any major problem area (i.e. Detroit, Inland Empire, etc..) are forclosed and vacated, the metal strippers move in and take all the pipes and wires. Water floods the house, which gets colonized by toxic mold. Any new owner has no choice but to tear the house down. Sometimes it is even the foreclosed former tenants that strip the metal on their way out. The land may have value (minus the cost of demolishing a toxic mold colony), but the houses don't.

-- Mortgage backed bonds were bundled and then sliced into tranches. The top tier has first dibs on all revenue, and they get paid in full before the lower tiers get anything. If mortgages only pull say, 50 cents on the dollar, only the top tier gets anything. The lower tiers are truly worthless.

" Even though homeowners have defaulted on sub-prime mortgages, there is a house at the bottom of it all and that has real value. "

Posted by: Andrew P | September 30, 2008 10:21 PM

The whole Sarbox fiasco was an over-reaction which has cost the US tons of jobs as well. It is true that it would be foolish to allow "toxic" sub-prime loans to be valued at full dollar value. However, forcing a company to go under because they are "currently insolvent" because there is no market for the loans is imbecilic as well. There are projections that the govs will actually make money on the toxic loans - -and if that is being used as a justification for the bailout why not let the corporations use the worth of the loans to avoid insolvency. The bailout seems to be aimed at Democrat Paulson's investment bank friends at Goldman Sachs etc. If you look at how much money they have given to the Dems it all makes sense. Why not at the very least give the market a chance to mitigate some of the damage and then maybe the 40% of the people in this country who actually pay taxes like me won't get stuck holding this bag of steaming manure.

Posted by: nokarmahere | September 30, 2008 10:55 PM

ATM:
(i) an automatic method of fecal control;
(ii) a necessary enema for the market;
(iii) an indictment of the deregulation, hence:
(iv) de-leveraging.
Tell it to Briana Banks.
Sheesh!

Posted by: pron-digious | September 30, 2008 11:30 PM

Don't try to pin this crisis on accountants. Accountants, by and large, weren't the ones who sold no-interest loans or loans worth 125% of the appraised value to people who had no other means of repaying them.

What the SEC and FASB clarified today were fairly technical rules that stipulated when market prices were to be used to determine fair value vs. other measures such as internal estimates. Generally speaking, a market price IS more reliable than an internal estimate, since, in a normal functioning market, there is less bias. The rules (called FAS 157) that, unfortunately, came into place just as this crisis was beginning in 2007 perhaps placed too much faith in the existence of active markets, just as they were drying up, and this is intended to alleviate some of the distortive effects.

That said, it's next to impossible to argue that, conceptually, fair value isn't what financial instruments should be carried at. Financial instruments represent streams of future cash flows, pure and simple. Cost (the previous measurement tool) is irrelevant, and "true economic value" is a nebulous term. Maybe what we need is better guidance or better use of judgment as to when an active market exists, but generally speaking, if people are buying and selling assets at a given price, it's hard to argue that it is worth anything more or less than that price.

Posted by: KPO'M | September 30, 2008 11:34 PM

The key point is that my house is worth what people will pay for it WHEN (and only when) I actually have to sell it. As long as my mortgage is paid, why should my bank (let alone the holders of the mortgage derivatives arising from my payment) have to assume in its accounting that my mortgage is worthless. Mark to market cured ENRON by collapsing the whole financial system? That's not voodoo, that's insanity.

Posted by: FireTag | October 1, 2008 12:27 AM

The government believes that those assets will be worth something soon --

No it doesn't. This will take at least 10 years to straighten out.

Posted by: Steve J. | October 1, 2008 12:30 AM

But they do let the holders of these low-value "toxic assets" to use other ways to value them...

We've been through this already. It's time for the banks to stop lying to us.

Posted by: Steve J. | October 1, 2008 12:32 AM

Here's the deal:

Allow the SEC to relax the MTM rules for the Wall street banks.

Allow individuals to adjust their mortgage payments down to reflect the market hit they have taken in the downturn.

Seems fair to all

Posted by: jwint | October 1, 2008 1:00 AM

Three and a half years ago, John McCain belatedly cosponsored an apparently "dead" bill on mortgage regulation. He then did nothing else to revive it or bring it back up for consideration.

