Enron style Mark-to-Market Accounting used by Big Banks (Feds just don't like Texas companies?)

riseupfor thenewday ^ | 4/23/2009 | Enron style Mark-to-Market Accounting used by Big Banks

[bestintxas]

With the Recession in full swing, one can’t help but ponder on the causes leading up to the effects we are feeling now. While profit is good and it has been much anticipated, this is only short-term profit. Big Banks are announcing major 1st Quarter Profits. In the long term, there is not much that can be done about continued success in a corrupt financial system. There will come a time in which the quick patches will no longer prop up failing businesses. These failing businesses are wreaking in the benefits, while others suffer. I recall a time in which a corporation boasted on profits year after year. Enron Creditors Recovery Corporation (formerly Enron Corporation) was named “America’s Most Innovative Company” by Fortune (magazine). Enron: The Smartest Guys in the Room documents the endeavors leading up to an accounting scandal. The accounting tactics this corporation used was “Mark-to-Market” accounting. Big Banks are using similar accounting tactics now to stay ahead. Perhaps an overview of the situation will help.

Mortgage Giants Fannie Mae and Freddie Mac contributed to the credit crisis with the help of Wall Street. A partnership between the two flourished and a grand strategy came to fruition. How is this possible? The Credit Crisis Explained provides insight into the matter.

There are two groups of people: 1) home owners, which equal to mortgages and intern represent houses. 2) investors, which equate to money and intern represent institutions (pension funds, insurance companies, mutual funds, sovereign funds, etc.)

Wall Street bridges the gap between these two groups of people also known as Main Street. Following the Dotcom bust and September 11, The Federal Reserve lowers interests rates to 1%. This is done to keep the economy strong.

[bestintxas]

Why is it that what Enron did caused the dissolution of the company and send its executives to do jail time, when now the big banks are doing the same thing and being treated as victims and rewarded by my hard-earned tax dollars in government bailouts?

[jiggyboy]

Enron hasn’t been running the Treasury Department and the FOMC for the past twenty years.

[RebelTXRose]

Don’t you know there are no bad consequences if you gave “O” or his homies campaign money? (sarc!)

[VA40]

I’d like to how how much of their 1st quarter profits are from doubling the interest rate on everyone with an outstanding credit card balance?

[Renkluaf]

This headline is very misleading. M-to-M or fair value accounting was institued by the SEC and FASB in REACTION to Enron et al. It requires any company to value its "available-for-sale" assets at their fair market value. It is, in part, the reason for the implosion of the banks as their mortgage-backed securities plunged in value necessitating capital write-downs.

[VegasCowboy]

Enron execs didn’t go to jail for marking their liabilities to market (which is allowable per GAAP). They went to jail for intentionally misstating earnings and setting up opaque and undisclosed entities that booked profits at the expense of Enron’s shareholders.

You can argue whether or not a company should be able to mark liabilities to market, but it’s certainly not illegal. In fact in certain instances it is REQUIRED by the accounting rules. As a side note, if you’ve got to mark assets to market, why wouldn’t you do the same for your liabilities? What’s good for one side of the balance sheet is good for the other.

[VegasCowboy]

This headline is very misleading. M-to-M or fair value accounting was institued by the SEC and FASB in REACTION to Enron et al.

Good point. Just because something is on a website doesn't mean its accurate. Its too bad so much misinformation is floating out there. There are real arguments and discussions to be had over the whole financial fiasco, and this kind of stuff just muddies the water.