When you're losing, just change the rules

Last week the Financial Accounting Standards Board (FASB) decided to change the rules on how assets can be reported.  Basically, they have allowed banks to revalue their so-called “toxic” assets.  As reported in the Washington Post on April 3,

“The board that sets U.S. accounting rules voted yesterday to let financial firms report higher values for some troubled assets, a controversial step likely to increase some banks' reported earnings but also heighten suspicions that the companies are concealing problems.”

And what happens yesterday?  Wells Fargo comes out with a surprise announcement that they actually made $3 Billion in the first quarter of this year.  It’s all smoke and mirrors!  Suddenly, their takeover of Wachovia and their troubled assets are a boon (because they can now report that those assets are worth more than fair market value).  The stock market saw huge gains yesterday based on optimism from this blatant lie.  Many people see right through this charade.  The markets will adjust lower in the next few weeks when the general public catches on.

Meanwhile, real damage has been done.  How many times have we heard that we have to facilitate these banks in getting rid of their toxic assets?  Now, the powers-that-be have allowed these assets to be valued higher.  Who’s going to buy toxic assets at inflated prices?  We need bargain basement prices and we get premiums!?!  How much sense does that make?  It confuses everything.  Who’s going to invest now?  Answer: the taxpayer will eventually foot the ENTIRE bill when the banks get nationalized… just wait and see.

Update 20Apr2009:  Bank of America announces SURPRISE 1Q earnings of $4.2 Billion.  All the banks will play the same game.  Funny to note that their stock dropped 9% when this was announced.