S.190 - A bill to address the regulation of secondary mortgage market enterprises, and for other purposes.
Sponsor: Sen Hagel, Chuck [NE] (introduced 1/26/2005)
Latest Major Action: 7/28/2005 Senate committee/subcommittee actions. Status: Committee on Banking, Housing, and Urban Affairs. Ordered to be reported with an amendment in the nature of a substitute favorably.
--------------------------------------------------------------------------------
COSPONSORS(3)
Sen Dole, Elizabeth [NC] - 1/26/2005
Sen Sununu, John E. [NH] - 1/26/2005
...time passes...
7/28/2005 (the date of this bill's LAST activity)
Sen McCain, John [AZ] - 5/25/2006

10 MONTHS after anyone had looked at this bill, McCain blew the dust off it and cosponsored it. He didn't do anything to push it forward, and the bill never saw any more activity in the Senate.

That seems to demonstrate a serious lack of leadership. It also continues the pattern of McCain stretching the truth, distorting the facts and outright lying to get elected. "Journalists" need to do their jobs here. Explode this MYTH. McCain has stood for deregulation. His has not been a reformer on the economy. His tax cut for the rich is more of the same.

http://4thoffense.com/mc.html

Posted by: McCain Deregulation Is The Problem | October 1, 2008 1:39 AM

"The house is crazy, says a weary traveler to himself, and will not stand very long; but it is a chance if it falls to-night, and I will venture, therefore, to sleep in it to-night."
Adam Smith, Wealth of Nations

By pretending like this to have more capital than they do, banks will continue making the high-risk trades that got them into this mess. The day of reckoning will still come, but now it'll be even worse.

Perhaps we should revisit Adam Smith to understand why financial people have so much sway in setting the rules:

"The customs of merchants, which were established when the barbarous laws of Europe did not enforce the performance of their contracts, and which, during the course of the two last centuries, have been adopted into the laws of all European nations, have given such extraordinary privileges to bills of exchange, that money is more readily advanced upon them than upon any other species of obligation."

With this new illusory capital, they'll continue flooding areas of the economy that can't absorb it (hoping there's a bigger sucker out there than them), and leave areas parched that would've otherwise been fruitful (like low-risk/long-term/low-pay-out school loans and loans to small business owners wishing to invest in machinery, etc.).

Investment banks and regular banks should've stayed decoupled -- so many officials and bank CEOs say this unholy pairing is necessary to 'distribute risk', but doesn't that actually mean, putting all the extra risk on the very people who didn't incur it? (i.e. tax payers and account holders.)

It wouldn't be so bad if they maintained the capital to support the extra risk, but they keep finding ways to lie about it...like this bogus Mark to Market 'clarification'.

Posted by: Kellas | October 1, 2008 7:27 AM

Kellas, your comments are right on the mark. You're being polite when you say bogus. It's complete and utter sh*t on the Wall St by Who Flung Poo.

Posted by: JML | October 1, 2008 8:14 AM

"Blaming the victim". That's the defense every time the consequences of "diversity", "multiculturalism", and "affirmative action" show up. These terms are just fancy words for a racist spoils system which uses the courts to enforce quotas.

I don't blame blacks and Hispanics for taking advantage of the lax credit standards put in place by Democrats. I blame Barney Franks and Chris Dodd for this mess. In 2005 Countrywide was receiving awards for promoting "affordable housing"; today it is just another "predatory lender". Guess what, Sen. Dodd got a "VIP" mortgage from Countrywide at a special rate.

It was Democrats under Clinton who pushed "affordable housing" by allowing "community organizers" to prevent banks from merging or expanding if they did not meet their quota for minority mortgages. The Community Reinvestment Act CRA made these lawsuits possible. Barack Obama was one of the "community organizers" suing the banks to ensure that they issued loans to borrowers likely to default. Guess what, the bailout bill includes $100 million to ACORN and LaRaza to provide support to the "victims" of the predatory lenders. ACORN and LaRaza led the charge against the banks and originated subprime and no doc loans for substantial fees. ACORN has also been twice convicted of padding the voting roles with dead Democrats. And Barack Obama was a "community organizer" with ACORN.

In the 90's, studies proved that the banks were "racist" because they turned down more blacks that whites for mortgages. Studies which showed that the failure rate for black and white mortgages were the same were ignored ie. the banks weren't racist, they were assessing default risk correctly.

To satisfy the requirements of the CRA, banks needed a way to issue mortgages to poor credit risks; so the subprime mortgage was born in 1995. However, it wouldn't have gotten very far without another Democratic creation, Fannie and Freddie. F&F were private companies that had a government guarantee attached to their operation. This is crony capitalism, not free market economics. Raines, a faithful Democrat, took $90 million from Freddie in just 6 years. Jamie Gorelick took $60 million out of Freddie; she was also a Democrat who strengthened the "wall between the FBI and CIA" and contributed to 9/11.

