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Wall Street: Moving Business or Storage Business?

Posted by Larry Doyle on March 29, 2009 11:39 AM |

A standing joke on Wall Street trading desks was a question posed by sales management to trading management.

Sales Manager, looking to sell products and generate commissions, would ask Trading Manager, looking to manage risk and maximize profits or minimize losses, “Are we here at Bank (fill in the blank) in the “moving” business or “storage” business?” Meaning, would the trading desk be competitive in pricing so as to allow the sales desk an opportunity to sell product (stocks, bonds, loans, et al).

This very question is at the heart of a rapidly developing conflict in the PPIP (Public-Private Investment Program) and an expectation of relaxing the FASB’s (Federal Accounting Standard Board) mark to market. If in fact the mark to market is relaxed, allowing banks to leave a wide array of assets on their books at valuations higher than currently reflected in the market, then these banks will be much more in the “storage business.” Why would the bank look to sell an asset at a lower price than an accounting rule allows it to hold on its books?

But I thought the purpose of developing the PPIP and all its components was to promote a system in which banks would sell toxic assets off their books. In so doing, these banks would be in the “moving business.” The hope with PPIP is that in moving assets, the banks will then be free to extend a greater degree of credit to consumers and corporations.

Who developed the PPIP? Uncle Sam. Who is pressuring FASB to relax the mark to market? The banks and Uncle Sam.

Does the right hand know what the left hand is doing? Or are the banks, with the assistance of Uncle Sam and FASB, running roughshod over taxpayers and investors?

LD

  • fiscalliberal

    Larry – as I understand it, the banks want to mark to model or some sort of basis based on revenue viability of the asset. So for example,if the asset is still producing at a 80% level, they would take the losses on 20%. Some how that helps them on the capital reserves, although I do not know that world very well.

    However if they put it up for sale, they have to put it to market which is nonexistent now. It’s kind of like us owning our house. It is worth less now, but I am not selling.

    I think they wast to remove the toxic assets as the assets are continuing to go down, especially real estate, commercial, credit cards etc.

    So -I am definitely not in favor of the new Geitner Plan re toxic assets, it would be my hope they would fail and we can get back to enabling smaller solvent banks to take over. IE, pull back TARP money and make it available to the smaller banks as they need it. They need to pass the resolution legislation. Then if the banks or people doing credit default swaps fail, Sheila can take them over and we can get on with it.

    However – if you have any insight as to why a bank does not want to hold a toxic asset and how that affects capital reserves, it would be helpfull to our understanding. Possibly you could discuss this more tonight

  • Larry Doyle

    Fiscal…

    I think you may find this piece of interest if you have not already seen it.

    Accounting Brothel Opens Doors for Banker Fiesta

    The relaxation of the mark to market will largely be at the discretion of the banks and bankers.

    Will discuss tonight.






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