22 May 2009

FASB Rule Will Force Banks to Move Assets Onto Books

Effective for reporting periods after November 15 of this year, the Federal Accounting Standards Board (FASB) is requiring that the assets of Qualifying Special Purpose Entities (QSPEs) be reported "on the books".

Yes, I know your first question, "Can I have that translated please?"

The quick translation is that these are "off balance sheet entities," which are used to conceal losses and risk.

Here is a snapshot:
Lenders recorded profits before the U.S. subprime mortgage market collapsed in 2007 by selling pooled loans to off-balance- sheet trusts, which repackaged the pools into mortgage-backed securities. Banks then sold those securities to other off- balance-sheet vehicles they sponsored, concealing from investors that the securities were backed by deteriorating mortgages.
As to the next obvious question, "What does this all mean?", it means that significant losses and risks which, until now, have not been a part of many financial institutions reporting, will be reported, and significant losses will result.

How much?

Well, the article says about $900 billion, but my guess is that this is low, because one is always shocked when one turns over a rock.


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