F&F provided unlimited funds and removed the risk of default from the issuing bank. The issuing bank was able to satisfy its CRA requirements without taking on bad mortgages. CRA problem solved for the black community.

The next enhancement, "no doc" or "liar loans" were put together to address the issue of "undocumented" immigrants who did not have "papers". Without green cards, social security numbers and IRS forms, they couldn't even be issued subprime loans. Solution: ask someone if they were making $100,000 a year, if they said yes, issue them a mortgage. No-doc mortgages solved the problem of meeting CRA quotas in heavily Hispanic neighborhoods. Again F&F assisted the effort by providing unlimited funds and removing the risk of default from the issuing bank.

F&F could provide unlimited funding to subprime and no doc mortgages because F&F came with an implicit government guarantee. Don't worry if the mortgages are no good; there is no problem as long as house prices are rising and if they start falling the government will bail us out. Guess what, house prices stopped rising and the government is providing a bailout.

Is this a market failure or a Democrat led social engineering project "which has come home to roost", to paraphrase the Rev. Wright.

Republican efforts to regulate F&F in 2001, 2003, and 2005 were stymied by Chris Dodd and Barney Franks. Without 60 votes in the Senate, Republicans reform efforts, supported by John McCain, were unsuccessful. Now we are all paying the price for "diversity". My recommendation, just say no to "White guilt".

Posted by: dylan | October 1, 2008 9:34 AM

This is a really big deal. A package of securities may have a 10% default rate inside them. But now the package as a whole must be valued at zero (because there's no market) which renders the holder insolvent. If the package is performing at even 70%, now the holder can value it at 70% (less a risk premium) and avoid illiquidity. It's not voodoo, it avoids the inequity of valuing a low performing asset at zero; instead value it at its expected performance as you would any long term asset.

Question: What do we need bailout for now?

Posted by: lawpol | October 1, 2008 9:58 AM

I like the Dave H umbrella analogy. Time and value are obviously related. Estimating the value of assets now or later are arbitrary decisions. Accountants like mark to market only because they like asset value estimates that are reliable, based on data, and conservative. Remember, financial statements are meant to give an approximation of the economic value of an ongoing firm, not their liquidation value.

James Fox is right, we need better quantitative models, perhaps one that places different weights on different values at different periods of time, including past, present, and future. As long as that method is well understood and uniformly applied, this blended value model would be far superior to a single point estimate, more reliable, and certainly more stable. And as the SEC is suggesting, it only needs to be applied when markets are hyper-volatile or non-existent.

Choosing to value all of our long-term assets today, when a market is in a free-fall panic, only invites the next Great Depression. Wake up.

Posted by: Will | October 1, 2008 11:00 AM

"Blaming the victim". That's the defense every time the consequences of "diversity", "multiculturalism", and "affirmative action" show up. These terms are just fancy words for a racist spoils system which uses the courts to enforce quotas.

I don't blame blacks and Hispanics for taking advantage of the lax credit standards put in place by Democrats. I blame Barney Franks and Chris Dodd for this mess. In 2005 Countrywide was receiving awards for promoting "affordable housing"; today it is just another "predatory lender". Guess what, Sen. Dodd got a "VIP" mortgage from Countrywide at a special rate.

It was Democrats under Clinton who pushed "affordable housing" by allowing "community organizers" to prevent banks from merging or expanding if they did not meet their quota for minority mortgages. The Community Reinvestment Act CRA made these lawsuits possible. Barack Obama was one of the "community organizers" suing the banks to ensure that they issued loans to borrowers likely to default. Guess what, the bailout bill includes $100 million to ACORN and LaRaza to provide support to the "victims" of the predatory lenders. ACORN and LaRaza led the charge against the banks and originated subprime and no doc loans for substantial fees. ACORN has also been twice convicted of padding the voting roles with dead Democrats. And Barack Obama was a "community organizer" with ACORN.

In the 90's, studies proved that the banks were "racist" because they turned down more blacks that whites for mortgages. Studies which showed that the failure rate for black and white mortgages were the same were ignored ie. the banks weren't racist, they were assessing default risk correctly.

