Vail Valley Voices: America’s shaky foundation
If you enroll in an undergraduate economics class, one of the things you’ll learn about is the concept of fair value.Fair value is a very basic concept used in finance and economics. It is defined as “a rational and unbiased estimate of the potential market price of a good, service or asset.”Under established accounting rules, fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties, or transferred to an equivalent party, other than in a “liquidation sale.” When something has no value due to a lack of bids, fair value is an estimate of the market value of an asset (or liability) for which a market price cannot be determined.Since the urging of Congress last fall, when there was (and still is) no market for huge amounts of supposed bank assets – e.g., structured investments and packaged mortgage products – fair value has been easy to determine. It has been whatever the banks holding this worthless paper say it is.In an Aug. 14 article, the Bloomberg financial news service warned, “Investors should beware the Financial Accounting Standards Board’s decision yesterday to consider expanding fair-value rules.”Bloomberg went on to state, “Like a horror flick monster that just won’t stay dead, FASB’s accountants are proposing to expand the application of mark-to-market or fair value accounting rules across the board to include all financial assets, including regular loans.”Bloomberg charted the performance of the Standard & Poor’s 500 Index since the Securities and Exchange Commission and FASB clarified the meaning of the rules in September 2008.”Twice the market was teased with a sense of potential changes for mark-to-market accounting. Twice those hopes were dashed, and twice the market fell to new lows,” said Bloomberg. “The biggest reason that stocks have rallied since March is that the House Financial Services Committee forced FASB to loosen its mark-to-market or fair value rules.”There it is in black and white.At the urging of Congress – therefore, banking’s – request, the FASB loosened the rules so that the financial services industry could declare instant profits by marking the fair value of toxic waste not to any real value but to whatever they needed it to be in order to declare a profit. Now the FASB may crash the market by restoring honesty in valuation.A “horror flick monster that just won’t stay dead,” a return to somewhat honest accounting practice, may just pop the bailout bubble we’ve invested 12 trillion tax dollars and interest-free loans into, a bubble that will require another $2 trillion in tax funds to support next year. This would be big money – if any of it were real and not simply created from thin air by the Federal Reserve.Obviously, this will never do.An economic collapse based on lies and fraud that has been reinflated with even greater lies and fraud simply cannot be allowed to deflate again by some hare-brained idea like honest accounting. Seriously. Another collapse will wipe out a lot more than a nation’s people’s 401K, retirement plans and futures. It will erase the credibility, the “good faith and credit,” of the federal Treasury. If the people of this country stand for any more honesty and a restoration of generally accepted accounting practice in banking, our sovereign nation itself may well be exposed as completely bankrupt.Of course, a bankrupt nation will have to forego superfluous amenities such as access to health care, so perhaps there’s some good in this. The problem is, a bankrupt nation also may have to forego things such as highways, police, firefighters, its entire military (and the accompanying industrial complex which employs so many in the death-ray creation business) and worst of all, cheap imported goods, especially the real luxuries, such as imported oil, two-thirds of our total daily minimum energy supply requirement.These tea-bag health care riots? Mere eyewash. Write your senator today and demand they save this country by legislating, once and for all, that there will be no return to honesty in accounting and banking, ever.Lies, big ones, nothing but deceit and dishonesty. These are truly the only hope for the survival of the American way of life.Bill Sepmeier lives off the grid in Sweetwater.
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