[Pen-l] Coercing Regulators to Create Fictitious Profits

[michael perelman <michael@xxxxxxxxxxxxxxxxx>]

The previous post described how Congress coerced the FASB to change 
accounting methods to make banks look healther.

Floyd Norris at the NY Times gives an aggregate investment of the 
profits that Wall Street desired accounting changes made possible. The 
following Bloomberg article gives some estimates about the effects on 
Citi's and Wells Fargo's profits.

Norris concludes "Both the banks and their regulators see virtue in 
opacity."


Norris, Floyd. 2009. "Seeking Reality in Bank Balance Sheets." New York 
Times Blog (5 June).
http://norris.blogs.nytimes.com/2009/06/05/seeking-reality-in-bank-balance-sheets


"David Zion, the accounting analyst at Credit Suisse, is out with a 
report today on fair value accounting, in which he calculates how many 
billions of dollars were added to bank "values" by the changes that the 
Financial Accounting Standards Board (FASB) was forced to make: "We 
estimate first quarter pretax earnings improved by $4.9 billion as a 
result of the new other-than-temporary impairment (OTTI) rules for the 
20 Financials sector companies that early adopted them, including eight 
companies where the new rules may have increased pretax earnings by more 
than 5%. In addition, the FASB's mark-to-market clarification resulted 
in five of the 20 companies marking assets up from $27 million to $4.5 
billion"."

read more at

http://michaelperelman.wordpress.com/2009/06/08/coercing-regulators-to-create-fictitious-profits/

--

Michael Perelman
Economics Department
California State University
michael at ecst.csuchico.edu
Chico, CA 95929
530-898-5321
fax 530-898-5901
www.michaelperelman.wordpress.com



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