To satisfy the requirements of the CRA, banks needed a way to issue mortgages to poor credit risks; so the subprime mortgage was born in 1995. However, it wouldn't have gotten very far without another Democratic creation, Fannie and Freddie. F&F were private companies that had a government guarantee attached to their operation. This is crony capitalism, not free market economics. Raines, a faithful Democrat, took $90 million from Freddie in just 6 years. Jamie Gorelick took $60 million out of Freddie; she was also a Democrat who strengthened the "wall between the FBI and CIA" and contributed to 9/11.

F&F provided unlimited funds and removed the risk of default from the issuing bank. The issuing bank was able to satisfy its CRA requirements without taking on bad mortgages. CRA problem solved for the black community.

The next enhancement, "no doc" or "liar loans" were put together to address the issue of "undocumented" immigrants who did not have "papers". Without green cards, social security numbers and IRS forms, they couldn't even be issued subprime loans. Solution: ask someone if they were making $100,000 a year, if they said yes, issue them a mortgage. No-doc mortgages solved the problem of meeting CRA quotas in heavily Hispanic neighborhoods. Again F&F assisted the effort by providing unlimited funds and removing the risk of default from the issuing bank.

F&F could provide unlimited funding to subprime and no doc mortgages because F&F came with an implicit government guarantee. Don't worry if the mortgages are no good; there is no problem as long as house prices are rising and if they start falling the government will bail us out. Guess what, house prices stopped rising and the government is providing a bailout.

Is this a market failure or a Democrat led social engineering project "which has come home to roost", to paraphrase the Rev. Wright.

Republican efforts to regulate F&F in 2001, 2003, and 2005 were stymied by Chris Dodd and Barney Franks. Without 60 votes in the Senate, Republicans reform efforts, supported by John McCain, were unsuccessful. Now we are all paying the price for "diversity". My recommendation, just say no to "White guilt".

Posted by: dylan | October 1, 2008 9:34 AM
**
ROFLMAO- well yes, you can blame $7.00 hrly workers with brown skin or ..

Subprime Securities Market Began as `Group of 5' Over Chinese

By Mark Pittman

Dec. 17 (Bloomberg) -- Representatives of five of Wall Street's dominant investment banks gathered around a blonde wood conference table on a February night almost three years ago. Their talks over take-out Chinese food led to the perfect formula for a U.S. housing collapse.

The host was Greg Lippmann, then 36, a fast-talking Deutsche Bank AG trader who aspired to make mortgage securities as big a cash cow for Wall Street as the $12 trillion corporate credit market.

His allies included 34-year-old Rajiv Kamilla, a trader at Goldman Sachs Group Inc. with a background in nuclear physics, and 32-year-old Todd Kushman, who led a contingent from Bear Stearns Cos. Representatives from Citigroup Inc. and JPMorgan Chase & Co. were also invited. Almost 50 traders and lawyers showed up for the first meeting at Deutsche Bank's Wall Street office to help set the trading rules and design the new product.

``To tell you the truth, it's not very glamorous,'' Lippmann says. ``Just a bunch of guys eating Chinese discussing legal arcana.''

Those meetings of the ``group of five,'' as the traders called themselves, became a turning point in the history of Wall Street and the global economy.

The new standardized contracts they created would allow firms to protect themselves from the risks of subprime mortgages, enable speculators to bet against the U.S. housing market, and help meet demand from institutional investors for the high yields of loans to homeowners with poor credit.

Boom Turns Bust

The tools also magnified losses so much that a small number of defaulting subprime borrowers could devastate securities held by banks and pension funds globally, freeze corporate lending, and bring the world's credit markets to a standstill.

For a while, the subprime boom enriched investment bankers, lenders, brokers, investors, realtors and credit-rating companies. It allowed hundreds of thousands of Americans to buy homes they never believed they could afford.

It later became clear that these homeowners couldn't keep up with their payments. Defaults on subprime mortgages have so far produced about $80 billion in losses on securities backed by them. The market for the instruments is so opaque that many firms still aren't sure how much they've lost.

Chief executives at Citigroup, Merrill Lynch & Co. and UBS AG were replaced. To forestall a housing-led recession, the Federal Reserve has cut its benchmark rate three times since August and is injecting as much as $40 billion into the credit system to encourage banks to lend to each other.

`You Can't Wait'

This is the story of how Wall Street transmitted the practices of southern California's go-go lending industry and the inflated U.S. real estate market to the global financial system:

-- In Orange County, California, a mortgage lender named Daniel Sadek was among those who took notice of the increase in Wall Street's appetite for subprime loans. He turned the staff at his firm, Quick Loan Funding, into a subprime mortgage factory. ``You can't wait,'' said his ads, aimed at high-risk borrowers. ``We won't let you.''

