Friday, November 14, 2008

FAF Writes President Bush, G20; Treasury Refocuses TARP, More

In a letter posted on the Financial Accounting Standards Board (FASB) website today, Robert Denham, President of the board of Trustees of the Financial Accounting Foundation (FAF) (which oversees the FASB), sent a letter to U.S. President George W. Bush on Nov. 13, asking President Bush to share the letter with members of the G-20 attending the Summit on Financial Markets and the World Economy taking place today and tomorrow in Washington, DC.

Following are some of the points in the FAF letter to President Bush, G-20:

- We understand that current issues relating to international accounting standards will be discussed at this [G20] meeting as part of a comprehensive examination of the global financial crisis.
- The FAF believes that the complex task of setting accounting standards is best done by the experts who comprise the FASB and International Accounting Standards Board (IASB).
- We are very concerned about recent efforts in the United States and abroad that contemplate political solutions to perceived flaws in certain accounting standards.
- Political pressures have been brought to bear on the IASB to urgently review and revise its standards, particularly relating to ‘mark-to-market’ (fair value) accounting. The IASB has already departed from its normal due process to make one such revision in response to this pressure and is being asked by the European Commission to further review its standards for certain financial instruments and to complete its deliberations in time for year-end financial reporting.
- High-quality accounting standards are best achieved when the standard-setting process is independent and free of political influence.
- We believe that any legislative outcome that would permit accounting standards to be overturned through a political process will create uncertainty, greatly undermine investor confidence, and dangerously compromise the credibility of financial reporting at a time when the capital markets are under great duress and in need of greater transparency.
- We encourage the G-20 to support independent standard setting via a robust due process free from political interference. This support will do more to restore confidence in the capital markets than legislating accounting standards in a way that reduces the reliability and transparency of financial information presently available to investors.
- We previously reported that the International Accounting Standards Committee Foundation (IASCF) sent a letter to President Bush and the G-20. (See IASCF letter to President Bush, G-20.)

Here are some interesting articles in today’s papers about the G-20 meeting:
Nations to Talk Finance, as Pillars of Power Shift, by Mark Landler, NYT
France’s Finance Minister [Christine Lagarde] in a Critical Role at Global Economic Talks, by Nelson D. Schwartz and Katrin Bennhold, NYT
Bush Speaks in Defense of Markets, by Sheryl Gay Stolberg and Robert Pear, NYT.
That G-20 Show, Wall Street Journal Editorial

Treasury Refocuses TARP
Earlier this week, U.S. Treasury Secretary Henry Paulson provided an update on the state of the financial system and Treasury’s strategy for continued implementation of the Emergency Economic Stabilization Act of 2008 (EESA). Signed into law on Oct. 3, EESA provides $700 billion for various programs implemented and to be implemented by Treasury and the other regulatory agencies to help stabilize the economy, particularly the financial markets which have been roiled during the credit crisis. Actions taken so far have included injecting capital into banks through the Capital Purchase Program (CPP), and expanding the Fed’s Commercial Paper Funding Facility (CPFF).

Based on Paulson’s Nov. 12 remarks, Treasury has refocused TARP much more on capital injections, and has pretty much decided not to go the route originally envisioned, of purchasing troubled mortgage and other assets as originally described in this Sept. 20 Fact Sheet. Questions had previously been raised in Congressional hearings and elsewhere about how the proposed purchases of troubled assets would work, how the pricing mechanisms would be handled, and so forth, so as not to offer too low a price to be of any assistance to banks, and yet not offer too high a price to unduly disadvantage taxpayers, as noted in this post.

As noted in Treasury Redefines Rescue Program by Peter Whoriskey, David Cho and Binyamin Appelbaum in the Washington Post yesterday, some of the funds may be directed at loosening consumer credit by assisting providers of credit cards and auto loans. However, that does not necessarily mean direct funding for the auto industry, as noted in the article, Chances Dwindle on Bailout Plan for Automakers, by David Herszenhorn in today’s NYT.

Congressional hearings this week have honed in on the issue of the deployment of TARP or EESA funds so far, and have questioned the ability of the private sector to modify mortgages to stem the tide of foreclosures. Michael R. Crittenden reports on today’s House Oversight and Government Reform Committee, Subcommittee on Domestic Policy hearing in his article on this afternoon: Lawmakers Grill Kashkari on Changes in TARP Plan, and Louise Story wrote in her article, Lawmakers Debate Pitfalls of Loan Modification Nov. 13 in the NYT, about the House Financial Services Committee hearing which took place earlier this week, during which lawmakers heard varying views about how easy or difficult it was to modify securitized mortgages.

This just in: Zachary A. Goldfarb of the WashingtonPost reported this afternoon: Government to Speed Cash to Mortgage Giant After Massive Losses, noting: “The government is expected to inject $14 billion into Freddie Mac, the mortgage finance company under federal control, after it reported today that it lost $25 billion from July through September. “ He adds, “The numbers are astounding. The company's losses, when combined with those since the housing downturn started, eviscerate nearly all the company's earnings over the past decade.” See Freddie Mac’s Nov. 14 press release, and Fannie Mae’s Nov. 10 press release.

Separately, the President’s Working Group (PWG) on Financial Markets announced today PWG Initiatives to Strengthen OTC Derivatives Oversight and Infrastructure. In related news, the SEC announced: SEC Chairman Cox Statement on MOU With Federal Reserve, CFTC to Address Credit Default Swaps.

The SEC also confirmed today that the second of its two mark to market roundtables will take place on Nov. 21 (see our earlier report on SEC's Oct. 29 roundtable).

Hoogervorst, Goldschmid Tapped to Lead High Level Global Advisory Group
Separately, the Financial Accounting Standards Board and the International Accounting Standards Board announced on November 14 that Hans Hoogervorst and Harvey Goldschmid have agreed to co-chair the FASB-IASB Advisory Group formed to consider financial reporting issues arising from the global economic crisis.

Hoogervorst is Chairman of the Netherlands Authority for the Financial Markets (AFM), is Vice-Chairman of the Technical Committee of the International Organization of Securities Commissions (IOSCO) and is a former Minister of Finance in the Netherlands.

Goldschmid is a former commissioner of the U.S. Securities and Exchange Commission, is a member of the governing board of the Center for Audit Quality (CAQ), affiliated with the AICPA, is a senior counsel at Weil, Gotshal and Manges, and teaches law at Columbia University.

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