Tuesday, February 10, 2009

Prediction of The Every Other Day...

Today's prediction focuses on the to be announced Bank Bail out program.

1. It will evolve over the next two weeks so what we hear today is not final. (See item 5 below).

2. It will address Accounting Rules because when there is no market for an asset (i.e., so called toxic assets ) then its value is accounted for at far below what its value would be during a period of more normal markets - even zero. The result - huge write downs accelerating in a downward spiral fueled by the evaporation of markets for certain securities. If new capital is going to buy those assets it some accounting encouragement will be provided. (See 4 below).

3, Accounting encouragement will address the fact that currently Securities that are held for sale (i.e. for "trading") must be marked to market. Securities that are held for investment (i.e. "to maturity") can be held on the books at cost. In a world of impenetrable financial statements this discretion leads to unintentional (and intentional?) distortion. (No one will talk about this).

4. Some one will use the phrase "accounting IS economics." This phrase will be used by both sides for and against item 2 above.

5. Everyone will us e the phrase "Mark to Market" and some will say and some will say "Mark to Make Believe" during the course of the two week estimated time frame in item 1 above.

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