-- In Dallas, a hedge-fund manager named Kyle Bass taught himself to use the contracts pioneered by Lippmann's group, then went looking for mortgage-backed securities to bet against. He found them in instruments based on loans Sadek made.

-- In New York, the ratings companies Standard & Poor's, Moody's Investors Service and Fitch Ratings put their stamp of approval on securities backed by loans to people who couldn't afford them. They used historical data to grade the securities and didn't adjust quickly enough for the widespread weakening of criteria used to qualify high-risk borrowers. Among the securities on which they bestowed investment-grade ratings: those backed by Sadek's loans.

`Robert Parker of Raw Fish'

Lippmann was a Wall Street renaissance man, with a strong appetite for sushi and an online restaurant guide so comprehensive one blogger labeled him ``the Robert Parker of raw fish.'' He opened the kitchen of the $2.3-million Manhattan loft he lived in then, complete with six burners, two grills and 20- foot island, to an Italian cooking class.

The goal of Lippmann's group on that winter evening in 2005: to design a new financial product that would standardize mortgage-backed securities, including those based on high-yield subprime loans, paving the way for their rapid growth. Of the firms participating that night, Lippmann's Deutsche Bank is based in Frankfurt, UBS in Zurich and the others in New York.

In February 2005, pension funds, banks and hedge funds owned fixed-income securities that were earning returns close to historic lows. AAA-rated securities based on home loans offered yields averaging a full percentage point higher than 10-year Treasuries at the time, according to Merrill.

Lure of Subprime

The trouble was that most creditworthy borrowers had already refinanced their houses at 2003's record-low mortgage rates. To meet demand for mortgage-backed securities, Wall Street had to find a new source of loans. Those still available mainly involved subprime borrowers, who paid higher rates because they were seen as credit risks.

While the group of five banks had packaged billions of dollars in subprime-based securities, in February 2005 none was among the leaders in the home-equity bond business. Countrywide Securities, RBS Greenwich Capital Markets, Lehman Brothers Holdings Inc., Credit Suisse Group and Morgan Stanley dominated the industry.

The banks wanted more mortgage-backed securities to sell to clients. Creating a standardized ``synthetic'' instrument, or derivative, would leverage small numbers of subprime mortgages into bigger securities. In this way, the firms could produce enough to meet global demand.

Building the Rocket

``We called up the guys we felt like we knew and could work with,'' Lippmann says.

Deutsche Bank sprang for the take-out food, and traders and lawyers sat down to design a new product and create what would soon become one of the hottest capital markets in the world.

The meetings were monthly, beginning at 5 p.m., after the trading day, and lasted more than three hours each.

``In the beginning, everybody brought their lawyer,'' says Lippmann.

Eventually, the Chinese food was replaced with deli fare because some participants complained it wasn't kosher.

The group sought to bring ``transparency,'' or openness, and ``liquidity,'' or trading volume sufficient to ensure ease of buying and selling, to the mortgage market.

The most important issues centered on how to account for the eccentricities of mortgage bonds, perhaps the most difficult-to-value securities on Wall Street. Unlike corporate bonds, home loans can be paid back at any time.

`Pay as You Go'

Traditionally, the best mortgage traders have been those who can read macro-economic trends to guess when homeowners will pre-pay their loans. Until recently, early repayment was perceived as the biggest risk faced by Wall Street's mortgage desks.

One concern with creating a standardized contract for mortgage-backed securities was that it was difficult to agree on a simple method of determining how market-changing events affected the values of the complicated, layered instruments.

To deal with the complexity, the group of five decided to install a ``pay-as-you-go'' system. When something happened affecting the cash flows underlying the security, the seller would have to make cash payments to the buyer immediately, and vice versa.

ISDA Steps In

As the group nailed down the details, the International Swaps and Derivatives Association, which sets trading terms for dealers, arranged conference calls including more of Wall Street.

To this point, some of the biggest mortgage underwriters -- Lehman Brothers, Merrill, Bank of America Corp. and Morgan Stanley -- hadn't been included in the negotiations. These firms heard about the talks and demanded to be let in.

On the conference calls, which included the market leaders, things got testy. One point in dispute was whether the contract should be traded on the basis of price or yield.

``Some of those points of detail were getting a little heated on the calls, and it was just thought it would be better to have a meeting face to face to move beyond those points,'' says Edward Murray, a London-based partner of the international law firm of Allen & Overy who was the chairman of the meeting and the outside counsel for ISDA. ``To be frank, the dealers that were not in the group of five were not that happy that there was a group of five.''

