OldVet: Who’s lunch is going to get eaten?

This one is by OldVet…

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Inspired by the theory of the profit swarm written by Stormy, and the words engraved in human history by the Presidents in their final State of Union addresses as provided by Cactus, I (OldVet) while not revealing whether I’m a godlike being or more like a chubby fallen Icarus who flew too close to the sun, bring this wisdom to you today:

I love financial markets and making a bit of profit. However I learn (a) in whole or in part, that FASB 157’s mark-to-market disclosure rule may be delayed, that (b) the US Treasury is sponsoring a bank “special investment vehicle” or SIV investment fund, and (c) the (likely) downgrading of bond rating insurer companies.

If the insurers of bonds can’t raise money, they can’t insure bond values. If SIV’s are allowed to flog off their collateralized but unmarketable debts to a US Government sponsored fund, they can’t be valued by the market place or put on the Balance Sheets of banks where they belong. If accounting rules are relaxed to allow less disclosure of critical information, rather than tightened to provide more, it will be harder to trust what companies say about their financial condition. Taken together, we highflying types are starting to wonder at just how much investors are being treated poorly.

Talk now swirls that Wachovia’s executives were in league with a firm whose top people hid money after taking a huge loan from a syndicate and then defaulted on the loan, per CNBC reporting on a law suit against Wachovia. What is going on here? Didn’t we learn anything from Enron (“special purpose vehicles” to hide assets/liabilities off the books) and Worldcom and Tyco with their diversions of millions to insiders? As to the support from the US government and the Fed, through massive short term lending and rate cuts and sponsorship of breaks for speculators on Wall Street. – who are we then to shake our finger at China for its opaque financial practicies?

And a bit more information:

FASB organization has 30 pages of handouts about the partial deferral of new disclosure standards here. What won’t be covered by value disclosures are real estate, intangible assets and liabilities (e.g., patents, law suit outcomes, brand name assets.) Looks like big banks are still on the hook to disclose how they value their mortgage backed loan portfolio investments. However homebuilders like Lennar can “mothball” their unsold inventory without declaring losses in value. At least some stocks will temporarily stay propped up! The fact that organizations like Financial Executives International lobbied against implementing FASB 157 rules speaks volumes.

Which leads to question: Should we drop everything and fly off to Wall Street to join in the pork fest, or hedge our bets down here on Earth?

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This one was by OldVet.