Market accounting is a game changer in a game that needs some changes. However, the problem is; it is the game that needs to change, not the rules. While it may turn out to be the most boring spectator sport in the world, the humble accountant and his slate-gray world may deserve more scrutiny. Watching paint dry up close will go a long way toward solving the tangled financial web we have woven.
Accounting practice in the United States is no longer the studied art of financial facts that it once was, turning accountants into reluctant magicians and reluctant partners in a national fraud. The thick and glossy annual reports are now nothing more than a Potemkin village of false facades, masking the miserable and gloomy condition of once wholesome facts, reduced to the fraudulent mathematics of desperate times.
Liars can figure … and figures can lie. A nifty old saw that turns out to have some truth. However, it is neither ingenious nor old-fashioned when it comes to the modern deformity called accounting, where lying figures have turned the ancient practice of accounting for transactions into a full-contact sport.
A thousand fathoms deep beneath every financial headline that moves the earth, lies the practice of bookkeeping, a practice that bends and twists with every changing wind, continually poured from glass to glass in a willful attempt to appease every heinous whim. of the moment. A complex and mysterious alchemy for most, changes in accounting, important as they are, shake the foundations of the semantics of the profession, unbeknownst to an unconscious public that has come to depend on simple words at the expense of meanings. shifters below them.
The accounting profession builds on itself, and does so through a series of management boards that set the rules and change them from time to time. In the United States, that body is the Financial Accounting Standards Board, which is part of the Securities and Exchange Commission. However, the FASB is subject to pressure from Washington and, over time, has become a willing accomplice in the great game of pushing the beast forward, keeping the economy growing, regardless of the facts. . The FASB has been quietly changing accounting rules, allowing companies that report increasing margin in the way they report their numbers.
In the United States, there is a long history of mathematical changes to hide the results. John F Kennedy changed the unemployment reporting rules for himself when he legislated the removal of “discouraged workers” from the unemployment figures. By eliminating legions of decent people simply beaten down by their circumstances from view, Kennedy was able to provide his successors with a way to underestimate actual levels of unemployment, putting a much more optimistic picture of an investment in America than actually exists. . Current unemployment of around 9% masks the reality that not a generation earlier would that number be 14%, not a small rounding difference at all, where the decimal points are entire communities.
Lyndon Johnston had social security surpluses taken off the balance sheet and thrown into the general coffers to be wasted in Vietnam, and Richard Nixon removed food and fuel from core inflation figures on the cusp of his own economic implosion. . Core inflation. No food or fuel. Hey?
Unemployment, unfunded benefits, and inflation – all key figures that are critical to assessing the health of an economy, and all of them are bad data. And if there is something worse than not having data … it is false data. It turns out then that the economic data are malleable, and are shaped by the crisis of the moment, and the objectives of the administration of the time.
In our time, manipulating the numbers has become more insidious. Consider FASB Rule 157, Market Adjustment Accounting. Drawn from the guts of crushingly boring and dazzling ledger tomes, almost designed to avoid scrutiny for its inherent complexity, market accounting is a cornerstone of modern magical accounting.
When accountants are preparing the statements of a publicly traded corporation, the FASB sets the rules that govern how certain financial activities should be recorded. This ensures that all sets of returns for each corporation are the same in format and presentation, making it possible to compare bad apples to bad apples. Breaking these rules is fraud, both for the company and for the independent accounting firm that prepares the books. Enron may ring a bell.
FASB Rule 157 states that if a company carries an asset on its books, the value of that asset is what it will get on the open market. What is the value of your home? What someone will pay you for it. The asset is “marked” at “market” value. Sadly, this simple and obvious logic works against you if your assets are in the toxic class. Previously, such valuable banks could leverage their inflated assets 32 to 1, now so useless that there is no market, the mark to market is as impartial or impassive as any set of harsh realities.
Under the same pressure that the United States government itself could not resist, the FASB has surrendered to the balance sheets of the banking houses, agreeing to suspend the accounting at market price of their books. By suspending reality itself, troubled banks will now be able to inflate their toxic assets to levels where they are most attractive. Not forever, but until another branch of government can organize an effort to later buy those juicy assets, because now they have value, because they said so.
Other rules govern mark-to-market results in other parts of the financial statements. In particular, changes in the value of your assets should have the amount of the change recorded as income or loss in the income statement, well above the end where “net income” is. If you had a bunch of assets that suddenly became toxic overnight, let’s say, the billions that lost in value would have to be recorded as billions of dollars lost, and they would have a not insignificant effect on net income. of the company.
The new rules propose that companies no longer have to record that titanic sinking iceberg of a loss in the income statement, instead allowing it to simply melt into another account on the balance sheet called “other accumulated comprehensive income.” General Electric, before – 13 billion in net losses, after – 17 billion in net income. Magic. The market goes crazy, confidence is restored, everything is a complete sham. It’s the same as always.
Inquiring minds must ask themselves: what value are financial statements when they have continually degraded and what does net income mean when they can mean something? Inquiring minds are wondering even more: how much trouble are we in with this economic collapse, when even the numbers are twisted for the purposes of your best interests and beyond, and they still suck?
Our culture is addicted to the greatest. No better than any glue addict, ours is a society that outpaces growth at all costs. And any cost turns out to be a very large number. Trillions and trillions of dollars in invisible and missing wealth and toxic remnants is all we have for our habit. Our leaders, in their infinite wisdom, are consolidating billions and billions more, all in an attempt to return to the euphoria of drugged progress.
All the rules of nature were bent and broken on our steep climb up the curve, the fight so desperate that the numbers add up to nothing. We’re bending the rules even more, naked, blatantly, in an effort to build another false facade. We fight to rebuild a dream. Literally a dream.
The concept that we can play by one set of rules while we are ahead, and another set when we are behind, is insane. The banking houses spilled profits like blood from a severed artery because the market listing made short-term gambling incredibly risky and legal and lucrative. Mark to market is the same rule that took the monster’s life when the inevitable happened, and it all came back to earth. Changing the rules now is nothing more than an attempt to bring Frankenstein back to life.
Such a misleading mark on the market has been said to be a “game changer.” That would be an understatement of the kind that only accountants can offer. Drastically changing a fundamental prop in the accounting building would lead to chaos, rendering all data suspect and therefore useless. Only the most insightful statement readers would have the ability to dig for the truth, find the “Comprehensive Income” line (where they keep all the nasty shit and shenanigans), and take it all apart. Changing the brand to the market would make Net Income obsolete.
What the hell. The whole process is insane, the concept is amazing to start with. As we tie the rope around our necks, swallow pill bottles, and put a shotgun in our mouths, what does it hurt to stab ourselves in the back right now? We have long taken our lying eyes from our own heads.