Not so fast, Johnathan Weil: Citigroup & the fair value illusion

Johnathan Weil called on Citigroup today to “properly confess” the “rot on Citigroup’s $2.1 trillion balance sheet.”  Weil is sure the rot is there because if it weren’t Citigroup “wouldn’t have needed last week’s government rescue [including] a new $20 billion investment by the Treasury Department, plus a guarantee covering about $306 billion of the bank’s assets against most losses.” I beg to differ.

The “rot” may well be an illusion created by poorly-drafted accounting principles applied in draconian fashion by auditors spooked by the specter of ruinous lawsuits.  Citigroup’s request for government assistance may well be an appropriate strategic response to the illusion.  In the market place, a good illusion beats a bad reality most any day.

Weil assumes facts not in evidence and arguably misapplies SEC regulations in demanding the Citi book losses now.  Under SEC rules, Citigroup would be obligated to “confess” losses on Form 8-K only if Citi’s board concludes that a material charge for impairment is required under generally accepted accounting principles.  If the board either has concluded that such a charge is not required or has not yet concluded that one is, no Form 8-K confession is called for. Continue reading

New bailout draft: devil in the details

The bank bailout “Agreement on Principles” now circulating is, at best, a broad outline. It is easily foreseeable that a final agreement will yet fail over disagreements about detailed implementing language.

For example, the Agreement specifies that the “Treasury Secretary is prohibited from acting in an arbitrary or capricious manner or in any way that is inconsistent with existing law.” This statement is so broad that it could be used to nullify the entire deal since, as we all know, existing law does not allow the Treasury Secretary to do anything that this Agreement purports to allow him to do. Continue reading

Stressed over AIG & Lehman Brothers? Learn before you burn!

“Sue them, jail them, make them pay,” cries Ann Woolner. “I’d fire Chris Cox,” shouts John McCain. Floyd Norris chimes in, “Had the S.E.C. gone over the records of Lehman and Bear Stearns with the vigilance it now promises for the shorts, we might not be in this mess.” Steve Covey: “Seek first to understand.” Whoa! How’d Covey get in there?

Too many pundits and politicos over the past couple of days have rushed to condemn what they simply do not understand. Woolner’s piece offers a nice illustration: Continue reading

D.C. Circuit Court: McCain’s right, the President can “fire” the SEC Chairman

While I disagree with John McCain that Chris Cox should be “fired” over recent market turbulence, the D.C. Circuit Court of Appeal agrees with McCain that the SEC chair can be dismissed by the President of the United States.  An unattributed ABCNews blog is reporting otherwise on the authority of an unnamed source. Continue reading

McCain wrong to call for firing SEC chairman Cox

John McCain has lost his marbles or his principles. The guy who so courageously faced down public criticism of the Iraq War “surge” is now just another member of a pack irresponsibly yammering for some kind of vengeance against someone over the sub-prime mortgage and stock market mess.  Simply pathetic.  Reuters reports: Continue reading