Bloomberg: Can the Fed Cook Bear’s Books?

Here is today’s intriguing article from late yesterday: Bloomberg’s Jonathan Weil explains why the Fed does not follow GAAP. This sets up a situation where the Fed books regarding Bear Stearns are ripe for creative accounting.


"The Federal Reserve is just days away from completing the financing for its bailout of Bear Stearns Cos., after which the central bank will have another big decision to make: how to account for it.

Flip through the footnotes to the Fed’s latest annual report, and you’ll come across an open secret. The Fed doesn’t follow normal accounting rules, as promulgated by any of the major standard-setting boards. Rather, the Fed writes its own, in a document called the Financial Accounting Manual for Federal Reserve Banks.

If you ever wanted to design an accounting regime to help a bank cook its books, the Fed’s would be perfect. This doesn’t exactly inspire faith in the U.S. financial system, at a time when a good example might help a lot.

Imagine if there were no rules specifying when a bank must bring an Enron-style special-purpose entity onto its own balance sheet. The Fed’s accounting manual has none. Now picture an accounting system where a bank never had to recognize losses on any securities it holds, as long as it continues holding them. That, too, is the Fed’s policy."

Now, before the Fed got involved in the rescue orderly liquidation of Bear Stearns, their accounting practices were not a big
deal. Since the vast majority of the Fed’s assets are U.S.
government securities, they can — "Hey, What the Hell! — change their value by changing interest rates.

But these are very different assets; its a very different question as to how to account for them . . .


Fed’s Bear Stearns Books Look Prime for Cooking
Jonathan Weil
Bloomberg, June 18 2008

Category: Federal Reserve, Valuation

Are We Too Gloomy?

Category: Earnings, Economy, Financial Press, Inflation, Psychology

High Gas Prices? Try a Segway!

Category: Economy, Energy

Stairway to Heaven is Worth $572 million

Lz Portfolio does a fun analysis as to what the full value of Led Zeppelin‘s Stairway to Heaven would be worth if the band went all out on the licensing side.

They call it a"back-of-the-napkin analysis of the lifetime worth of the most requested rock
tune in history

"In the big, bad game of rock and roll, “Stairway to
Heaven” is undeniably a winner. Released by Led Zeppelin in 1971, the
eight-minute song is considered a musical masterpiece and is one of the
most-played rock tunes of all time. Proving its longevity, “Stairway” hit the
U.K. charts again last fall and was a top download in the U.S., after Zeppelin’s
first downloadable album launched on iTunes. But because the band is notoriously
protective of its work, “Stairway” hasn’t met its full moneymaking potential.
While other artists have made big bucks by licensing songs to Hollywood and
Madison Avenue—think of Bob Dylan’s “Love Sick” in that Victoria’s Secret
commercial—Zeppelin has shunned most opportunities. We consulted executives in
the music, advertising, and entertainment industries to come up with some
numbers, real and potential, for the value of “Stairway."

That seems a little rich to me, but hey! It is Stairway. . .


Stairway Surprise 
Miriam Datskovsky 
Portfolio July 2008 Issue

Led Zeppelin IV (aka ZOSO)

November 8, 1971   

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Led Zeppelin to Make Its Songs Available Digitally
NYT, October 15, 2007

Videos after the jump . . .



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Category: Digital Media, Music

2008 Recession Call: Increasingly Difficult to Avoid

Category: Economy

Fifth Third Bank

Bouncing around trading desks is this comment on Fifth Third Bancorp (FITB): “Given its recent performance, the company has announced they are changing its name to “Three Fifths” Bank . . .” Looking at the chart below, perhaps that should even be “Two Fifths” Bancorp ! > > Thanks, Mike! ~~~

Category: Favorite, Trading, Valuation

Federal Reserve Coverage at WSJ, WaPo

Category: Federal Reserve, Financial Press

Media Appearance: CNBC’s Morning Call (6/18/08)

This morning, I’ll be doing the guest-hosting thing on CNBC’s Morning Call, from 11:00am til Noon. Today’s topics: Oil: After kissing $140, crude is now down to $133. Credit Crunch: Bank and Broker stocks still have work to do Fed Ex report: What does FedEx earnings have to say about a any recession ? We…Read More

Category: Media

The MonoDuoline Quandry

Category: Credit, Derivatives, Federal Reserve, Taxes and Policy

Chuck Prince Discovers the Housing Slump

Category: Corporate Management, Credit, Derivatives, Real Estate