This sounds like a winning plan.

[unixronin]

...NOT.

WASHINGTON—The board that sets U.S. accounting standards on Thursday gave companies more leeway in valuing assets and reporting losses.  The changes should help boost battered banks’ balance sheets and financial stocks rallied on Wall Street, but the rules may undercut a new financial rescue program.

Here’s the meat:

The FASB issued new guidelines under the so-called mark-to-market accounting rules, which require companies to value assets at prices reflecting current market conditions.  The changes, which apply to the second quarter that began this month, will allow the assets to be valued at what the banks project they might sell for in the future, rather than in the current, distressed environment.

Waitaminnit.  This allows banks to make up what they think an asset “ought to be” worth.  Isn’t that exactly the kind of voodoo-accounting shenanigans that got us INTO this mess in the first place?

(Pointer via bratling, in another venue)

Comments

[lebo-superman.livejournal.com]

Point taken on the 50 swaps for one actual loan. Which points to where some REAL reform could be had - require banks to only do loans on 1st-level real property. No bundles, no credit-based-on-credits. Every loan must be backed two ways - by real property, and by liquid currency physically held in the bank. Also, no more using customer's account balances to front loans. That money does NOT belong to the bank, it belongs to the account holder, and should be available in full ON DEMAND.

[unixronin.livejournal.com]

I was thinking similar things myself — no investment instruments that are not based upon physical, tangible assets. Using account balances to front loans is how banks work, though. That in itself has never been a major historical problem, except in runs on the bank, and those are always going to be a problem. The result of requiring full liquid capitalization all the time for all banks is that only the most profitable (which probably means the greediest) banks will ever have any money available to loan out. If they're not loaning out money, they can't make any money on interest, which means they don't have any money available to pay interest with, and there no longer any gain to keeping your savings in the bank rather than in a safe or stuffed inside the mattress. The absence of any loan money will drastically cut down on who can afford to buy homes, cars and other large capital purchases, or start businesses, which will mean less jobs.

Sure, it's sustainable — if we reverted to a 17th-18th century economy. I'm not convinced we could, or that doing so would be a good idea even if it were feasible.

[lebo-superman.livejournal.com]

Ok, then if we leave the banks with the ability to finance loans with account holder's money, then we take away the practice of compounding interest. Simple interest only - a $10K car loan at 10% interest gets $1K profit for the bank, no more.

Perhaps it sounds like I'm being overly hard on the banks, but a couple of months ago our credit card company raised our interest rate from 12.5% to 27%, for no reason other than the fact that the law said they could. We didn't miss a payment, we weren't even late on a payment, and our credit rating is actually fairly good. So I have no love for the banks right now.

[unixronin.livejournal.com]

Ok, then if we leave the banks with the ability to finance loans with account holder's money, then we take away the practice of compounding interest. Simple interest only - a $10K car loan at 10% interest gets $1K profit for the bank, no more.

I could see that, on secured loans. It'd probably be damned hard to do at this point. On the one hand, mortgages would become a lot less profitable; on the other hand, people would be able to pay them off much sooner, so the profit would be seen more quickly. It'd free up huge amounts of money to go into the general economy that's now getting hoovered up by the banks.

Perhaps it sounds like I'm being overly hard on the banks, but a couple of months ago our credit card company raised our interest rate from 12.5% to 27%, for no reason other than the fact that the law said they could. We didn't miss a payment, we weren't even late on a payment, and our credit rating is actually fairly good. So I have no love for the banks right now.

Now on that subject, I have no hesitation about saying there should be interest rate caps on credit cards, payday loans, and related unsecured consumer credit. The current state of unsecured consumer credit is frankly usurious.

To pull some numbers out of my ass, consumer credit interest rates should not be allowed to exceed 15%, period; not more than 10% for accounts in good standing with reasonably decent credit; and banks should not be allowed to apply any penalty for a single late or missed payment, beyond a late fee. (Let's say for the sake of argument the bank must allow you one late payment in any six-month period, or one missed payment in any twelve-month period, without applying penalty rates. And UNDER NO CIRCUMSTANCES may you EVER apply a penalty to someone because they had a late or missed payment on an account with another lender, as long as they're in good standing on their account with you.) If you think the borrower is a poor risk, give them a low credit limit (say, $500) until they prove otherwise.

If you can't make money by loaning money at 10%-15%, then either you're in the wrong line of work, or greed is driving you to be way too indiscriminate in who you lend money to. (But I repeat myself.)



As for that card, frankly, in your place I'd tell them to stuff it and cancel the card. As far as I know, the law still allows you to refuse a rate increase, cancel the card, and pay off the balance at the pre-existing interest rate. (But you have to do it right away.)