|The Sudden Recession|
First of all there is the empirical result that followed the November 9, 2007 approval by the Bush43/Paulson SEC of mark to market accounting limited to the Private Sector, with government and the Fed retaining hold to maturity values, FASB 157. This lead to the sudden and systemic collapse retracting 2 years of economic expansion in every market in the single month of December 2007 and sudden start of the Bush Recession. As proprietary funds and oil interests speculation on oil prices from May 2007 @ $60/brl to November 2007 @ $95/brl, due to their anticipation of FASB 157’s release and elimination of the binding effect on predominant market pricing, banks suddenly had to adjust their affordability models, forcing them to book fictitious losses related to the changes in affordability of the 3 Private Sector risk weighted assets against their bank capital. This forced banks to withdraw credit from the Private Sector consumers, businesses and home and commercial real estate borrowers and dramatically shift such lending to unconditionally guaranteed government and Federal Reserve debt, which retained hold to maturity accounting valuations. This government coup resulted in a collapse in Private Sector capital formation and access to credit and the Fed’s quick and sharp reductions to 1% interest rate. Moreover, within a year of unbridled speculation, due to mark to market accounting’s elimination of predominant market pricing stability, by September 2008 over $14 Trillion in Private Sector equity was lost.
Empirical data 2 – FASB 157e temporary reprieve: Next we consider the empirical result of FASB 157e made under pressure from the Private Sector banks to Congress by FASB April 2, 2009, much to the consternation of Progressives in the Private Sector and government wanting to continue the systemic collapse of the Private Sector into government ownership and control of Private Sector capital, property, production and productivity. However, as the government still did not have a waiting vehicle to take over control of lending, i.e., the Dodd Frank Financial Reform Bill, FASB 157e gave a temporary reprieve on mark to market accounting that allowed banks to refinance loans and book them in hold to maturity status, until there would be FASB 157e Level 1, any sharp decline in asset pricing, such as a prevalence of revaluations of properties foreclosed at 65% their loan amount, where regulators force banks to revalue the principal of all mortgage assets on that basis, FASB 157e Level 2, any significant change in loan affordability relative to loan affordability models used in the refinancing of mortgages and loans that would slice into net disposable incomes of individuals and debt service coverage ratios of businesses, i.e., Progressive and foreign weapons against the US Private Sector, such as, sharp tax increased, higher cost and taxes related to Obamacare, another speculative energy price spike, as May 2007 to July 2008, Fed increase of interest rates (e.g., the sharp interest rate increases the Fed imposed in 1929 after Hoover forced mark to market accounting on the Private Sector), another 9/11 type of attack grounding airlines, business and vacation travel, business, where [FASB 157e Level 3] the combination of Level 1 and Level 2 revaluations forces banks and all leveraged financial entities to downdraft the losses against their capital, and radically shift all remaining lower 3 risk weighted Private Sector loans valued on a mark to market accounting basis to the government zero % risk weight valued on a hold to maturity accounting basis.
The Progressive proponents resulting irrefutable socio-political-economic outcome here is intended to achieve a blend of (a) increasingly widespread bank failure, (b) absorption of smaller banks into designated bigger “too big to fail financial institutions” to be covered under the new Dodd/Frank Financial Reform Bill hold to maturity valuations, as was also the intention of the AIG “bailout,” preserving assets in government’s hold to maturity valuation, thereby preventing the collapse of Trillions USD losses in credit default swap and Derivatives that would have resulted if valued under Private Sector mark to market valuations, and (c) the nationalization of banks.
Empirical data 3 – The FASB 157e Level 3 trigger: As mentioned further above, such collapse in bank capital adequacy ratios and bank liquidity resulting from the FASB 157e Level 3 trigger time bomb would cause all assets not covered under the government’s hold to maturity valuations to be priced based on the cash available in the capital markets at around 20% to 30% of their value on a hold to maturity accounting basis, as happened between December 2007 and September 2008, where unbridled speculation made possible by FASB 157’s elimination of predominant market pricing allowed unopposed oil price manipulation and unopposed short selling of both MBS and financial institutions, competing with Progressives’ interests, having to downdraft their asset values against their capital through the above mentioned FASB 157 devaluation Levels, while wiping out depositor’s protection afforded by the previous predominant market pricing security. The definable bottom was reached September 2008, when (i) Paulson and Bernanke obtained approval to have all assets of Fannie Mae and Freddie Mac wrapped by an unconditional guarantee of the government, allowing their values to be sustained under the government’s hold to maturity valuations, as otherwise Sovereign funds and bond funds around the world would have dumped them resulting in an unmitigated collapse, and (ii) CNBC proclaimed they exposed 5 million brls of horded oil, previously claimed as sold to China, that came on the market September 2008, proving that proprietary funds of Goldman Sachs (formerly Paulson and Rubin Chairmen), Citibank (former Treasury Secretary Rubin), JP Morgan/Chase (Rockefeller et al), Soros (all immediately unravelled after September 2008) and oil interests had manipulated and directly caused the systemic collapse. The anchor was immediately shut up by other anchors that ran in to prevent his enthusiastic exposure, which proved the quotes (i) from the new Gekko / Oliver Stone “Money Never Sleeps” quote that “The mother of all evils is speculation — leveraged debt” and (ii) BB&T’s former CEO John Allison (2009), “I think the news media unfortunately has been quite willing to jump on the criticism of capitalism and not the [government].”
Empirical data 4 – the April 2nd stock market rise: This date of April 2, 2009 FASB 157e produced the 2nd biggest percent gain in the stock market since the date FDR reinstated hold to maturity accounting in 1938, returning the regulatory basis for Capitalism to the Private Sector, ending 9 years Depression, that started with Hoover’s imposition in 1929 of mark to market accounting on the Private Sector that abruptly ended the Roaring 20s. FASB 157e allowed banks to refinance credits into a temporary hold to maturity accounting status that put speculation at bay, until there would be a significant change in value or model, i.e., affordability ratios. This allowed banks to write up loan loss reserves against bank capital, which bankers attest proves that there were no toxic assets and that the sole cause for the paper collapse was the imposition of FASB 157 November 9, 2007, having the sole purpose to achieve “Regime change” to the Progressive’s “New Normal.” The market subsided, when bankers and investors realized that this was only a reprieve and not a reinstatement of the regulatory basis of Capitalism, as it had been under FDR in 1938, the recorded one day biggest percent gain in the stock market.