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Thursday, July 31, 2008


fasb rule 140 delayed


The Financial Accounting Standards Board postponed a measure, opposed by Citigroup Inc. and the securities industry, forcing banks to bring off-balance-sheet assets such as mortgages and credit-card receivables back onto their books.

FASB, the Norwalk, Connecticut-based panel that sets U.S. accounting standards, voted 5-0 today to delay the rule change until fiscal years starting after Nov. 15, 2009. The board needs to give financial institutions more time to prepare for the switch, FASB member Thomas Linsmeier said at a board meeting.

``We need to get a new standard into effect,'' Linsmeier said, though ``it's not practical'' to begin requiring companies to put assets underlying securitizations onto their books this year.

the reason it isn't practical, of course, is that the government is having a difficult enough time preventing money center bank failures as it is. implementing fasb 140 would probably send citi and some other large banks currently circling the drain straight down the plumbing into the sewer.

barry ritholtz compares it to the zombification of japanese banks in the aftermath of the early 1990s troubles, from which they are only now recovering. he's not wrong -- the policy response to the anticipation of large bank failures has been essentially identical thusfar. provide cheap liquidity through central bank borrowing, steepen curves to ensure positive carry, do everything within the power of government and the wall street cabal to prevent proper accounting on the pretense that this is all merely a temporary liquidity squeeze that will blow over and should be ignored.

dear reader, if this were just a liquidity problem it would be over by now. it is a debt and solvency problem -- the largest debt and solvency crisis to face the developed world since the 1930s. ritholtz is absolutely correct to say that delaying the implementation of fasb 140, if it has any effect at all, will likely have negative ramifications in time and price by thickening the dark clouds of uncertainty over the american financial system.

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