Stocks Drop as Bernanke Warns of Uncertain Economy

A World That Cherishes Lies

Posted: Jul 22 2010 By: Jim Sinclair Post Edited: July 22, 2010 at 12:33 pm

Filed under: General Editorial

Dear Friends,

Please read the following. I consider this one of the most important viewpoints given to you since this endeavor began seven years ago.

I am totally disgusted that the world we live in welcomes, maybe even cherishes, lies when they benefit from those lies. It is possible that the number of broken banks in the USA and elsewhere are comparable to the number of broken banks in 1930.

FASB capitulated to lobby pressure and legislative threats to cancel Fair Value Accounting. Read the following article. Lying and kicking the can down the road only turns a simple can to a nuclear device.

The financial industry has been given the blessing of their regulators, FASB, to publish false and misleading balance sheets and income statement.

God help us all.

At least Sodom and Gomorra had some fun in their last days. Financial Sodom and Gomorra have been invited and are being blessed by those we have put our trust in to maintain ethics.

Fabrication is economic sin and therefore cannot cure our problems but lead us into a form of damnation economically. If you, like yesterday, were thinking of throwing out your insurance because paper gold can be manipulated, do so, but do not break my chops.

What you see below is as prevalent in major banks as it is in regional banks. How much is your bank overvaluing their assets by?

Dear Jim,

Last Friday, July 16, 2010, the FDIC announced six more bank failures, making the total 96 so far this year. These were relatively small banks. Collectively, they had assets of $2.03 billion and deposits of $1.78 billion.

The FDIC’s estimated cost of closing these six banks was 334.8 million, about 19% of deposits. All six were resolved with the FDIC entering into loss share agreements covering a high percentage of the assets taken over by the successor banks. In connection with these closings, the FDIC entered into new loss-share agreements covering an additional $1.5 billion in assets.

That brings the FDIC’s total losses for 2010 up to $18.11 billion. The total face value of assets now guaranteed under FDIC loss share agreements has grown to $178.66 billion.

Each failure announcement allows us a peek into how extensively bank management have been exaggerating the value of their least liquid assets since the FASB’s roll-back last year of fair value accounting requirements. The worst offenders from the past week were as follows:

Main street Savings Bank, FSB, had stated assets of $97.4 million and deposits of $63.7 million. The FDIC estimated its closing cost $11.4 million. Based on that estimate, the bank’s assets were really only worth $52.3 million, and had been overvalued by 86%.

Turnberry Bank of Aventura, Florida, had stated assets of $263.9 million and deposits of $196.9 million. The FDIC estimated its closing cost $34.4 million. Based on that estimate, the bank’s assets were really only worth $162.5 million, and had been overvalued by 62%.

Woodlands Bank of Bluffton, South Carolina, had stated assets of $376.2 million and deposits of $355.3 million. The FDIC estimated its closing cost $115 million. Based on that estimate, the bank’s assets were really only worth $240.3 million, and had been overvalued by 57%.

Metro Bank of Dade County of Miami, Florida, had stated assets of $442.3 million and deposits of $391.3 million. The FDIC estimated its closing cost $67.6 million. Based on that estimate, the bank’s assets were really only worth $323.7 million, and had been overvalued by 37%.

Keep in mind that since the FDIC is resolving all these failures by way of granting loss share agreements, the assumed value of each failed bank’s assets is being skewed to the upside. Were the assets being sold without any future obligation on the FDIC’s part the prices realized would be much lower and the extent of overvaluation much higher.

Respectfully yours,
CIGA Richard B.

Without Hoopla, Fair-Value Rule Is Readied
Among the ripple effects of the global credit crisis is the rewrite of the controversial fair-value accounting rule once known as FAS 157. The revised standard could be in place by the end of the year.
Marie Leone, CFO.com | US
July 20, 2010

The debate over one of the most controversial accounting standards in recent memory is coming to a somewhat anticlimactic end. The rule once known as FAS 157, which tells companies how to measure the fair value of assets and liabilities, has been rewritten and rechristened Topic 820. Now in final draft form, Topic 820 is open to comment until September 7.

