Friday, February 01, 2008

Sweeping it under the rug

S&P Ramps Up Mortgage Downgrades By AARON LUCCHETTI and SERENA NG (WSJ)
[A] a widening array of financial institutions would ultimately face mortgage-securities losses totaling more than $265 billion.

In all, it expects losses for financial institutions would more than double from what has already been recognized, affecting many firms that haven't yet acknowledged problems.

"Banks are bracing for another chapter in the unfolding story of their mortgage-market problems," wrote Tanya Azarchs, an S&P analyst, in a report released yesterday after the market closed.

Subprime Lenders Get Big Accounting Break at SEC: Jonathan Weil
The Securities and Exchange Commission's staff has granted the subprime-lending industry a huge exemption from the normal rules for off-balance- sheet accounting.

In effect, the move will let home lenders keep their balance sheets looking much smaller and less leveraged, even while the off-the-books loans they made get a makeover.

Through September, just 3.5 percent of subprime mortgages that reset in the first eight months of 2007 had been modified, according to Moody's Investors Service. Even lenders inclined to help don't want to hurt their financial results. And now they might not have to, thanks to a Jan. 8 letter from the SEC's chief accountant, Conrad Hewitt.

This might be a slippery slope. Perhaps the auto industry could be saved, for example, if only we devise new accounting "interpretations" of the rules governing their massive pension liabilities.

"Allowing this kind of misleading reportage is simply unacceptable gimmickry from the regulatory body that is SUPPOSED TO STOP this sort of crap."

SWEEPING UP: Perhaps there was a bit of hyperventilating, if not hyperbole in the Weil thing: This and this, via Felix


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