ISDA sought to resolve the differences by calling a sit- down meeting at its New York headquarters. Over coffee and pastries, Murray faced a crowd of dozens of traders and lawyers. Kamilla and Kushman acted as discussion leaders.

`Talk Was Very Firm'

``Rajiv would say something, and I'd be absolutely convinced about what he said,'' Murray says. ``And then Todd would say, `Well, I don't agree.' And I would be absolutely convinced about what Todd said. And then Rajiv would say `Well, the reason you're wrong is' and so on, et cetera.'' Kamilla and Kushman declined to discuss the negotiations.

Michael Edman, one of Morgan Stanley's representatives at the ISDA conference, was less chipper, Murray says.

``Arms folded, frown on his face, I'm not sure that's exactly true, but he wasn't in a happy-go-lucky mood,'' Murray says. ``There wasn't any shouting or anything, but the talk was very firm.'' Edman, who no longer works for Morgan Stanley, declined to comment.

By June, the differences were sorted out, the new contract was endorsed, and banks that hadn't been party to the group of five negotiations signed on. The banks would go on to create similar derivative contracts to trade securities backed by loans for commercial buildings and collateralized debt obligations, or CDOs, which are securities backed by various kinds of debt.

Creation of Index

Another necessary step was to create an index to represent the market and help hedge general market exposure. It was called the ABX-HE and would be similar to the indexes traders use for baskets of stocks. This, participants believed, would add to the market's liquidity, or depth, by attracting more trading.

By September 2005, some within Deutsche Bank were beginning to worry about defaults on subprime mortgages and how that might affect the securities based on them. A team of Deutsche Bank analysts that month warned of growing subprime market risks.

The ABX-HE index started trading on Jan. 19, 2006. At 8 a.m. on the first day, John Kane of Sorin Capital started phoning dealers. Kane, then 27, was a trader at Sorin, which runs hedge funds that invest in mortgages and other securities.

His auto mechanic, in describing the debt burden he was carrying to own a home, had planted the idea in Kane's mind that the housing market might be in trouble. Kane thought it through, ran an analysis on available data, and decided to wager against, or ``short,'' subprime. To do that, he turned to the portion of the ABX index dealing with the lowest investment-grade subprime securities.

Investors Go Short

The trouble was that quotes from brokers selling the ABX were already dropping, an indication that a number of investors wanted to do the same thing.

``All the other dealers were already scared'' and dropping their bids, Kane said while on a panel at a November industry conference. ``All but Goldman. So I bought from them.''

On its first day, the index traded more than $5 billion. The cost of wagering against the securities was rising, a sign that traders saw an increased chance of default. An early warning was visible to anyone who knew where to look.

The new derivatives were a hit among the group of five's customers -- the banks and other institutional investors that bought them to lock in high yields.

In the months to come, Deutsche Bank and at least one other member of the group of five, Goldman Sachs, began using subprime derivative contracts to bet the other way and guard against the possibility that subprime mortgages might default.

Lippmann Explains

For Lippmann's part, he says, it wasn't that he had ``any secret knowledge'' of the damaging events that were about to unfold in the U.S housing market. Rather, he says, he thought the risks of a downturn were significant enough to justify the millions of dollars it would cost to ``short,'' or wager against, subprime securities.

He says he told his bosses: ``If we're right, we're looking at a sixfold gain. And since a housing market slowdown is not as big a long shot as that, we should take the risk.''

Lippman disputes that the derivatives the group of five helped create -- which banks packaged into CDOs -- caused the subprime crisis.

``The problems in subprime are what they are and derivatives did not cause them,'' Lippmann says. ``Derivatives enabled more CDOs to be created and the stakes to be bigger. But the transparency made people realize the problem faster.''

Others see things differently. Derivatives, or ``synthetics,'' are ``like wearing a seatbelt that allows you to drive faster,'' says Rod Dubitsky, director of asset-backed research for Credit Suisse. ``The total dollar amount of losses, all these losses you're seeing, are from synthetics. No question, it changed the game dramatically.''

(TOMORROW: A California lender heeds Wall Street's call.)

To contact the reporter on this story: Mark Pittman in New York at mpittman@bloomberg.net

Last Updated: December 17, 2007 00:09 EST

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA6YC1xKUoek#

Who to believe..?
An excellent series of articles by Bloomberg or blame 'welfare queens'
ROFLMAO

Posted by: gracefulboomer1 | October 1, 2008 2:59 PM

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