Since the onset of the financial crisis, banks and their lobbyists have gone head-to-head with the Financial Accounting Standards Board and the International Accounting Standards Board, arguing against any rule changes that would increase the volatility of asset values — or worse, depress the book value of financial assets while the market recovered. FAS 157, which went into effect in 2009, was caught up in the debate and frequently vilified as a major cause of bank liquidity problems.

Yet in retrospect, the controversy seems misplaced. FAS 157 did not change what companies measured at fair value, or when they needed to apply fair-value accounting. Indeed, those mandates are part of other accounting standards (most notably the reworked rule on financial instruments). Instead, FAS 157 laid out a common methodology for measuring the market value of assets and liabilities.

The revised rule will affect more than just banks and other financial institutions that routinely measure the fair value of financial instruments, says Greg Forsythe, a valuation specialist at Deloitte Financial Advisory Services. All companies with accounts required to be measured at their fair value are fair game for Topic 820 — although the depth of that impact is relative to how much of a company’s accounting is centered on fair value. Nonfinancial companies involved in acquisitions, for example, will have to rework some calculations and disclosures related to goodwill-impairment testing if the rule is issued in its current form, notes Forsythe.

Most experts agree that the measurement guidance contained in Topic 820 does little more than clarify existing rules. But the disclosure provisions will undergo one big change related to so-called Level 3 assets and liabilities, the most difficult kind to measure. (Unlike Level 1 holdings, which can be measured using quoted prices in active markets, and Level 2 holdings, which are valued based on "observable inputs" such as quoted prices in similar markets, Level 3 items are illiquid assets and liabilities that must be valued using internal models and "unobservable inputs.")

More…

Jim Sinclair’s Commentary

China has a plan. The West reacts only to events.

Chinese Firms Snap Up Mining Assets
BY PHRED DVORAK

In the global hunt for mining assets, China has emerged as the buyer to beat: Just a few years after suffering high-profile failures to close big acquisitions, Chinese buyers of all sizes are sealing more sophisticated deals at a higher rate of success.

Companies based in China or Hong Kong participated in $13 billion of outbound mining acquisitions and investments last year—100 times the level in 2005, according to data tracker Dealogic.

China-based companies are on a similar pace in 2010. Last week, Shandong Iron & Steel Group Co. announced a $1.5 billion investment into an African Minerals Ltd. iron-ore …

More…

The guarantee is not better than the guarantor. $3.7 trillion?

Taxpayers sink another $700B of aid into financial system.
Taxpayer support for the financial system increased by $700B over the past year, bringing the total to around $3.7T, said TARP inspector general Neil Barofsky in a quarterly report to Congress. Most of the increase was due to government pledges to supply capital to Fannie Mae (FNM) and Freddie Mac (FRE) and to guarantee more mortgages to support the housing market. Ba

Jim’s Mailbox

Posted: Jul 21 2010 By: Jim Sinclair Post Edited: July 21, 2010 at 3:02 pm

Filed under: Jim's Mailbox

Jim,

The Russians are determined to have a HARD currency.

CIGA Nicole

rofsky also criticized the Treasury’s housing relief efforts, pointing to "anemic" participation numbers that have failed to "put an appreciable dent in foreclosure filings." Separately, the Treasury said it plans to end a long-delayed and never-used $30B TARP program designed to boost small-business lending.

Eric,

For those of you who don’t believe in Currency Induced Cost Push inflation, think unemployment extension to 99 weeks and new stimulus programs in time everywhere in the Western world.

Jim

Bank of England could pump more cash into the economy: MPC minutes
CIGA Eric

Rates will stay low as long as the market says its ok to do so. The central planners’ agendas will matter little when confidence breaks. Policy choices must be aligned with the trends of the market in order to maintain the perception of control.

Discussion turned to increasing the Bank’s £200bn of gilt purchases to stimulate the economy on concerns that the outlook for growth had “deteriorated a little”, the minutes showed. Policymakers voted 7-1 in favour of leaving rates unchanged at 0.5pc and quantitative easing on hold in the July meeting, suggesting rates will stay lower for longer.

Source: telegraph.co.uk


US financial system support up $700 billion in past year-watchdog. "Total US government financial system support seen at $3.7 trillion." Yikes!


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"The deterioration of every government begins with the decay of the principles on which it was founded." - Charles-Louis De Secondat(1689-1755) Baron de Montesquieu, The Spirit of the Laws, 1748