New reg lets banks ignore actual value of “underperforming” loans

It is only fitting that on Halloween the Federal government is increasing the number of zombies among us.

Federal bank regulators issued guidelines allowing banks to keep loans on their books as "performing" even if the value of the underlying properties have fallen below the loan amount.

The rationale?

While CRE (commercial real estate) borrowers may experience deterioration in their financial condition, many continue to be creditworthy customers who have the willingness and capacity to repay their debts. In such cases, financial institutions and borrowers may find it mutually beneficial to work constructively together.

Nothing inspires confience in me like the phrase “financial institutions and borrowers may find it mutually beneficial.” Especially since banks are not required to only apply this rule to “creditworthy customers who have the willingness and capacity to repay their debts.”

I really can’t top what Doug McIntyre wrote at DailyFinance.com:

The FDIC appears simply to be taking losses that would be incurred in the normal course of business and pushing the true accounting for them into the future. It is to the political benefit of Washington to make it appear that the banking sector is getting better. It also probably helps the FDIC, which is essentially insolvent, from having to come up with billions of dollars to insure deposits at failing banks.

Some can argue that this regulation just does for commercial real estate what had already been done for home mortgages. In April, the Financial Accounting Standards Board approved a new set of rules allowing financial firms to fiddle with how big their real-estate losses are. (New accounting rules let bankers set the value of their own toxic assets)

When I use a word," Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean – neither more nor less.”

Advertisement

Twitter valued at $1 Billion say people with a vested interest in Twitter

Hysterical story in today’s journal headlined: Twitter’s Value Is Set at $1 Billion

The lede:

Twitter Inc. is nearing a deal for as much as $100 million in new funding that would buy the fast-growing Internet-messaging company more time to figure out its business model, according to people familiar with the situation.

But the punch line comes in the 3rd graph:

The investors are valuing Twitter – which has yet to generate more than a trickle of revenues – at more than $1 billion, according to people familiar with the plan. That’s more than triple the valuation Twitter received during its last round of capital raising in February, underscoring how quickly the company has grown.

So let me see if I understand, the companies who are giving $100M to Twitter say Twitter is worth more than 10 times that amount. Hmmm. Well they are certainly an unbiased source.

By the way, CollateralDamage.biz is worth more than $10 million so you should want to buy it while the price is still this low, say people familiar with my bank account.

So we now know it takes about 10 years to forget the lessons of a bubble burst. Remember the .com bubble?

Anyone?

Bueller?

Companies with no way to generate actual money were suddenly worth absurd amounts because … well … because. As far as I can tell Twitter’s business model is to be bought by Google. To date Twitter has proven to be a very popular supplementary application. People use Twitter and all there other methods of communicating. It isn’t supplanting either email or blogs AND (this is big) it is NOT popular with the teens to 20s demographic, which means it doesn’t have a future.

UPDATE!

This just got added to the WSJ site:

SAN FRANCISCO (Dow Jones)–Micro-blogging service Twitter Inc. said Friday it had closed a "significant round of funding," a deal that will give the wildly-popular startup more time to develop a business model.” Twtter said investors included Insight Venture Partners, T. Rowe Price (TROW), Institutional Venture Partners, Spark Capital and Benchmark Capital.

There’s gotta be a pony in there somewhere, right guys? Hey, anyone seen my Kozmo.com messenger bag?

A brilliant and simple guide to how we are being lied to about the meltdown

First appeared at BlownMortgage.com

There has been a deliberately high signal-to-noise-ratio ("the ratio of a signal power to the noise power corrupting the signal") around the financial fiasco. The reason for this is the same reason that a magician does patter — to divert your attention from the sleight-of-hand.

We have heard long explanations about how no one could have seen this coming and how we can’t fire the people who got us into this mess to get us out of it and how we are going to borrow our way out of a debt crisis and how the value of loans shouldn’t reflect actual market conditions when the market is a mess. All of which can be translated to, "pay no attention to the man behind the curtain."

I am not sure if this rises to the exact level of a conspiracy or if it just coinciding self-interest by people who stand to lose a lot of money if that curtain is pulled back. I am sure that the effect is the same as a conspiracy.

However, Bill Black thinks it’s a conspiracy and that’s good enough for me. In an interview on Bill Moyer’s show Mr. Black — the senior regulator during the S&L crisis & now a prof of economy and law at U. of Missouri — applies a brilliantly sharp Occam’s Razor to the entire fiasco. In less than half-an-hour he explains what went wrong, why and why what we’re doing won’t work. This is a truly bipartisan dissection. Watch it and learn.

My favorite part is his conclusion (transcript here):

So stop that current system. We’re hiding the losses, instead of trying to find out the real losses. Stop that, because you need good information to make good decisions, right? Follow what works instead of what’s failed. Start appointing people who have records of success, instead of records of failure. That would be another nice place to start. There are lots of things we can do. Even today, as late as it is. Even though they’ve had a terrible start to the administration. They could change, and they could change within weeks. And by the way, the folks who are the better regulators, they paid their taxes. So, you can get them through the vetting process a lot quicker.

(Hat tip to Infectious Greed, Financial Armageddon, and Washington’s Blog)

Here’s part 1 of the interview, go here for part 2 and here for part 3.

"The tragedy of this crisis is that it didn’t have to happen at all." — William Black

Economy costs reporters free drinks

Things are so bad The New York Financial Writers’ Association had to charge for drinks at its annual black-tie gala. Previously The Financial Follies (Actual name. Formerly funny.) dinner featured a pre-meal open bar. This year the association could not get a corporate sponsor to pick up the $25,000 tab. (Guesstimate: $500 of alcohol per journalist. Guesstimate based on extensive knowledge of the drinking patterns of reporters.) The bright side of this is that the media is now taking the “economic slowdown” very, very seriously.

.