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Strategies & Market Trends : Free Float Trading/ Portfolio Development/ Index Stategies

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From: dvdw©	11/13/2007 5:11:37 PM
	of 3821

Here is a post for pittsburgh; from Ahha that is important to any Thanksgiving discussion you might have. From: ahhaha 11/13/2007 2:34:31 PM of 10237 Big Bang: FASB 157 Preview, from Briefings On November 15th, FASB 157 will officially go into effect. FASB 157 establishes disclosure requirements that reveal to financial statement users how the fair value estimates were produced. The main contribution of Statement no. 157 is to put more pressure on companies and banks to value their assets based on stringent forecasts and estimates of fair value. A fair value measurement reflects current market participant assumptions about the future inflows associated with an asset (future economic benefits) and the future outflows associated with a liability (future sacrifices of economic benefits). Those differences are the source of most income (or loss) for companies. The central component of Statement no. 157 is its description of the "Fair Value Hierarchy", under which there are three levels. Level 1 is the preferred method as valuation efforts are quoted prices in active markets for identical assets or liabilities, with the caveat that the reporting entity must have access to that market (Mark to market); Level 2 involves less-active markets for identical assets and liabilities. This category is ranked lower because the market consensus about value may not be strong. Level 2 is used when there are not any quoted prices available but there are observable inputs. This is known as Mark to model; Level 3 describes inputs as "unobservable," and limits their use by saying they "shall be used to measure fair value to the extent that observable inputs are not available." This category allows "for situations in which there is little, if any, market activity for the asset or liability at the measurement date". It is at this level where questions have been raised with regards to banks keeping sub prime loans and activities buried in their financials. An area which is being sarcastically referred to as 'mark to make believe'. The general belief out in the markets is that the majority of troubled loans have been hidden in Level 3 areas on financial sheets and once this accounting rule is established it will cause banks to address the true value of some of these assets and very likely uncover more corrosion within the credit markets. According to a recent Royal Bank of Scotland report Morgan Stanley has 251% of its equity levels placed in Level 3 assets; Goldman 185%, Lehman 159%, Citigroup 105%, Merrill Lynch 38%. It is this size of exposure that has the markets worried. Royal Bank of Scotland estimates that these banks could account for $100 bln in write downs alone, and the credit crisis could see $250-500 bln in total write downs when all is said and done. Banks must adopt FAS 157 for purposes of the Reports of Condition and Income in the first fiscal quarter of their first fiscal year beginning after November 15, 2007. Thus, banks with a calendar year fiscal year must adopt FAS 157 as of January 1, 2008.

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